A Quality-Driven Upgrade On Golub Capital BDC

• Golub Capital BDC Inc GBDC shares are down 8 percent year-to-date, despite having gained 3 percent over the past month.
• Cantor Fitzgerald’s David J. Chiaverini upgraded the rating for the company from Hold to Buy, while raising the price target from $18 to $18.50.
• The upgrade in rating reflects the company’s limited oil and gas exposure and solid fundamentals, Chiaverini mentioned.

Analyst David Chiaverini said that Golub Capital had merely 0.1 percent oil and gas exposure, terming this as being “ultra-low,” given that the peer group average is 5.9 percent.

Chiaverini added that Golub Capital has a shareholder-friendly fee structure and that its small business investment company, or SBIC, licenses and senior loan fund, or SLF, generate higher IRRs than the company’s core BDC operations. Golub Capital’s use of securitizations to fund balance sheet investments is “an efficient, low-cost, match-funded source of capital,” the analyst wrote.

In the report Cantor Fitzgerald noted, “Golub has historically delivered good credit quality, and its current nonperforming loan ratio stands at 0.2% on a fair value basis and 0.5% on a cost basis, which are better than peers’ at 0.3% and 1.0%, respectively.’

Chiaverini expects Golub Capital to continue to achieve a strong credit performance, against the backdrop of an expanding economy, and believes that the company would be able to sustain its dividend at least through 2016.