497 1 d849184d497.htm GOLDMAN SACHS BDC, INC Goldman Sachs BDC, Inc

Filed pursuant to Rule 497

Registration No. 333-235856

GOLDMAN SACHS BDC, INC.

200 West Street

New York, NY 10282

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

August 4, 2020

Dear Stockholder:

You are cordially invited to attend the Special Meeting of Stockholders (the “GSBD Special Meeting”) of Goldman Sachs BDC, Inc. (“GSBD”), to be held on October 2, 2020 at 10:00 a.m., Eastern Time, at 30 Hudson Street, Jersey City, New Jersey 07302.

The notice of special meeting and joint proxy statement/prospectus accompanying this letter provide an outline of the business to be conducted at the GSBD Special Meeting. At the GSBD Special Meeting, you will be asked to:

 

(i)

adopt the Amended and Restated Agreement and Plan of Merger, dated as of June 11, 2020 (the “Merger Agreement”), by and among GSBD, Goldman Sachs Middle Market Lending Corp., a Delaware corporation (“MMLC”), Evergreen Merger Sub Inc., a Delaware corporation and wholly owned direct subsidiary of GSBD (“Merger Sub”), and Goldman Sachs Asset Management, L.P., a Delaware limited partnership (“GSAM”) (such proposal is referred to herein as the “GSBD Merger Proposal”), which proposal is contingent upon approval of each of the proposals listed below;

 

(ii)

approve an amended and restated certificate of incorporation of GSBD (“Amended and Restated GSBD Charter”), which would restrict stockholders that acquire shares of GSBD Common Stock (as defined below) pursuant to the Merger (as defined below) from transferring such shares for certain periods of time (such proposal is referred to herein as the “GSBD Charter Amendment Proposal”), which proposal is contingent upon approval of the GSBD Merger Proposal and each of the proposals listed below; and

 

(iii)

approve the issuance of shares of GSBD common stock, $0.001 par value per share (“GSBD Common Stock”), pursuant to the Merger Agreement (such proposal is referred to herein as the “Merger Stock Issuance Proposal”), which proposal is contingent upon approval of each of the GSBD Merger Proposal, the GSBD Charter Amendment Proposal and the proposal listed below.

Closing of the Merger (as defined below) is contingent upon (a) GSBD stockholder approval of all of the above proposals, (b) MMLC stockholder approval of each of the Merger Agreement and the Amended and Restated GSBD Charter and (c) certain other closing conditions. If the Merger does not close, then the Amended and Restated GSBD Charter will not go into effect and the GSBD Common Stock will not be issued pursuant to the Merger Stock Issuance Proposal, even if approved by the GSBD stockholders.

GSBD and MMLC are proposing a combination of both companies by a merger and related transactions pursuant to the Merger Agreement in which Merger Sub would merge with and into MMLC with MMLC continuing as the surviving company (the “First Merger”). Immediately following the First Merger, MMLC (as the surviving company in the First Merger) would merge with and into GSBD with GSBD continuing as the surviving company (the “Second Merger” and, together with the First Merger, the “Merger”). The Amended and Restated GSBD Charter would take effect upon the closing of the Merger (the “Closing”).

Subject to the terms and conditions of the Merger Agreement, if the Merger is completed, each holder of MMLC common stock, par value $0.001 per share (“MMLC Common Stock”), issued and outstanding immediately prior to the effective time of the First Merger (other than GSBD and its consolidated subsidiaries) will have the right to receive, for each share of MMLC Common Stock, that number of shares of GSBD Common Stock with a net asset value (“NAV”) equal to the NAV per share of MMLC Common Stock (such number of shares of GSBD Common Stock, the “Exchange Ratio”), in each case calculated as of the same date within 48 hours (excluding Sundays and holidays) prior to the closing of the Merger (the “Determination Date”), provided, that the Exchange Ratio shall be subject to adjustment if, between the Determination Date and the effective time of the First Merger, the respective outstanding shares of GSBD Common Stock or MMLC


Common Stock will have been increased or decreased or changed into or exchanged for a different number or kind of shares or securities, as a result of any reclassification, recapitalization, stock split, reverse stock split, split-up, combination or exchange of shares, or if a stock dividend or dividend payable in any other securities will be declared with a record date within such period, as permitted by the Merger Agreement.

