Golub Capital Direct Lending Corp.
12/04/2025 | Press release | Distributed by Public on 12/04/2025 16:00
Annual Report for Fiscal Year Ending September 30, 2025 (Form 10-K)
Management's Discussion and Analysis of Financial Condition and Results of Operations.
The information contained in this section should be read in conjunction with our consolidated financial statements and related notes thereto appearing elsewhere in this Annual Report on Form 10-K. In this report, "we," "us," "our" and "GDLC" refer to Golub Capital Direct Lending Corporation and its consolidated subsidiaries.
Forward-Looking Statements
Some of the statements in this Annual Report on Form 10-K constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained in this Annual Report on Form 10-K involve risks and uncertainties, including statements as to:
•our future operating results;
•our business prospects and the prospects of our portfolio companies, including our and their ability to achieve our respective objectives due to disruptions, including, without limitation. those caused by global health pandemics, or other large scale events;
•the effect of investments that we expect to make and the competition for those investments;
•our contractual arrangements and relationships with third parties;
•completion of a liquidity event;
•actual and potential conflicts of interest with GC Advisors and other affiliates of Golub Capital;
•the dependence of our future success on the general economy and its effect on the industries in which we invest;
•the ability of our portfolio companies to achieve their objectives;
•the use of borrowed money to finance a portion of our investments;
•the adequacy of our financing sources and working capital;
•the timing of cash flows, if any, from the operations of our portfolio companies;
•general economic and political trends and other external factors;
•changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets that could result in changes to the value of our assets;
•elevated levels of inflation, and its impact on us, on our portfolio companies and on the industries in which we invest;
•the ability of GC Advisors to locate suitable investments for us and to monitor and administer our investments;
•the ability of GC Advisors or its affiliates to attract and retain highly talented professionals;
•the ability of GC Advisors to continue to effectively manage our business due to disruptions, including those caused by global health pandemics, or other large scale events;
•turmoil in Ukraine, Russia and the Middle East, including sanctions related to such turmoil, and the potential for volatility in energy prices and other supply chain issues and any impact on the industries in which we invest;
•our ability to qualify and maintain our qualification as a RIC and as a business development company;
•the impact of information technology systems and systems failures, including data security breaches, data privacy compliance, network disruptions and cybersecurity attacks;
•general price and volume fluctuations in the stock markets;
•the impact on our business of Dodd-Frank and the rules and regulations issued thereunder and any actions toward repeal thereof; and
•the effect of changes to tax legislation and our tax position.
Such forward-looking statements may include statements preceded by, followed by or that otherwise include the words "may," "might," "will," "intend," "should," "could," "can," "would," "expect," "believe," "estimate," "anticipate," "predict," "potential," "plan" or similar words. The forward-looking statements contained in this
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Annual Report on Form 10-K involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the factors set forth as "Risk Factors" in this Annual Report on Form 10-K.
We have based the forward-looking statements included in this report on information available to us on the date of this report. Actual results could differ materially from those anticipated in our forward-looking statements and future results could differ materially from historical performance. You are advised to consult any additional disclosures that we make directly to you or through reports that we have filed or in the future file with the SEC including Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. This Annual Report on Form 10-K contains statistics and other data that have been obtained from or compiled from information made available by third-party service providers. We have not independently verified such statistics or data.
Overview
We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a business development company under the 1940 Act. In addition, for U.S. federal income tax purposes, we have elected to be treated as a RIC under Subchapter M of the Code. As a business development company and a RIC, we are also subject to certain constraints, including limitations imposed by the 1940 Act and the Code. We were formed in September 2020 as a Delaware limited liability company and converted to a Maryland corporation effective July 1, 2021.
Our investment objective is to generate current income and capital appreciation by investing primarily in one stop (a loan that combines characteristics of traditional first lien senior secured loans and second lien or subordinated loans and that are often referred to by other middle-market lenders as unitranche loans) and other senior secured loans of U.S. middle-market companies. We also selectively invest in second lien and subordinated loans of, and warrants and minority equity securities in U.S. middle-market companies. We intend to achieve our investment objective by (1) accessing the established loan origination channels developed by Golub Capital, a leading lender to U.S. middle-market companies with over $85.0 billionin capital under management(1)as of October 1, 2025, (2) selecting investments within our core middle-market company focus, (3) partnering with experienced private equity firms, or sponsors, in many cases with whom Golub Capital has invested alongside in the past, (4) implementing the disciplined underwriting standards of Golub Capital and (5) drawing upon the aggregate experience and resources of Golub Capital.
Our investment activities are managed by GC Advisors and supervised by our board of directors of which a majority of the members are independent of us, GC Advisors and its affiliates.
Under the Investment Advisory Agreement, we have agreed to pay GC Advisors an annual base management fee based on our average adjusted gross assets as well as an incentive fee based on our investment performance. The Investment Advisory Agreement was most recently approved by our board of directors in May 2025. Under an administrative agreement, or the Administration Agreement, we are provided with certain administrative services by the Administrator, which is currently Golub Capital LLC. Under the Administration Agreement, we have agreed to reimburse the Administrator for our allocable portion (subject to the review and approval of our independent directors) of overhead and other expenses incurred by the Administrator in performing its obligations under the Administration Agreement.
We seek to create a portfolio that includes primarily one stop and other senior secured loans by primarily investing approximately $5.0 million to $30.0 million of capital, on average, in the securities of U.S. middle-market companies. We also selectively invest more than $30.0 million in some of our portfolio companies and generally expect that the size of our individual investments will vary proportionately with the size of our capital base.
We generally invest in securities that have been rated below investment grade by independent rating agencies or that would be rated below investment grade if they were rated. These securities, which are often referred to as "junk," have predominantly speculative characteristics with respect to the issuer's capacity to pay interest and repay principal. In addition, many of our debt investments have floating interest rates that reset on a periodic basis and typically do not fully pay down principal prior to maturity, which could increase our risk of losing part or all of our investment.
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As of September 30, 2025 and 2024, our portfolio at fair value was comprised of the following:
|
As of September 30, 2025
|
As of September 30, 2024
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| Investment Type |
Investments at
Fair Value
(In thousands)
|
Percentage of Total Investments |
Investments at
Fair Value
(In thousands)
|
Percentage of Total Investments |
||||||||||||||||||||||
| Senior secured | $ | 44,960 | 5.3 | % | $ | 42,954 | 6.2 | % | ||||||||||||||||||
| One stop | 770,221 | 91.1 | 629,153 | 91.2 | ||||||||||||||||||||||
| Second lien | 6,829 | 0.8 | 1,547 | 0.2 | ||||||||||||||||||||||
| Subordinated debt | 1,209 | 0.1 | 467 | 0.1 | ||||||||||||||||||||||
| Equity | 22,602 | 2.7 | 15,825 | 2.3 | ||||||||||||||||||||||
| Total | $ | 845,821 | 100.0 | % | $ | 689,946 | 100.0 | % | ||||||||||||||||||
(1)"Capital under management" is a gross measure of invested capital including leverage as of October 1, 2025.
One stop loans include loans to technology companies undergoing strong growth due to new services, increased adoption and/or entry into new markets. We refer to loans to these companies as recurring revenue loans. Other targeted characteristics of recurring revenue businesses include strong customer revenue retention rates, a diversified customer base and backing from growth equity or venture capital firms. In some cases, the borrower's high revenue growth is supported by a high level of discretionary spending. As part of the underwriting of such loans and consistent with industry practice, we adjust our characterization of the earnings of such borrowers for a reduction or elimination of such discretionary expenses, if appropriate. As of September 30, 2025 and 2024, one stop loans included $82.7 million and $116.3 million, respectively, of recurring revenue loans at fair value.
As of September 30, 2025 and 2024, we had debt and equity investments in 277 and 217 portfolio companies, respectively.
