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Goldman Sachs BDC (GSBD - Free Report) and Goldman Sachs Middle Market Lending Corp., the specialty finance companies of Goldman Sachs (GS - Free Report) have amended and restated their merger agreement dated Dec 9, 2019.
Both Goldman Sachs BDC and Goldman Sachs Middle Market Lending Corp. are the affiliated business-development companies that are managed by Goldman Sachs’ wholly-owned subsidiary, Goldman Sachs Asset Management, L.P.
On Dec 9, 2019, Goldman Sachs BDC agreed to acquire Goldman Sachs Middle Market Lending Corp in an all-stock deal valued at $1 billion.
Notably, the Investment Company Act of 1940 requires that a merger of affiliated business-development companies should not result in dilution to either party. And, in order to comply with the Act, the original merger agreement contained a closing condition, the satisfaction of which was dependent on the trading price of Goldman Sachs BDC’s shares.
However, because of the current significant market volatility caused by the coronavirus outbreak, it has become uncertain as to whether the condition can be met or not.
Hence, the original merger agreement has been amended and restated in its entirety to eliminate the closing condition, while ensuring that the transaction will not result in dilution to either party.
Key Changes
The consideration for the transaction is no longer based on a fixed exchange ratio. In fact, it will be based on a “net asset value for net asset value” exchange ratio. The exchange ratio will be determined at closing such that shares issued by Goldman Sachs BDC to shareholders of Goldman Sachs Middle Market Lending Corp will result in an ownership split of the combined company based on the net asset values of both companies.
Notably, Goldman Sachs BDC is expected to issue 1.0656 shares for each outstanding share of Goldman Sachs Middle Market Lending Corp. The total consideration will likely represent a 17% premium to the pro forma net asset value of Goldman Sachs Middle Market Lending Corp, based on the closing market price of Goldman Sachs BDC as of Jun 10, 2020.
Also, per the original agreement, there was a potential incentive fee cap for five quarters. The cap provided that the incentive fees payable to Goldman Sachs Asset Management would be reduced if net investment income (“NII”) would fall below $0.48 per share, without the implementation of the incentive fee cap. Now, per the restated agreement, the variable incentive fee cap has been extended for an additional year through the end of 2021.
Moreover, now, Goldman Sachs Asset Management has agreed that upon closing of the transaction, it will reimburse Goldman Sachs BDC and Goldman Sachs Middle Market Lending Corp for all fees and expenses incurred and payable by the two companies or on their behalf in connection with the transaction, subject to a cap of $4 million each.
Further, prior to the closing of the merger, Goldman Sachs Middle Market Lending Corp will declare a $75-million distribution relating to the pre-closing period.
Brendan McGovern, president and CEO of both companies, stated, “We believe the merger of GSBD and MMLC will result in significant benefits for each set of shareholders, and we are pleased to move forward with the transaction on amended terms, despite the recent market volatility. The combined company will benefit from increased scale and balance sheet strength, which are key attributes in the current market environment.”
Terms and Financial Impact of the Transaction
Goldman Sachs Asset Management expects the merger to be accretive to Goldman Sachs BDC’s NII per share in the short and long terms.
Moreover, the transaction is expected to result in higher portfolio yield, greater single-name diversification and a reduction in the percentage of non-accrual investments for Goldman Sachs BDC.
Goldman Sachs BDC’s net debt to equity will likely decrease from 1.40X as of Mar 31, 2020, to 1.14X.
Further, with the closing of the merger, Goldman Sachs Middle Market Lending Corp’s revolving credit facility due March 2022 will be repaid in full and Goldman Sachs BDC’s revolving credit facility will be expanded to $1,695 million. Nevertheless, pricing on Goldman Sachs BDC’s revolving credit facility will remain unchanged at LIBOR + 1.875%.
The merger will likely result in an increase of 40 basis points on the weighted average yield of Goldman Sachs BDC’s investment portfolio at amortized cost.
Also, the company’s exposure to senior secured loans will increase from 92% to 95.6% of total investments.
Notably, the amended and restated merger agreement has been unanimously approved by the board of directors of both Goldman Sachs BDC and Goldman Sachs Middle Market Lending Corp.
Completion of the merger is currently expected in the fourth quarter of 2020, subject to the satisfaction of certain closing conditions, including shareholder approval, regulatory approval and other closing conditions.
BofA Securities, Inc., the investment banking affiliate of Bank of America (BAC - Free Report) , served as the financial advisor to Goldman Sachs BDC’s special committee, which was formed to aid in the analysis of a potential transaction.
Morgan Stanley & Co. LLC, a unit of Morgan Stanley (MS - Free Report) , served as the financial advisor to the special committee of Goldman Sachs Middle Market Lending Corp.
Shares of Goldman Sachs BDC have lost 21.7% so far this year compared with a 27.5% decline recorded by the industry.
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
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Goldman Sachs BDC (GSBD) Amends & Restates Merger Agreement
Goldman Sachs BDC (GSBD - Free Report) and Goldman Sachs Middle Market Lending Corp., the specialty finance companies of Goldman Sachs (GS - Free Report) have amended and restated their merger agreement dated Dec 9, 2019.
