Golub Capital BDC, Inc. Announces Merger Agreement With Golub Capital BDC 3, Inc.

Golub Capital BDC, Inc. (“GBDC,” or the “Company”), a business development company (Nasdaq: GBDC), announced today that it entered into a definitive merger agreement with Golub Capital BDC 3, Inc. (“GBDC 3”), with GBDC as the surviving company, subject to certain stockholder approvals and customary closing conditions. Following the merger, GBDC is expected to have $8.5 billion of total assets at fair value and investments in over 340 portfolio companies, on a pro forma basis as of September 30, 2023. The Boards of Directors of both GBDC and GBDC 3 have approved the transaction with the participation throughout by, and the unanimous support of, their respective independent directors.

Under the terms of the proposed merger, stockholders of GBDC 3 will receive newly issued shares of GBDC based on a ratio determined shortly before merger close (the “Exchange Ratio”). GBDC 3 stockholders will receive GBDC shares based on a ratio that is the greater of: (a) a NAV-for-NAV exchange of shares with GBDC; or (b) if GBDC shares are trading at a premium to NAV at the closing of the merger, a number of shares of GBDC equal in value to GBDC 3’s NAV per share, plus a premium of up to 50% of any premium to NAV in the trading price of GBDC shares at merger close, with a maximum premium equal to 3% of GBDC 3’s NAV per share. The process for determining the Exchange Ratio is described more fully in the section below under the title “Exchange Ratio.”

GBDC believes the proposed merger with GBDC 3 is compelling for GBDC stockholders for several reasons:

• Increased scale and liquidity. The proposed merger will increase GBDC’s scale meaningfully, with its investment portfolio at fair value expected to increase from approximately $5.5 billion to approximately $8.1 billion, on a pro forma basis as of September 30, 2023. The increased market capitalization of GBDC following the merger is anticipated to provide greater trading liquidity and the potential for greater institutional ownership than GBDC as a stand-alone company. The transaction also is expected to deliver operational synergies by eliminating redundant expenses.
• Consistent investment strategy. The combined portfolio is expected to be substantially similar to GBDC’s current portfolio, as over 99% of GBDC 3’s investments overlap with those of GBDC.¹ Post-closing, GBDC expects to continue the same investment strategy it has followed since its IPO in 2010: focusing on first lien senior secured and one-stop loans to U.S. middle market companies in resilient industries that are often owned by private equity firms. Credit quality is expected to remain strong and to improve on a pro forma basis as of September 30, 2023: 1) non-accruals as a percentage of GBDC’s total debt investments at fair value are expected to decrease to 0.9% from 1.2%; and, 2) the combined company would expect to see modest improvement in internal performance ratings.
• Improved fee structure. In support of the proposed merger, GBDC’s investment adviser, GC Advisors LLC (“GC Advisors”), has agreed to reduce the income incentive fee and capital gain incentive fee rate from 20.0% to 15.0%. The reduction in incentive fee will become permanent upon merger close and will be effective as of January 1, 2024 as GC Advisors has agreed to unilaterally waive incentive fees above 15.0% for periods during the pendency of the merger. GBDC’s cumulative incentive fee cap, since-inception lookback period and income incentive fee hurdle rate of 8% per annum will all remain in place.
• Expected wider access to long-term, low-cost, flexible debt capital. The combined company is expected to be able to access a wider array of debt funding solutions than GBDC as a stand-alone company, and potentially to receive more attractive terms as a result of the combined company’s increased scale, including potentially in the investment grade unsecured debt market.

The transaction is expected to be immediately accretive to GBDC’s net investment income per share. This accretion is expected to be driven by the combined company’s lower incentive fees and lower combined operating expenses.