fengdr/iStock via Getty Images Business development companies have been buffeted by headwinds over the last six months. Golub Capital BDC ( GBDC ) has not been immune to these headwinds but has fared better than many of its peers. Investment Thesis and Recommendation In my February note on Golub Capital BDC, I rated Golub a HOLD, stating the following: Bottom Line: HOLD. For people considering ent...
fengdr/iStock via Getty Images Business development companies have been buffeted by headwinds over the last six months. Golub Capital BDC ( GBDC ) has not been immune to these headwinds but has fared better than many of its peers. Investment Thesis and Recommendation In my February note on Golub Capital BDC, I rated Golub a HOLD, stating the following: Bottom Line: HOLD. For people considering entering the name, I would emphasize patience. If you have to scratch the itch, leg into the position and don't take your full size immediately. Sometimes doing nothing is the hardest trade. Why not a SELL? Fundamentally, the company has been doing well, and much of this is part of the cycle (not the AI menacing the software sector, that is NOT cyclical, and Golub has 27% of the portfolio exposed to software). Ultimately, I believe that Golub Capital will perform in-line or better than the sector, but the sector is under pressure. Now that we have a full quarter of information (and the requisite releases and filings), has that recommendation changed? The short answer is no. Let me explain why. While Golub has done a good job navigating the change in the cycle and the change in public opinion, we are seeing the cycle catch up with the company and seeing a deterioration in the portfolio on a number of metrics. Investors must understand that this is being felt across many BDCs, and Golub is obviously not immune. That said, if performance continues to deteriorate more than the peer group (relatively), I could flip to a SELL rating. Data by YCharts Portfolio Quality Portfolio quality deteriorated during the most recent quarter (Q2 FY26). While not completely unexpected, the results were somewhat worse than I would have thought. Nonaccrual loans jumped from 80 basis points to 1.4 percent on a fair value basis (+60bps) and increased 100bps on a cost basis (to 2.3%). Author/SEC Filings At the same time, we saw grade 5 (highest rated) fall and grade 2 (materially increased risk) increa...