The following table shows the weighted average income yield and weighted average investment income yield of both our earning and total portfolio company investments, as well as the total return based on our average net asset value and our net investment income - return on equity, in each case, for the years ended September 30, 2025 and 2024:
| Year ended | |||||||||||
| September 30, 2025 | September 30, 2024 | ||||||||||
|
Weighted average income yield(1)
|
10.3% | 12.0% | |||||||||
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Weighted average investment income yield(2)
|
10.7% | 12.4% | |||||||||
|
Weighted average income yield of total investments(3)
|
10.2% | 11.9% | |||||||||
|
Weighted average investment income yield of total investments(4)
|
10.6% | 12.2% | |||||||||
|
Total return based on average net asset value(5)
|
9.0% | 12.9% | |||||||||
|
Net investment income - return on equity(6)
|
9.1% | 11.0% | |||||||||
(1)Represents income from interest, fees, interest earned on cash, accrued PIK and non-cash dividend income, excluding amortization of capitalized fees and discounts, divided by the daily average fair value of earning portfolio company investments, and does not represent a return to any investor in us.
(2)Represents income from interest, fees, interest earned on cash, accrued PIK and non-cash dividend income and amortization of capitalized fees and discounts, divided by the daily average fair value of earning portfolio company investments, and does not represent a return to any investor in us.
(3)Represents income from interest, fees, interest earned on cash, accrued PIK and non-cash dividend income, excluding amortization of capitalized fees and discounts, divided by the daily average total fair value of portfolio company investments, and does not represent a return to any investor in us.
(4)Represents income from interest, fees, interest earned on cash, accrued PIK and non-cash dividend income and amortization of capitalized fees and discounts, divided by the daily average total fair value of portfolio investments, and does not represent a return to any investor in us.
(5)Total return based on average net asset value is calculated as (a) the net increase (decrease) in net assets resulting from operations divided by (b) the daily average of total net assets. Total return does not include sales load.
(6)Net investment income - return on equity is calculated as (a) net investment income after excise tax divided by (b) the daily average of total net assets.
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As of September 30, 2025, GDLC has earned an inception-to-date internal rate of return, or IRR, of 10.8% for stockholders taken as a whole. An individual stockholder's IRR could vary based on the timing of their capital transactions. For the years ended September 30, 2025 and 2024, GDLC earned a fiscal year-to-date IRR of 9.3% and 14.9%, respectively, for stockholders taken as a whole. The IRR is the annualized effective compound rate of return that brings a series of cash flows to the current value of the cash invested. The IRR was computed based on the actual dates of cash inflows (share issuances, including share issuances through the dividend reinvestment plan ("DRIP"), outflows (capital distributions), the stockholders' net asset value, or NAV, at the end of the period and distributions declared and payable at the end of the period (residual value of the stockholders' NAV and distributions payable as of each measurement date).
Revenues:We generate revenue in the form of interest and fee income on debt investments and capital gains and distributions, if any, on portfolio company investments that we originate or acquire. Our debt investments, whether in the form of senior secured, one stop, second lien or subordinated loans, typically have a term of three to seven years and bear interest at a fixed or floating rate. In some instances, we receive payments on our debt investments based on scheduled amortization of the outstanding balances. In addition, we receive repayments of some of our debt investments prior to their scheduled maturity date. The frequency or volume of these repayments fluctuates significantly from period to period. Our portfolio activity also reflects the proceeds of sales of securities. In some cases, our investments provide for deferred interest payments or PIK interest. The principal amount of loans and any accrued but unpaid interest generally become due at the maturity date. In addition, we generate revenue in the form of commitment, origination, amendment, structuring or due diligence fees, fees for providing managerial assistance, administrative agent fees and consulting fees. Loan origination fees, original issue discount and market discount or premium are capitalized, and we accrete or amortize such amounts as interest income. We record prepayment premiums on loans as fee income. For additional details on revenues, see "Critical Accounting Policies - Revenue Recognition."
We recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the amortized cost basis of the investment or derivative instrument, without regard to unrealized gains or losses previously recognized. We record current period changes in fair value of investments and derivative instruments that are measured at fair value as a component of the net change in unrealized appreciation (depreciation) on investment transactions in the Consolidated Statements of Operations.
Expenses:Our primary operating expenses include the payment of fees to GC Advisors under the Investment Advisory Agreement and interest expense on our outstanding debt. We bear all other out-of-pocket costs and expenses of our operations and transactions including:
•reimbursement to GC Advisors of organizational and offering expenses up to an aggregate amount of $0.7 million;
•calculating our NAV (including the cost and expenses of any independent valuation firm);
•fees and expenses incurred by GC Advisors payable to third parties, including agents, consultants or other advisors, in monitoring financial and legal affairs for us and in monitoring our investments and performing due diligence on our prospective portfolio companies or otherwise relating to, or associated with, evaluating and making investments, which fees and expenses include, among other items, due diligence reports, appraisal reports, any studies commissioned by GC Advisors and travel and lodging expenses, except reimbursement amounts waived by GC Advisors;
•expenses related to unsuccessful portfolio acquisition efforts;
•administration fees and expenses, if any, payable under the Administration Agreement (including payments based upon our allocable portion of the Administrator's overhead in performing its obligations under the Administration Agreement, including rent and the allocable portion of the cost of our chief compliance officer, chief financial officer and their respective staffs);
•fees payable to third parties, including agents, consultants or other advisors, relating to, or associated with, evaluating and making investments in portfolio companies, including costs associated with meeting financial sponsors;
•transfer agent, dividend agent and custodial fees and expenses;
•U.S. federal and state registration and franchise fees;
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•U.S. federal, state and local taxes;
•independent directors' fees and expenses;
•costs of preparing and filing reports or other documents required by the SEC or other regulators;
•costs of any reports, proxy statements or other notices to stockholders, including printing costs;
•costs associated with individual or group stockholders;
•costs associated with compliance under the Sarbanes-Oxley Act;
•our allocable portion of any fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums;
•direct costs and expenses of administration, including printing, mailing, long distance telephone, copying, secretarial and other staff, independent auditors and outside legal costs;
•proxy voting expenses; and
•all other expenses incurred by us or the Administrator in connection with administering our business.
We expect our general and administrative expenses to be relatively stable or decline as a percentage of total assets during periods of asset growth and to increase during periods of asset declines.
We believe that these administrative expenses approximate the amount of ongoing fees and expenses that we would be required to pay in connection with a traditional secured credit facility. Our common stockholders indirectly bear all of these expenses.
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Recent Developments
On November 20, 2025, we issued 1,618.760 shares through the DRIP.
On November 26, 2025, we entered into an amendment to the DB Credit Facility (as defined in Note 7 of our consolidated financial statements) to among other things, (i) decrease the applicable margin to 1.60% from 2.10% per annum during the DB Credit Facility Revolving Period, (ii) extend the Revolving Period from May 14, 2027 to November 14, 2027 and (iii) extend the maturity date to November 14, 2030, three years from the last day of the DB Credit Facility Revolving Period. The other material terms of the DB Credit Facility were unchanged.
On August 1, 2025 and November 14, 2025, our board of directors declared distributions to holders of record as set forth in the table below:
| Record Date | Payment Date | Amount Per Share | ||||||||||||
| October 15, 2025 | December 17, 2025 |
In an amount (if positive) such that our net asset value as of October 31, 2025 on a pro forma basis after giving effect to the net increase in net assets resulting from operations earned by us (if positive) as determined in accordance with generally accepted accounting principles in the United States of America, or GAAP, for the period October 1, 2025 through October 31, 2025 and the payment of this distribution is $15.00 per share.
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| November 14, 2025 | January 21, 2026 |
In an amount (if positive) such that our net asset value as of November 30, 2025 on a pro forma basis after giving effect to the net increase in net assets resulting from operations earned by us (if positive) as determined in accordance with GAAP for the period November 1, 2025 through November 30, 2025 and the payment of this distribution is $15.00 per share.
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| December 12, 2025 | February 18, 2026 |
In an amount (if positive) such that our net asset value as of December 31, 2025 on a pro forma basis after giving effect to the net increase in net assets resulting from operations earned by us (if positive) as determined in accordance with GAAP for the period December 1, 2025 through December 31, 2025 and the payment of this distribution is $15.00 per share.