Both Goldman Sachs BDC and Goldman Sachs Middle Market Lending Corp. are the affiliated business-development companies that are managed by Goldman Sachs’ wholly-owned subsidiary, Goldman Sachs Asset Management, L.P.
On Dec 9, 2019, Goldman Sachs BDC agreed to acquire Goldman Sachs Middle Market Lending Corp in an all-stock deal valued at $1 billion.
Notably, the Investment Company Act of 1940 requires that a merger of affiliated business-development companies should not result in dilution to either party. And, in order to comply with the Act, the original merger agreement contained a closing condition, the satisfaction of which was dependent on the trading price of Goldman Sachs BDC’s shares.
However, because of the current significant market volatility caused by the coronavirus outbreak, it has become uncertain as to whether the condition can be met or not.
Hence, the original merger agreement has been amended and restated in its entirety to eliminate the closing condition, while ensuring that the transaction will not result in dilution to either party.
Key Changes
The consideration for the transaction is no longer based on a fixed exchange ratio. In fact, it will be based on a “net asset value for net asset value” exchange ratio. The exchange ratio will be determined at closing such that shares issued by Goldman Sachs BDC to shareholders of Goldman Sachs Middle Market Lending Corp will result in an ownership split of the combined company based on the net asset values of both companies.
Notably, Goldman Sachs BDC is expected to issue 1.0656 shares for each outstanding share of Goldman Sachs Middle Market Lending Corp. The total consideration will likely represent a 17% premium to the pro forma net asset value of Goldman Sachs Middle Market Lending Corp, based on the closing market price of Goldman Sachs BDC as of Jun 10, 2020.
Also, per the original agreement, there was a potential incentive fee cap for five quarters. The cap provided that the incentive fees payable to Goldman Sachs Asset Management would be reduced if net investment income (“NII”) would fall below $0.48 per share, without the implementation of the incentive fee cap. Now, per the restated agreement, the variable incentive fee cap has been extended for an additional year through the end of 2021.
Moreover, now, Goldman Sachs Asset Management has agreed that upon closing of the transaction, it will reimburse Goldman Sachs BDC and Goldman Sachs Middle Market Lending Corp for all fees and expenses incurred and payable by the two companies or on their behalf in connection with the transaction, subject to a cap of $4 million each.
Further, prior to the closing of the merger, Goldman Sachs Middle Market Lending Corp will declare a $75-million distribution relating to the pre-closing period.
Brendan McGovern, president and CEO of both companies, stated, “We believe the merger of GSBD and MMLC will result in significant benefits for each set of shareholders, and we are pleased to move forward with the transaction on amended terms, despite the recent market volatility. The combined company will benefit from increased scale and balance sheet strength, which are key attributes in the current market environment.”
Terms and Financial Impact of the Transaction
Goldman Sachs Asset Management expects the merger to be accretive to Goldman Sachs BDC’s NII per share in the short and long terms.
Moreover, the transaction is expected to result in higher portfolio yield, greater single-name diversification and a reduction in the percentage of non-accrual investments for Goldman Sachs BDC.
Goldman Sachs BDC’s net debt to equity will likely decrease from 1.40X as of Mar 31, 2020, to 1.14X.
Further, with the closing of the merger, Goldman Sachs Middle Market Lending Corp’s revolving credit facility due March 2022 will be repaid in full and Goldman Sachs BDC’s revolving credit facility will be expanded to $1,695 million. Nevertheless, pricing on Goldman Sachs BDC’s revolving credit facility will remain unchanged at LIBOR + 1.875%.
The merger will likely result in an increase of 40 basis points on the weighted average yield of Goldman Sachs BDC’s investment portfolio at amortized cost.
Also, the company’s exposure to senior secured loans will increase from 92% to 95.6% of total investments.
Notably, the amended and restated merger agreement has been unanimously approved by the board of directors of both Goldman Sachs BDC and Goldman Sachs Middle Market Lending Corp.
Completion of the merger is currently expected in the fourth quarter of 2020, subject to the satisfaction of certain closing conditions, including shareholder approval, regulatory approval and other closing conditions.
BofA Securities, Inc., the investment banking affiliate of Bank of America (BAC - Free Report) , served as the financial advisor to Goldman Sachs BDC’s special committee, which was formed to aid in the analysis of a potential transaction.
Morgan Stanley & Co. LLC, a unit of Morgan Stanley (MS - Free Report) , served as the financial advisor to the special committee of Goldman Sachs Middle Market Lending Corp.
Shares of Goldman Sachs BDC have lost 21.7% so far this year compared with a 27.5% decline recorded by the industry.
Currently, the company carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
More Stock News: This Is Bigger than the iPhone!
It could become the mother of all technological revolutions. Apple sold a mere 1 billion iPhones in 10 years but a new breakthrough is expected to generate more than 27 billion devices in just 3 years, creating a $1.7 trillion market.
Zacks has just released a Special Report that spotlights this fast-emerging phenomenon and 6 tickers for taking advantage of it. If you don't buy now, you may kick yourself in 2021.
Click here for the 6 trades >>