In connection with the Merger, GSAM has agreed to waive a portion of its incentive fee for nine quarters, commencing with the quarter ending December 31, 2019 and through and including the quarter ending December 31, 2021, otherwise payable by GSBD under the current investment management agreement by and between GSAM and GSBD (the “Incentive Fee Waiver”) for each such quarter in an amount sufficient to ensure that GSBD’s net investment income per weighted average share outstanding for such quarter is at least $0.48 per share. The Incentive Fee Waiver helps to ensure that distributions paid to GSBD’s stockholders will not be a return of capital for tax purposes during the merger period. Further, the board of directors of GSBD (the “GSBD Board”) has approved special distributions of $0.15 per share in total, and payable in three equal quarterly installments currently expected to begin in the first quarter of 2021, subject to the timing of the Closing, to the stockholders of the combined company. Prior to the Closing, the board of directors of MMLC will declare a distribution of $75 million, or $1.39 per share (based on MMLC’s outstanding share count as of March 31, 2020), relating to the pre-Closing period, subject to MMLC’s compliance with all applicable regulatory requirements and covenants contained in debt agreements to which MMLC is party or subject.

The market value of the consideration to be received by MMLC stockholders will fluctuate with changes in the market price of GSBD Common Stock. We urge you to obtain current market quotations of GSBD Common Stock. GSBD Common Stock trades on the New York Stock Exchange (the “NYSE”) under the ticker symbol “GSBD.” The following table shows the closing sales price of GSBD Common Stock, as reported on the NYSE on June 10, 2020, the last trading day before the execution of the Merger Agreement.

 

     GSBD
Common
Stock
 

Closing Sales Price at June 10, 2020

   $ 17.11  

Your vote is extremely important. The holders of at least a majority of GSBD’s outstanding shares must be present at the GSBD Special Meeting for each of the above proposals to be voted on. At the GSBD Special Meeting, you will be asked to vote on the GSBD Merger Proposal, the GSBD Charter Amendment Proposal and the Merger Stock Issuance Proposal. Approval of the GSBD Merger Proposal requires the affirmative vote of (i) a majority of the outstanding shares of GSBD Common Stock and (ii) a majority of the outstanding shares of GSBD Common Stock held by the stockholders of GSBD, excluding GSAM and its affiliates (the “Unaffiliated GSBD Stockholders”). Approval of the GSBD Charter Amendment Proposal requires the affirmative vote of a majority of the outstanding shares of GSBD Common Stock. Approval of the Merger Stock Issuance Proposal requires the affirmative vote of a majority of the votes cast by holders of GSBD Common Stock at a meeting at which a quorum is present.

Abstentions and broker non-votes (which occur when a beneficial owner does not instruct its broker, bank or other institution or nominee holding its shares of GSBD Common Stock on its behalf) will not be included in determining the number of votes cast, and, as a result, will have no effect on the outcome of the Merger Stock Issuance Proposal. Abstentions and broker non-votes will not count as affirmative votes cast and will therefore have the same effect as votes against each of the GSBD Merger Proposal and the GSBD Charter Amendment Proposal.

After careful consideration, the GSBD Board, upon recommendation of a committee of the GSBD Board comprised solely of the independent directors of GSBD (the “GSBD Special Committee”), unanimously recommends that GSBD stockholders vote “FOR” each of the GSBD Merger Proposal, the GSBD Charter Amendment Proposal and the Merger Stock Issuance Proposal.