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| January 16, 2026 | March 18, 2026 |
In an amount (if positive) such that our net asset value as of January 31, 2026 on a pro forma basis after giving effect to the net increase in net assets resulting from operations earned by us (if positive) as determined in accordance with GAAP for the period January 1, 2026 through January 31, 2026 and the payment of this distribution is $15.00 per share.
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Consolidated Results of Operations
The comparison of the fiscal years ended September 30, 2024 and 2023 can be found in our Form 10-K for the fiscal year ended September 30, 2024 located within Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Consolidated operating results for the years ended September 30, 2025 and 2024 are as follows:
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Year ended
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Variances | ||||||||||||||||
| September 30, 2025 | September 30, 2024 |
2025 vs. 2024
|
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| (In thousands) | |||||||||||||||||
| Interest income | $ | 72,967 | $ | 57,067 | $ | 15,900 | |||||||||||
| Payment-in-kind interest income | 4,523 | 4,565 | (42) | ||||||||||||||
| Discount Amortization | 3,048 | 1,993 | 1,055 | ||||||||||||||
| Non-cash dividend income | 1,366 | 1,171 | 195 | ||||||||||||||
| Dividend income | 153 | - | 153 | ||||||||||||||
| Fee income | 567 | 264 | 303 | ||||||||||||||
| Total investment income | 82,624 | 65,060 | 17,564 | ||||||||||||||
| Net expenses | 36,365 | 26,993 | 9,372 | ||||||||||||||
| Net investment income - before tax | 46,259 | 38,067 | 8,192 | ||||||||||||||
| Excise tax | - | 91 | (91) | ||||||||||||||
| Net investment income - after tax | 46,259 | 37,976 | 8,283 | ||||||||||||||
| Net realized gain (loss) on investment transactions | (2,909) | 743 | (3,652) | ||||||||||||||
| Net change in unrealized appreciation (depreciation) on investment transactions | 2,802 | 5,834 | (3,032) | ||||||||||||||
| Net gain (loss) on investment transactions | (107) | 44,553 | (44,660) | ||||||||||||||
| Net realized gain (loss) on extinguishment of debt | (432) | - | (432) | ||||||||||||||
| Net increase (decrease) in net assets resulting from operations | $ | 45,720 | $ | 44,553 | $ | 1,167 | |||||||||||
| Average earning debt investments, at fair value | $ | 761,034 | $ | 515,863 | $ | 245,171 | |||||||||||
| Average earning preferred equity investments, at fair value | $ | 9,980 | $ | 8,359 | $ | 1,621 | |||||||||||
Net income can vary substantially from period to period for various reasons, including the recognition of realized gains and losses and unrealized appreciation and depreciation. In addition, as we have continued to raise and deploy capital, we have experienced significant growth in total assets, total liabilities and net assets. As a result, quarterly and year-to-date comparisons of operating results may not be meaningful.
Investment Income
Investment income increased from the year ended September 30, 2024 to the year ended September 30, 2025 by $17.6 million, primarily due to (i) an increase in interest income due to an increase in the average earning debt investments balance of $245.2 million and (ii) an increase in discount amortization acceleration and prepayment fee income driven by increased repayments that was partially offset by declining interest base rates.
The income yield by debt security type for the years ended September 30, 2025 and 2024 are as follows:
| Year ended | |||||||||||
| September 30, 2025 | September 30, 2024 | ||||||||||
| Senior secured | 9.8% | 11.3% | |||||||||
| One stop | 10.2% | 11.9% | |||||||||
| Second lien | 13.3% | 14.4% | |||||||||
| Subordinated debt | 11.9% | 13.3% | |||||||||
Income yields on senior secured and one stop loans decreased for the year ended September 30, 2025 as compared to the year ended September 30, 2024, primarily due to declining interest base rates. Our loan portfolio is partially insulated from a drop in floating interest rates as 96.9% of our loan portfolio at fair value is subject to an interest rate floor. As of September 30, 2025 and 2024, the weighted average base rate floor of our loans was 0.73% and 0.75%, respectively.
As of September 30, 2025, we have second lien investments in three portfolio companies and subordinated debt investments in seven portfolio companies as shown in the Consolidated Schedule of Investments. Due to the limited number of second lien and subordinated debt investments, income yields on second lien and subordinated debt investments can be significantly impacted by the addition, subtraction or refinancing of one investment.
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For additional details on investment yields and asset mix, refer to the "Liquidity and Capital Resources- Portfolio Composition, Investment Activity and Yield"section below.
Expenses
The following table summarizes our expenses for the years ended September 30, 2025 and 2024:
| Year ended | Variances | ||||||||||||||||
| September 30, 2025 | September 30, 2024 |
2025 vs. 2024
|
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| (In thousands) | |||||||||||||||||
| Interest and facility fee expenses | $ | 19,811 | $ | 15,571 | $ | 4,240 | |||||||||||
| Amortization of debt issuance costs | 1,200 | 915 | 285 | ||||||||||||||
| Base management fee, net of waiver | 7,894 | 4,155 | 3,739 | ||||||||||||||
| Income incentive fee | 5,131 | 4,262 | 869 | ||||||||||||||
| Capital gain incentive fee accrued (reversal) under GAAP | (83) | 389 | (472) | ||||||||||||||
| Professional fees | 1,123 | 728 | 395 | ||||||||||||||
| Administrative service fee | 1,063 | 680 | 383 | ||||||||||||||
| General and administrative expenses | 226 | 293 | (67) | ||||||||||||||
| Net expenses | $ | 36,365 | $ | 26,993 | $ | 9,372 | |||||||||||
| Average debt outstanding | $ | 290,996 | $ | 195,699 | $ | 95,297 | |||||||||||
Interest Expense
Interest and other debt financing expenses, including amortization of debt issuance costs, increased by $4.5 million from the year ended September 30, 2024 to the year ended September 30, 2025, primarily due to an increase in average debt outstanding of $95.3 million that was partially offset by decreasing interest base rates on borrowings from our floating rate debt facilities. For more information about our outstanding borrowings for the years ended September 30, 2025 and 2024, including the terms thereof, see Note 7 in the notes to our consolidated financial statements and the "Liquidity and Capital Resources" section below.
For the years ended September 30, 2025 and 2024, the effective average interest rate, which includes amortization of debt financing costs and non-usage facility fees, on our total debt was 7.2% and 8.4%, respectively.
The effective average interest rate decreased from the year ended September 30, 2024 to the year ended September 30, 2025 primarily due to declining interest base rates on our borrowings from our floating rate debt facilities and, to a lesser extent, the termination of our PNC Facility during the three months ended December 31, 2024.
Management Fees
The base management fee, net of waiver, increased for the year ended September 30, 2024 to the year ended September 30, 2025 primarily due to (i) an increase in average gross assets and (ii) certain waivers for the base management fee for certain periods following the initial closing date for the private placement of shares for our common stock where GC Advisors agreed to waive 33.3% of the base management fee for the period from July 1, 2023 through June 30, 2024.
Incentive Fees
The incentive fee payable under the Investment Advisory Agreement consists of two parts: (1) the income component, or the Income Incentive Fee, and (2) the capital gains component, or the Capital Gain Incentive Fee.
The Income Incentive Fee increased by $0.9 million from the year ended September 30, 2024 to the year ended September 30, 2025, primarily as a result of an increase in Pre-Incentive Fee Net Investment Income (as defined in Note 4 to our consolidated financial statements) and a greater rate of return on the value of our net assets driven primarily by net funds growth.
The Income Incentive Fee as a percentage of Pre-Incentive Fee Net Investment Income was 10.0% for each of the years ended September 30, 2025 and 2024.
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As of September 30, 2025 and 2024, there was no Capital Gain Incentive Fee payable as calculated under the Investment Advisory Agreement. In accordance with GAAP, we are required to include the aggregate unrealized capital appreciation on investments in the calculation and accrue a capital gain incentive fee as if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the Capital Gain Incentive Fee actually payable under the Investment Advisory Agreement. As of September 30, 2025 and 2024, there was $0.3 million and $0.4 million, respectively, of capital gain incentive fee accrual under GAAP included in accounts payable and other liabilities on the Consolidated Statements of Financial Condition. For the year ended September 30, 2025, we recorded a reversal of the capital gain incentive fee under GAAP of $0.1 million. For the year ended September 30, 2024, the accrual for capital gain incentive fee under GAAP was $0.4 million.
Any payment due under the terms of the Investment Advisory Agreement is calculated in arrears at the end of each calendar year. As of September 30, 2025 and 2024, no Capital Gain Incentive Fees have been payable as calculated under the Investment Advisory Agreement.
Professional Fees, Administrative Service Fee, and General and Administrative Expenses
In total, professional fees, the administrative service fee, and general and administrative expenses increased by $0.7 million from the year ended September 30, 2024 to the year ended September 30, 2025, primarily due to higher administrative and professional fees associated with servicing a growing portfolio that was partially offset by a decrease in general and administrative expenses.
The Administrator pays for certain expenses incurred by us. These expenses are subsequently reimbursed in cash. Total expenses reimbursed to the Administrator during the years ended September 30, 2025 and 2024 were $1.2 million and $1.0 million, respectively.
As of September 30, 2025 and 2024, included in accounts payable and other liabilities were $0.4 million and $0.3 million, respectively, of expenses paid on behalf of us by the Administrator.
Net Realized and Unrealized Gains and Losses
The following table summarizes our net realized and unrealized gains (losses) for the years ended September 30, 2025 and 2024:
| Year ended | Variances | ||||||||||||||||
| September 30, 2025 | September 30, 2024 |
2025 vs. 2024
|
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| (In thousands) | |||||||||||||||||
| Net realized gain (loss) from investments | $ | (2,478) | $ | 943 | $ | (3,421) | |||||||||||
| Net realized gain (loss) from foreign currency transactions | (431) | (200) | (231) | ||||||||||||||
| Net realized gain (loss) on investment transactions | $ | (2,909) | $ | 743 | $ | (3,652) | |||||||||||
| Unrealized appreciation from investments | $ | 6,247 | $ | 8,365 | $ | (2,118) | |||||||||||
| Unrealized (depreciation) from investments | (4,211) | (2,901) | (1,310) | ||||||||||||||
| Unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies | 766 | 370 | 396 | ||||||||||||||
| Net change in unrealized appreciation (depreciation) on investment transactions | $ | 2,802 | $ | 5,834 | $ | (3,032) | |||||||||||
| Net realized gain (loss) on extinguishment of debt | $ | (432) | $ | - | $ | (432) | |||||||||||
During the year ended September 30, 2025, we had a net realized loss on investment transactions of $2.9 million, primarily attributable to (i) realized losses on the restructuring of debt and equity investments of multiple portfolio company investments, (ii) the sale of a portfolio company debt investment and, to a lesser extent, (iii) net realized losses recognized on the translation of foreign currency amounts and transactions into U.S. dollars. During the year ended September 30, 2024, we had a net realized gain on investment transactions of $0.7 million, primarily driven by a realized gain from the sale of a portfolio company equity investment that was partially offset by realized losses on the translation of foreign currency amounts and transactions into U.S. dollars and on the partial redemption of an equity investment.
For the year ended September 30, 2025, we had $6.2 million in unrealized appreciation on 154 portfolio company investments, which was offset by $4.2 million in unrealized depreciation on 140 portfolio company investments. For
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the year ended September 30, 2024, we had $8.4 million in unrealized appreciation on 166 portfolio company investments, which was offset by $2.9 million in unrealized depreciation on 63 portfolio company investments.
Unrealized appreciation for the year ended September 30, 2025 was primarily due to (i) the reversal of previously recognized unrealized depreciation on the restructuring of portfolio company investments and (ii) fair valuing recent originations up to or near par. Unrealized appreciation for the year ended September 30, 2024 primarily resulted from improved performance of certain portfolio companies and fair valuing recent originations up to or near par. Unrealized depreciation for the year ended September 30, 2025 primarily resulted from isolated deterioration in the credit performance in (i) a small number of portfolio companies and (ii) portfolio companies that were moved to or on non-accrual status. Unrealized depreciation for the year ended September 30, 2024 primarily resulted from isolated deterioration in the credit performance of certain portfolio companies that were moved to non-accrual status during the fiscal year.
Liquidity and Capital Resources
For the year ended September 30, 2025, we experienced a net increase in cash and cash equivalents, foreign currencies, restricted cash and cash equivalents and restricted foreign currencies of $0.9 million. During the year, we used $105.9 million in operating activities, primarily as a result of fundings of portfolio investments of $249.8 million, which was partially offset by proceeds from principal payments and sales of portfolio investments of $106.4 million. During the same year, cash provided by financing activities was $106.8 million, primarily driven by borrowings on debt of $461.4 million and proceeds from the issuance of common shares of $84.6 million, that were partially offset by repayments of debt of $393.0 million and distributions paid of $44.5 million.
For the year ended September 30, 2024, we experienced a net decrease in cash and cash equivalents, foreign currencies, restricted cash and cash equivalents and restricted foreign currencies of $9.1 million. During the period, we used $323.8 million in operating activities, primarily as a result of fundings of portfolio investments of $383.7 million, which was partially offset by proceeds from principal payments of portfolio investments of $31.6 million. During the same period, cash provided by financing activities was $314.7 million, primarily driven by borrowings on debt of $426.0 million and proceeds from the issuance of common stock of $225.9 million, that were partially offset by repayments of debt of $293.6 million and distributions paid of $41.7 million.
As of September 30, 2025 and 2024, we had $5.2 million and $10.1 million, respectively, of cash and cash equivalents. In addition, as of September 30, 2025 and 2024, we had foreign currencies of $1.6 million and $1.4 million, respectively, restricted cash and cash equivalents of $12.1 million and $8.5 million, respectively, and restricted foreign currencies of $1.8 million and $5 thousand, respectively. Cash and cash equivalents and foreign currencies are available to fund new investments, pay operating expenses and pay distributions. Restricted cash and cash equivalents and restricted foreign currencies can be used to pay principal and interest on borrowings and to fund new investments that meet the guidelines under our credit facilities, as applicable.
As of September 30, 2025, we had investor capital subscriptions totaling $542.6 million and no uncalled capital commitments. As of September 30, 2024, we had investor capital subscriptions of $512.6 million, of which $457.9 million had been called and contributed, leaving $54.6 million of uncalled investor capital subscriptions.
Revolving Debt Facilities
DB Credit Facility - On May 14, 2024, we and GDLC Funding II entered into the DB Credit Facility (as defined in Note 7 of our consolidated financial statements). As of September 30, 2025 and 2024, the DB Credit Facility allowed GDLC Funding II to borrow up to $450.0 million and $300.0 million, respectively, at any one time outstanding, subject to leverage and borrowing base restrictions. As of September 30, 2025 and 2024, we had $314.9 million and $141.5 million, respectively, outstanding under the DB Credit Facility. As of September 30, 2025 and 2024, subject to leverage and borrowing base restrictions, we had approximately $135.1 million and $158.5 million of remaining commitments, respectively, and $104.1 million and $32.3 million, respectively, of availability on the DB Credit Facility.
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Adviser Revolver - As of September 30, 2025 and 2024, we were permitted to borrow up to $70.0 million at any one time outstanding under the Adviser Revolver. As of September 30, 2025 and 2024, we had no outstanding debt under the Adviser Revolver.
PNC Facility - On November 18, 2024, all amounts outstanding under our PNC Facility, (as defined in Note 7 of our consolidated financial statements) were repaid, following which the agreements governing the PNC Facility were terminated. As of September 30, 2024, we had outstanding debt of $102.5 million and, subject to leverage and borrowing base restrictions, we had approximately $7.5 million of remaining commitments and availability on the PNC Facility. As of September 30, 2024, we were permitted to borrow up to $110.0 million on the PNC Facility.