It is very important that your shares be represented at the GSBD Special Meeting. Even if you plan to attend the meeting in person, we urge you to complete, date and sign the enclosed proxy card and


promptly return it in the envelope provided. If you prefer, you can save time by voting through the Internet or by telephone as described in this joint proxy statement/prospectus and on the enclosed proxy card. We encourage you to vote via the Internet, if possible, as it saves us significant time and processing costs. Your vote and participation in the governance of GSBD are very important to us.

This joint proxy statement/prospectus concisely describes the GSBD Special Meeting, the Merger, the documents related to the Merger (including the Merger Agreement), the Amended and Restated GSBD Charter and other related matters that GSBD stockholders ought to know before voting on the GSBD Merger Proposal, the GSBD Charter Amendment Proposal and the Merger Stock Issuance Proposal and should be retained for future reference. Please carefully read this entire document, including “Risk Factors” beginning on page 27, for a discussion of the risks relating to the Merger. GSBD files annual, quarterly and current reports, proxy statements and other information about itself with the SEC. GSBD maintains a website at http://www.goldmansachsbdc.com and makes all of its annual, quarterly and current reports, proxy statements and other publicly filed information available on or through its website. You may also obtain such information, free of charge, and make shareholder inquiries by contacting GSBD at 71 S Wacker Drive, Suite 500, Chicago, Illinois 60606, Attention: AI Shareholder Services, or by calling collect at (312) 655-4702. The SEC also maintains a website at http://www.sec.gov that contains such information.

Sincerely yours,

Brendan McGovern

Chief Executive Officer

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of the shares of GSBD Common Stock to be issued under this joint proxy statement/prospectus or determined if this joint proxy statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

This joint proxy statement/prospectus is dated August 4, 2020 and it is first being mailed or otherwise delivered to GSBD stockholders on or about August 11, 2020.

 

Goldman Sachs BDC, Inc.

200 West Street

New York, NY 10282

(212) 902-0300

 

  

Goldman Sachs Middle Market Lending Corp.

200 West Street

New York, NY 10282

(212) 902-0300

 


GOLDMAN SACHS BDC, INC.

200 West Street

New York, NY 10282

(212) 902-0300

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON OCTOBER 2, 2020

Notice is hereby given to the owners of shares of common stock of Goldman Sachs BDC, Inc. (“GSBD”) that:

A Special Meeting of Stockholders (the “GSBD Special Meeting”) of GSBD will be held at 30 Hudson Street, Jersey City, New Jersey 07302, on October 2, 2020 at 10:00 a.m., Eastern Time, for the following purposes:

 

  (i)

adopt the Amended and Restated Agreement and Plan of Merger, dated as of June 11, 2020 (the “Merger Agreement”), by and among GSBD, Goldman Sachs Middle Market Lending Corp., a Delaware corporation (“MMLC”), Evergreen Merger Sub Inc., a Delaware corporation and wholly owned direct subsidiary of GSBD (“Merger Sub”), and Goldman Sachs Asset Management, L.P, a Delaware limited partnership (“GSAM”) (such proposal is referred to herein as the “GSBD Merger Proposal”), which proposal is contingent upon the approval of each of the proposals listed below;

 

  (ii)

approve an amended and restated certificate of incorporation of GSBD (“Amended and Restated GSBD Charter”), which would restrict stockholders that acquire shares of GSBD Common Stock (as defined below) pursuant to the Merger (as defined below) from transferring such shares for certain periods of time (such proposal is referred to herein as the “GSBD Charter Amendment Proposal”), which proposal is contingent upon approval of the GSBD Merger Proposal and each of the proposals listed below; and

 

  (iii)

approve the issuance of shares of GSBD common stock, $0.001 par value per share (“GSBD Common Stock”), pursuant to the Merger Agreement (such proposal is referred to herein as the “Merger Stock Issuance Proposal”), which proposal is contingent upon approval of each of the GSBD Merger Proposal and GSBD Charter Amendment Proposal and the proposal listed below.