Asset Coverage, Contractual Obligations, Off-Balance Sheet Arrangements and Other Liquidity Considerations
In accordance with the 1940 Act, with certain limited exceptions, we are currently allowed to borrow amounts such that our asset coverage, as defined in the 1940 Act, is at least 200% after such borrowing. We have not sought or obtained approval to reduce our asset coverage ratio as permitted by and subject to the requirements of Section 61(a)(2) of the 1940 Act and, as a result, remain subject to the 200% asset coverage requirement under Section 61(a)(1) of the 1940 Act. We currently intend to continue to target a GAAP debt-to-equity ratio between 0.35x to 0.65x. As of September 30, 2025, our asset coverage for borrowed amounts was 271.0%.
As of September 30, 2025, we had outstanding commitments to fund investments totaling $139.5 million, including $57.1 million of unfunded commitments on revolvers. As of September 30, 2024, we had outstanding commitments to fund investments totaling $151.9 million, including $42.9 million of unfunded commitments on revolvers. There is no guarantee that these amounts will be funded to the borrowing party now or in the future. The unfunded commitments relate to loans with various maturity dates, but the entire amount was eligible for funding to the borrowers as of September 30, 2025 subject to the terms of each loan's respective credit agreement. A summary of maturity requirements for our principal borrowings under the DB Credit Facility and the Adviser Revolver as of September 30, 2025 are included in Note 7 of our consolidated financial statements. We did not have any other material contractual payment obligations as of September 30, 2025. As of September 30, 2025, we believe that we had sufficient assets and liquidity to adequately cover future obligations under our unfunded commitments based on historical rates of drawings upon unfunded commitments and cash and restricted cash balances that we maintain, availability under our DB Credit Facility and Adviser Revolver, as well as ongoing principal repayments on debt investment assets.
We called the remaining uncalled capital commitments from shareholders in June 2025. Although we expect to fund the growth of our investment portfolio through future borrowings, to the extent permitted by the 1940 Act, as well as the net proceeds from our dividend reinvestment plan and, potentially, future investor capital subscriptions, we cannot assure you that our efforts to raise capital will be successful. In addition, from time to time, we can amend, refinance, or enter into new leverage facilities and securitization financings, to the extent permitted by applicable law. In addition to capital not being available, it also could not be available on favorable terms. To the extent we are not able to raise capital on what we believe are favorable terms, we will focus on optimizing returns by investing capital generated from repayments into new investments we believe are attractive from a risk/reward perspective. Furthermore, to the extent we are not able to raise capital and are at or near our targeted leverage ratios, we expect to receive smaller allocations, if any, on new investment opportunities under GC Advisors' allocation policy.
Portfolio Composition, Investment Activity and Yield
As of September 30, 2025 and 2024, we had investments in 277 and 217 portfolio companies, respectively, with a total fair value of $845.8 million and $689.9 million, respectively.
The following table shows the asset mix of our new investment commitments for the years ended September 30, 2025 and 2024:
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| Year ended | |||||||||||||||||||||||
| September 30, 2025 | September 30, 2024 | ||||||||||||||||||||||
| (In thousands) | Percentage | (In thousands) | Percentage | ||||||||||||||||||||
| Senior secured | $ | 9,717 | 4.0 | % | $ | 32,529 | 6.5 | % | |||||||||||||||
| One stop | 225,003 | 91.6 | 460,929 | 92.8 | |||||||||||||||||||
| Subordinated debt | 823 | 0.3 | 199 | 0.0 | * | ||||||||||||||||||
| Second lien | 5,514 | 2.2 | 1,658 | 0.3 | |||||||||||||||||||
| Equity | 4,696 | 1.9 | 2,181 | 0.4 | |||||||||||||||||||
| Total new investment commitments | $ | 245,753 | 100.0 | % | $ | 497,496 | 100.0 | % | |||||||||||||||
* Represents an amount less than 0.1%
For the years ended September 30, 2025 and 2024, we had approximately $106.4 million and $31.6 million, respectively, in proceeds from principal payments and sales of portfolio investments.
The following table shows the principal, amortized cost and fair value of our portfolio of investments by asset class:
|
As of September 30, 2025(1)
|
As of September 30, 2024(2)
|
||||||||||||||||||||||||||||||||||
| Principal |
Amortized Cost |
Fair Value |
Principal |
Amortized Cost |
Fair Value |
||||||||||||||||||||||||||||||
| (In thousands) | (In thousands) | ||||||||||||||||||||||||||||||||||
| Senior secured | |||||||||||||||||||||||||||||||||||
| Performing | $ | 45,094 | $ | 44,607 | $ | 44,958 | $ | 42,914 | $ | 42,313 | $ | 42,809 | |||||||||||||||||||||||
|
Non-accrual(3)
|
7 | 5 | 2 | 208 | 206 | 145 | |||||||||||||||||||||||||||||
| One stop | |||||||||||||||||||||||||||||||||||
| Performing | 773,840 | 760,922 | 770,096 | 631,061 | 620,550 | 627,034 | |||||||||||||||||||||||||||||
|
Non-accrual(3)
|
145 | 125 | 125 | 3,288 | 3,245 | 2,119 | |||||||||||||||||||||||||||||
| Second lien | |||||||||||||||||||||||||||||||||||
| Performing | 6,818 | 6,794 | 6,829 | 1,547 | 1,527 | 1,547 | |||||||||||||||||||||||||||||
|
Non-accrual(3)
|
- | - | - | - | - | - | |||||||||||||||||||||||||||||
| Subordinated debt | |||||||||||||||||||||||||||||||||||
| Performing | 1,211 | 1,184 | 1,209 | 481 | 472 | 467 | |||||||||||||||||||||||||||||
|
Non-accrual(3)
|
- | - | - | - | - | - | |||||||||||||||||||||||||||||
| Equity | N/A | 20,340 | 22,602 | N/A | 14,772 | 15,825 | |||||||||||||||||||||||||||||
| Total | $ | 827,115 | $ | 833,977 | $ | 845,821 | $ | 679,499 | $ | 683,085 | $ | 689,946 | |||||||||||||||||||||||
(1)As of September 30, 2025, $136.1 million and $136.9 million of our loans at amortized cost and fair value, respectively, included a feature permitting a portion of the interest due on such loans to be PIK interest. As of September 30, 2025, less than $0.1 million at both amortized cost and fair value of our loans with a PIK feature were on non-accrual status.
(2)As of September 30, 2024, $110.5 million and $109.2 million of our loans at amortized cost and fair value, respectively, included a feature permitting a portion of the interest due on such loans to be PIK interest. As of September 30, 2024, $3.4 million and $2.3 million at amortized cost and fair value, respectively, of our loans with a PIK feature were on non-accrual status.
(3)We refer to a loan as non-accrual when we cease recognizing interest income on the loan because we have stopped pursuing repayment of the loan or, in certain circumstances, it is past due 90 days or more on principal and interest or our management has reasonable doubt that principal or interest will be collected. See "- Critical Accounting Policies - Revenue Recognition."
As of September 30, 2025, we had loans in two portfolio companies on non-accrual status, and non-accrual investments as a percentage of total investments at both cost and fair value was less than 0.1%. As of September 30, 2024, we had loans in four portfolio companies on non-accrual status, and non-accrual investments as a percentage of total investments at cost and fair value were 0.5% and 0.3%, respectively, and as a percentage of total debt investments at cost and fair value were 0.5% and 0.3%, respectively. As of September 30, 2025 and 2024, we did not have any preferred equity securities on non-accrual status.
As of September 30, 2025 and 2024, the fair value of our debt investments as a percentage of the outstanding principal value was 99.5% and 99.2%, respectively.
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The following table shows the weighted average rate, spread over the applicable base rate of floating rate, fees of investments originated and the weighted average rate of sales and payoffs of portfolio companies during the years ended September 30, 2025 and 2024:
| Year ended | |||||||||||
| September 30, 2025 | September 30, 2024 | ||||||||||
| Weighted average rate of new investment fundings | 9.4% | 10.8% | |||||||||
| Weighted average spread over the applicable base rate of new floating rate investment fundings | 5.1% | 5.6% | |||||||||
| Weighted average fees of new investment fundings | 0.8% | 1.1% | |||||||||
| Weighted average rate of sales and payoffs of portfolio investments | 10.2% | 11.2% | |||||||||
As of September 30, 2025, 97.0% and 96.9% of our debt portfolio at amortized cost and at fair value, respectively, had interest rate floors that limit the minimum applicable interest rates on such loans. As of September 30, 2024, 97.3% and 97.2% of our debt portfolio at amortized cost and at fair value, respectively, had interest rate floors that limit the minimum applicable interest rates on such loans.
As of September 30, 2025 and 2024, the portfolio median1earnings before interest, taxes, depreciation and amortization, or EBITDA, for our portfolio companies was $82.4 million and $75.1 million, respectively. The portfolio median EBITDA is based on the most recently reported trailing twelve-month EBITDA received from the portfolio company.
As part of the monitoring process, GC Advisors regularly assesses the risk profile of each of our investments and rates each of them based on an internal system developed by Golub Capital and its affiliates. This system is not generally accepted in our industry or used by our competitors. It is based on the following categories, which we refer to as GC Advisors' internal performance ratings:
| Internal Performance Ratings | ||||||||
| Rating | Definition | |||||||
| 5 | Involves the least amount of risk in our portfolio. The borrower is performing above expectations, and the trends and risk factors are generally favorable. | |||||||
| 4 | Involves an acceptable level of risk that is similar to the risk at the time of origination. The borrower is generally performing as expected, and the risk factors are neutral to favorable. | |||||||
| 3 | Involves a borrower performing below expectations and indicates that the loan's risk has increased somewhat since origination. The borrower could be out of compliance with debt covenants; however, loan payments are generally not past due. | |||||||
| 2 | Involves a borrower performing materially below expectations and indicates that the loan's risk has increased materially since origination. In addition to the borrower being generally out of compliance with debt covenants, loan payments could be past due (but generally not more than 180 days past due). | |||||||
| 1 | Involves a borrower performing substantially below expectations and indicates that the loan's risk has substantially increased since origination. Most or all of the debt covenants are out of compliance and payments are substantially delinquent. Loans rated 1 are not anticipated to be repaid in full and we will reduce the fair market value of the loan to the amount we anticipate will be recovered. | |||||||
Our internal performance ratings do not constitute any rating of investments by a nationally recognized statistical rating organization or represent or reflect any third-party assessment of any of our investments.
For any investment rated 1, 2 or 3, GC Advisors will increase its monitoring intensity and prepare regular updates for the investment committee, summarizing current operating results and material impending events and suggesting recommended actions.
1The portfolio median EBITDA is based on our portfolio of debt investments and excludes (i) portfolio companies with negative or de minimis EBITDA, (ii) investments designated as recurring revenue loans and (iii) portfolio companies with any loans on non-accrual status.
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GC Advisors monitors and, when appropriate, changes the internal performance ratings assigned to each investment in our portfolio. In connection with our valuation process, GC Advisors and our board of directors review these internal performance ratings on a quarterly basis.
The following table shows the distribution of our investments on the 1 to 5 internal performance rating scale at fair value as of September 30, 2025 and 2024:
| As of September 30, 2025 |
As of September 30, 2024
|
|||||||||||||||||||||||||
|
Internal Performance Rating |
Investments
at Fair Value
(In thousands)
|
Percentage of Total Investments |
Investments
at Fair Value
(In thousands)
|
Percentage of Total Investments |
||||||||||||||||||||||
| 5 | $ | 53,996 | 6.4 | % | $ | 1,604 | 0.2 | % | ||||||||||||||||||
| 4 | 763,080 | 90.2 | 662,977 | 96.1 | ||||||||||||||||||||||
| 3 | 28,707 | 3.4 | 23,075 | 3.4 | ||||||||||||||||||||||
| 2 | 38 | 0.0 | * | 2,290 | 0.3 | |||||||||||||||||||||
| 1 | - | - | - | - | ||||||||||||||||||||||
| Total | $ | 845,821 | 100.0 | % | $ | 689,946 | 100.0 | % | ||||||||||||||||||
*Represents an amount less than 0.1%.
The table below details the fair value of our debt investments as a percentage of the outstanding principal value by internal performance rating held as of September 30, 2025and 2024:
|
Average Price1
|
||||||||||||||
| Category | As of September 30, 2025 |
As of September 30, 2024
|
||||||||||||
|
Internal Performance Ratings 4 and 5 (Performing At or Above Expectations) |
99.8% | 99.7% | ||||||||||||
|
Internal Performance Rating 3 (Performing Below Expectations) |
93.2 | 92.2 | ||||||||||||
|
Internal Performance Ratings 1 and 2 (Performing Materially Below Expectations) |
36.0 | 64.7 | ||||||||||||
| Total | 99.5% | 99.2% | ||||||||||||
(1)Includes only debt investments held as of September 30, 2025 and 2024. Price reflects the fair value of debt investments as a percentage of the outstanding principal value by Internal Performance Rating category.
Distributions
We intend to make periodic distributions to our stockholders as determined by our board of directors. For additional details on distributions, see "Income taxes" in Note 2 to our consolidated financial statements.
We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of our distributions from time to time. In addition, the asset coverage requirements applicable to us as a business development company under the 1940 Act could limit our ability to make distributions. If we do not distribute a certain percentage of our income annually, we will suffer adverse U.S. federal income tax consequences, including the possible loss of our ability to be subject to tax as a RIC. We cannot assure stockholders that they will receive any distributions.
Because federal income tax regulations differ from GAAP, distributions in accordance with tax regulations can differ from net investment income and realized gains recognized for financial reporting purposes. Differences are permanent or temporary. Permanent differences are reclassified within capital accounts in the financial statements to reflect their tax character. For example, permanent differences in classification result from the treatment of distributions paid from short-term gains as ordinary income dividends for tax purposes. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future.
To the extent our taxable earnings fall below the total amount of our distributions for any tax year, a portion of those distributions could be deemed a return of capital to our stockholders for U.S. federal income tax purposes. Thus, the source of a distribution to our stockholders could be the original capital invested by the stockholder rather than our
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income or gains. Stockholders should read any written disclosure accompanying a distribution payment carefully and should not assume that the source of any distribution is our ordinary income or gains.
We have adopted an "opt out" dividend reinvestment plan for our common stockholders. As a result, if we declare a distribution, our stockholders' cash distributions will be automatically reinvested in additional shares of our common stock unless a stockholder specifically "opts out" of our dividend reinvestment plan. If a stockholder opts out, that stockholder will receive cash distributions. Although distributions paid in the form of additional shares of our common stock will generally be subject to U.S. federal, state and local taxes in the same manner as cash distributions, stockholders participating in our dividend reinvestment plan will not receive any corresponding cash distributions with which to pay any such applicable taxes.
Related Party Transactions
We have entered into a number of business relationships with affiliated or related parties, including the following:
•We entered into the Investment Advisory Agreement with GC Advisors. Mr. Lawrence Golub, chief executive officer of GC Advisors and an interested director of Golub Capital Direct Lending Corporation, and Mr. David Golub, our president and chief executive officer, and chairman, are managers of GC Advisors, and each of Messrs. Lawrence Golub and David Golub own an indirect pecuniary interest in GC Advisors.
•GC Advisors has agreed to certain waivers with respect to the base management fee for the periods following July 1, 2021, the initial closing date for the private placement of shares of our common stock, and irrevocably waived 100% of the base management fee payable pursuant to the Investment Advisory Agreement for the period from July 1, 2021 to June 30, 2022; 66.7% of the base management fee payable pursuant to the Investment Advisory Agreement for the period from July 1, 2022 to June 30, 2023; and 33.3% of the base management fee payable pursuant to the Investment Advisory Agreement for the period from July 1, 2023 to June 30, 2024.
•Golub Capital LLC provides us with the office facilities and administrative services necessary to conduct day-to-day operations pursuant to our Administration Agreement.
•We have entered into a license agreement with Golub Capital LLC, pursuant to which Golub Capital LLC has granted us a non-exclusive, royalty-free license to use the name "Golub Capital."
•Under the Staffing Agreement Golub Capital LLC has agreed to provide GC Advisors with the resources necessary to fulfill its obligations under the Investment Advisory Agreement. The Staffing Agreement provides that Golub Capital LLC will make available to GC Advisors experienced investment professionals and provide access to the senior investment personnel of Golub Capital LLC for purposes of evaluating, negotiating, structuring, closing and monitoring our investments. The Staffing Agreement also includes a commitment that the members of GC Advisors' investment committee will serve in such capacity. Services under the Staffing Agreement are provided on a direct cost reimbursement basis. We are not a party to the Staffing Agreement.
•We have entered into the Adviser Revolver with GC Advisors in order to have the ability to borrow funds on a short-term basis.
•As of September 30, 2025, GGP Class B-P, LLC, an affiliate of GC Advisors, had an aggregate commitment to us of $102.0 million. As of September 30, 2025, we have issued 6,806,927.360 shares of our common stock to GGP Class B-P, LLC in exchange for aggregate capital contributions totaling $102.0 million. We have also issued 214,587.492 shares to GGP Class B-P, LLC through the DRIP.
•As of September 30, 2025, GDLC Feeder Fund L.P., a Delaware limited partnership, whose general partner is controlled by GC Advisors, has an aggregate commitment to us of $300.0 million. As of September 30, 2025, we have issued 20,007,020.321 shares of our common stock to GDLC Feeder Fund, L.P., in exchange for aggregate capital contributions totaling $300.0 million.
GC Advisors also sponsors or manages, and expects in the future to sponsor or manage, other investment funds, accounts or investment vehicles (together referred to as "accounts") that have investment mandates that are similar, in whole and in part, with ours. For example, GC Advisors presently serves as the investment adviser to Golub
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Capital BDC, Inc., or GBDC, a publicly-traded business development company (Nasdaq: GBDC), Golub Capital Direct Lending Unlevered Corporation, or GDLCU, Golub Capital BDC 4, Inc., or GBDC 4 and Golub Capital Private Credit Fund, or GCRED, all of which are business development companies that primarily focus on investing in one stop and other senior secured loans. In addition, our officers and directors serve in similar capacities for GBDC, GDLCU, GBDC 4 and GCRED. If GC Advisors and its affiliates determine that an investment is appropriate for us, GBDC, GDLCU, GBDC 4, GCRED and other accounts, depending on the availability of such investment and other appropriate factors, and pursuant to GC Advisors' allocation policy, GC Advisors or its affiliates could determine that we should invest side-by-side with one or more other accounts. We do not intend to make any investments if they are not permitted by applicable law and interpretive positions of the SEC and its staff, or if they are inconsistent with GC Advisors' allocation procedures.
In addition, we have adopted a formal code of ethics that governs the conduct of our and GC Advisors' officers, directors and employees. Our officers and directors also remain subject to the duties imposed by both the 1940 Act and the General Corporation Law of the State of Maryland.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies.
Fair Value Measurements
We value investments for which market quotations are readily available at their market quotations. However, a readily available market value is not expected to exist for many of the investments in our portfolio, and we value these portfolio investments at fair value as determined in good faith.
Pursuant to Rule 2a-5 under the 1940 Act, as recently amended, effective August 2, 2024, our board of directors, as permitted, has designated GC Advisors as our valuation designee (the "Valuation Designee") to perform the determination of fair value of our investments for which market quotations are not readily available, or valued by a third-party pricing service, in accordance with our valuation policies and procedures, subject to the oversight of our board of directors.
Valuation methods include comparisons of the portfolio companies to peer companies that are public, determination of the enterprise value of a portfolio company, discounted cash flow analysis and a market interest rate approach. The factors that are taken into account in fair value pricing investments include: available current market data, including relevant and applicable market trading and transaction comparables; applicable market yields and multiples; security covenants; call protection provisions; information rights; the nature and realizable value of any collateral; the portfolio company's ability to make payments, its earnings and discounted cash flows and the markets in which it does business; comparisons of financial ratios of peer companies that are public; comparable merger and acquisition transactions; and the principal market and enterprise values. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Valuation Designee will consider the pricing indicated by the external event to corroborate the private equity valuation. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the investments can differ significantly from the values that would have been used had a readily available market value existed for such investments and differ materially from values that are ultimately received or settled.
Our Valuation Designee is ultimately and solely responsible for determining, in good faith, the fair value of investments that are not publicly traded, whose market prices are not readily available on a quarterly basis or any other situation where portfolio investments require a fair value determination.
With respect to investments for which market quotations are not readily available, our Valuation Designee undertakes a multi-step valuation process each quarter, as described below:
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Our quarterly valuation process begins with each portfolio company investment being initially valued by the investment professionals of GC Advisors responsible for the valuation function. Preliminary valuation conclusions are then documented and discussed with our senior management and GC Advisors. The Valuation Designee reviews these preliminary valuations. At least every other quarter, the valuation for each portfolio investment, subject to a de minimis threshold, is reviewed by an independent valuation firm. The Valuation Designee discusses valuations and determines the fair value of each investment in our portfolio in good faith.
Determination of fair values involves subjective judgments and estimates. Under current accounting standards, the notes to our consolidated financial statements refer to the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our consolidated financial statements.
We follow ASC Topic 820 for measuring fair value. Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of estimation and judgment, the degree of which is dependent on the price transparency for the assets or liabilities or market and the assets' or liabilities' complexity. Our fair value analysis, currently undertaken by the Valuation Designee, includes an analysis of the value of any unfunded loan commitments. Assets and liabilities are categorized for disclosure purposes based upon the level of judgment associated with the inputs used to measure their value. The valuation hierarchical levels are based upon the transparency of the inputs to the valuation of the asset or liability as of the measurement date. The three levels are defined as follows:
Level 1:Inputs are unadjusted, quoted prices in active markets for identical assets or liabilities at the measurement date.
Level 2:Inputs include quoted prices for similar assets or liabilities in active markets and inputs that are observable for the assets or liabilities, either directly or indirectly, for substantially the full term of the assets or liabilities.
Level 3:Inputs include significant unobservable inputs for the assets or liabilities and include situations where there is little, if any, market activity for the assets or liabilities. The inputs into the determination of fair value are based upon the best information available and could require significant management judgment or estimation.
In certain cases, the inputs used to measure fair value could fall into different levels of the fair value hierarchy. In such cases, an asset's or a liability's categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and we consider factors specific to the asset or liability. The Valuation Designee assesses the levels of assets and liabilities at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfers. There were no transfers among Level 1, 2 and 3 of the fair value hierarchy for assets and liabilities during the years ended September 30, 2025 and 2024. The following section describes the valuation techniques used by us to measure different assets and liabilities at fair value and includes the level within the fair value hierarchy in which the assets and liabilities are categorized.
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Valuation of Investments
Level 1 investments are valued using quoted market prices. Level 2 investments are valued using market consensus prices that are corroborated by observable market data and quoted market prices for similar assets and liabilities. Level 3 investments are valued at fair value as determined in good faith by the Valuation Designee, based on input of the Valuation Designee's personnel and independent valuation firms that have been engaged by or at the direction of the Valuation Designee to assist in the valuation of each portfolio investment without a readily available market quotation at least every other quarter under a valuation policy and a consistently applied valuation process. This valuation process is conducted at the end of each fiscal quarter, with each portfolio investment being reviewed at least every other quarter (subject to a de minimis threshold) with approximately 50% (based on the fair value of portfolio company investments) of our valuations of debt and equity investments without readily available market quotations subject to review by an independent valuation firm. All investments as of both September 30, 2025 and 2024 were valued using Level 3 inputs. As of both September 30, 2025 and 2024, all money market funds included in cash and cash equivalents and restricted cash and cash equivalents were valued using Level 1 inputs.
When determining fair value of Level 3 debt and equity investments, the Valuation Designee could take into account the following factors, where relevant: the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio company's ability to make payments and its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons to publicly traded securities, and changes in the interest rate environment and the credit markets generally that could affect the price at which similar investments could be made and other relevant factors. The primary method for determining enterprise value uses a multiple analysis whereby appropriate multiples are applied to the portfolio company's EBITDA. A portfolio company's EBITDA could include pro-forma adjustments for items such as acquisitions, divestitures, or expense reductions. The enterprise value analysis is performed to determine the value of equity investments and to determine if debt investments are credit impaired. If debt investments are credit impaired, the Valuation Designee will use the enterprise value analysis or a liquidation basis analysis to determine fair value. For debt investments that are not determined to be credit impaired, the Valuation Designee uses a market interest rate yield analysis to determine fair value.
In addition, for certain debt investments, the Valuation Designee could base its valuation on indicative bid and ask prices provided by an independent third-party pricing service. Bid prices reflect the highest price that we and others could be willing to pay. Ask prices represent the lowest price that we and others could be willing to accept. The Valuation Designee generally uses the midpoint of the bid/ask range as our best estimate of fair value of such investment.
Due to the inherent uncertainty of determining the fair value of Level 3 investments that do not have a readily available market value, the fair value of the investments could differ significantly from the values that would have been used had a market existed for such investments and could differ materially from the values that could ultimately be received or settled. Further, such investments are generally subject to legal and other restrictions or otherwise are less liquid than publicly traded instruments. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which such investment had previously been recorded.
Our investments are subject to market risk. Market risk is the potential for changes in the value due to market changes. Market risk is directly impacted by the volatility and liquidity in the markets in which the investments are traded.
In connection with each sale of shares of our common stock, we make a determination that we are not selling shares of our common stock at a price below the then-current net asset value per share of common stock at the time at which the sale is made or otherwise in violation of the 1940 Act. GC Advisors will consider the following factors, among others, in making such determination:
•The net asset value of our common stock disclosed in the most recent periodic report filed with the SEC;
•Its assessment of whether any change in the net asset value per share of our common stock has occurred (including through the realization of gains on the sale of portfolio securities) during the period beginning on
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the date of the most recently disclosed net asset value per share of our common stock and ending two days prior to the date of the sale; and
•The magnitude of the difference between the sale price of the shares of common stock and management's assessment of any change in the net asset value per share of our common stock during the period discussed above.
Valuation of Other Financial Assets and Liabilities
The fair value of our debt is estimated using Level 3 inputs by discounting remaining payments using comparable market rates or market quotes for similar instruments at the measurement date, if available.
Revenue Recognition:
Our revenue recognition policies are as follows:
Investments and Related Investment Income: Interest income is accrued based upon the outstanding principal amount and contractual interest terms of debt investments. Original issue discount, market discount or premium and certain loan origination or amendment fees that are deemed to be an adjustment to yield ("Loan Origination Fees") are capitalized and we accrete or amortize such amounts over the life of the loan as interest income ("Discount Amortization"). For investments with contractual PIK interest, which represents contractual interest accrued and added to the principal balance that generally becomes due at maturity, we do not accrue PIK interest if the portfolio company valuation indicates that the PIK interest is not likely to be collectible. In addition, we could generate revenue in the form of amendment, structuring or due diligence fees, fees for providing managerial assistance, administrative agent fees, consulting fees and prepayment premiums on loans that are not deemed to be an adjustment to yield and record these fees as fee income when earned. We record prepayment premiums on loans as fee income. Dividend income on preferred equity securities is recorded as dividend income on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. We have certain preferred equity securities in our portfolio that contain a PIK dividend provision that are accrued and recorded as income at the contractual rates, if deemed collectible. The accrued PIK and non-cash dividends are capitalized to the cost basis of the preferred equity security and are generally collected when redeemed by the issuer. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies. Distributions received from limited liability company, or LLC, and limited partnership, or LP, investments are evaluated to determine if the distribution should be recorded as dividend income or a return of capital. Generally, we will not record distributions from equity investments in LLCs or LPs as dividend income unless there are sufficient accumulated tax-basis earnings and profits in the LLC or LP prior to the distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment.
We account for investment transactions on a trade-date basis. Realized gains or losses on investments are measured by the difference between the net proceeds from the disposition and the cost basis of investment, without regard to unrealized gains or losses previously recognized. We report changes in fair value of investments from the prior period that is measured at fair value as a component of the net change in unrealized appreciation (depreciation) on investment transactions in our Consolidated Statements of Operations and fluctuations arising from the translation of foreign exchange rates on investments in unrealized appreciation (depreciation) on translation of assets and liabilities in foreign currencies on the Consolidated Statements of Operations.
Non-accrual Investments:Loans may be left on accrual status while we are pursuing repayment of the loan. Management reviews all loans that become past due 90 days or more on principal and interest or when there is reasonable doubt that principal or interest will be collected for possible placement on non-accrual status. We generally reverse accrued interest when a loan is placed on non-accrual. Additionally, any original issue discount and market discount are no longer accreted to interest income as of the date the loan is placed on non-accrual status. Interest payments received on non-accrual loans could be recognized as income or applied to principal depending upon management's judgment. We restore non-accrual loans to accrual status when past due principal and interest is paid and, in our management's judgment, are likely to remain current. The total fair value of our non-accrual loans as of September 30, 2025 and 2024, was $0.1 million and $2.3 million, respectively. We review all preferred equity
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securities accruing contractual PIK dividend income to determine if there is reasonable doubt that amortized cost or capitalized PIK and non-cash dividend income will be collected for possible placement on non-accrual status. When a preferred equity security is placed on non-accrual status, the contractual PIK dividend provision is no longer accrued to dividend income as of the date the preferred equity security is placed on non-accrual status. There were no preferred equity securities on non-accrual status as of September 30, 2025 and 2024.
Income taxes: We have elected to be treated as a RIC under Subchapter M of the Code and operate in a manner so as to qualify for the tax treatment applicable to RICs. In order to be subject to tax as a RIC, we are required to meet certain source of income and asset diversification requirements, as well as timely distribute to our stockholders dividends for U.S. federal income tax purposes of an amount generally at least equal to 90% of investment company taxable income, as defined by the Code and determined without regard to any deduction for dividends paid, for each tax year. We have made and intend to continue to make the requisite distributions to our stockholders, which will generally relieve us from U.S. federal income taxes.
Depending on the level of taxable income earned in a tax year, we could choose to retain taxable income in excess of current year dividend distributions and would distribute such taxable income in the next tax year. We could then be required to incur a 4% excise tax on such income. To the extent that we determine that our estimated current year annual taxable income, determined on a calendar year basis, could exceed estimated current calendar year dividend distributions, we accrue excise tax, if any, on estimated excess taxable income as taxable income is earned. For the year ended September 30, 2025, we did not record any U.S. federal excise tax. For the years ended September 30, 2024 and 2023, we recorded $91,000 and $143,000, respectively, for U.S. federal excise tax.
Because federal income tax regulations differ from GAAP, distributions in accordance with tax regulations could differ from net investment income and realized gains recognized for financial reporting purposes. Differences could be permanent or temporary. Permanent differences are reclassified within capital accounts in the financial statements to reflect their tax character. For example, permanent differences in classification could result from the treatment of distributions paid from short-term gains as ordinary income dividends for tax purposes. Temporary differences arise when certain items of income, expense, gain or loss are recognized at some time in the future.
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Golub Capital Direct Lending Corp. published this content on December 04, 2025, and is solely responsible for the information contained herein. Distributed via Edgar on December 04, 2025 at 22:00 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]