Closing of the Merger is contingent upon (a) GSBD stockholder approval of all of the above proposals, (b) MMLC stockholder approval of each of the Merger Agreement and the Amended and Restated GSBD Charter and (c) certain other closing conditions. If the Merger does not close, then the Amended and Restated GSBD Charter will not go into effect and the GSBD Common Stock will not be issued pursuant to the Merger Stock Issuance Proposal, even if approved by the GSBD stockholders.

THE BOARD OF DIRECTORS OF GSBD (THE “GSBD BOARD”), UPON RECOMMENDATION OF A COMMITTEE OF THE GSBD BOARD COMPRISED SOLELY OF THE INDEPENDENT DIRECTORS OF GSBD (THE “GSBD SPECIAL COMMITTEE”), HAS UNANIMOUSLY APPROVED EACH OF THE MERGER AGREEMENT AND THE RELATED TRANSACTIONS, THE GSBD CHARTER AMENDMENT PROPOSAL, THE MERGER STOCK ISSUANCE PROPOSAL, AND UNANIMOUSLY RECOMMENDS THAT GSBD STOCKHOLDERS VOTE “FOR” EACH OF THE GSBD MERGER PROPOSAL, THE GSBD CHARTER AMENDMENT PROPOSAL AND THE MERGER STOCK ISSUANCE PROPOSAL.

Enclosed is a copy of the joint proxy statement/prospectus and the proxy card. You have the right to receive notice of, and to vote at, the GSBD Special Meeting if you were a GSBD stockholder of record at the close of business on August 3, 2020. Whether or not you expect to be present in person at the GSBD Special Meeting, please sign the enclosed proxy and return it promptly in the envelope provided, or authorize your proxy via the Internet or telephone. Instructions are shown on the proxy card.

Your vote is extremely important to GSBD. In the event there are not sufficient votes for a quorum or to approve the proposals at the time of the GSBD Special Meeting, the GSBD Special Meeting may be adjourned in order to permit further solicitation of proxies by GSBD.


The Merger and the Merger Agreement are each described in more detail in this joint proxy statement/prospectus, which you should read carefully and in its entirety before authorizing a proxy to vote. Attached to this joint proxy statement/prospectus is a copy of the Merger Agreement as Annex A.

The GSBD Charter Amendment Proposal is described in more detail in this joint proxy statement/prospectus, which you should read carefully and in its entirety before authorizing a proxy to vote. Attached to this joint proxy statement/prospectus is a copy of the Amended and Restated GSBD Charter as Annex B.

GSBD currently intends to hold the GSBD Special Meeting in person. However, GSBD is actively monitoring developments in connection with the coronavirus (COVID-19) pandemic and is sensitive to the public health and travel concerns that stockholders may have and the protocols or guidance that federal, state and local governments and agencies such as the Center for Disease Control and World Health Organization may recommend or impose. In the event it is not possible or advisable to hold the GSBD Special Meeting in person, GSBD will announce alternative arrangements for the meeting as promptly as possible, which may include holding the GSBD Special Meeting solely as a virtual meeting by means of a live webcast. If the GSBD Special Meeting will be held solely through a virtual meeting format, GSBD will announce that fact as promptly as practicable, and details on how to participate will be issued by press release, posted on the website at which GSBD’s proxy materials are available at www.proxyvote.com, and filed with the U.S. Securities and Exchange Commission as additional proxy material. Please monitor the website at which GSBD’s proxy materials are available at www.proxyvote.com for updated information. GSBD encourages you to vote your shares at the GSBD Special Meeting.

By Order of the Board of Directors,

Caroline Kraus

Secretary

August 4, 2020

 

This is an important meeting. To ensure proper representation at the meeting, please promptly authorize a proxy over the Internet or by telephone, or execute and return the accompanying proxy card, which is being solicited by the GSBD Board. Instructions are shown on the proxy card. Authorizing a proxy is important to ensure a quorum at the GSBD Special Meeting. Proxies may be revoked at any time before they are exercised by submitting a written notice of revocation or a subsequently executed proxy, or by attending the GSBD Special Meeting and voting in person.

 

Important notice regarding the availability of proxy materials for the GSBD Special Meeting, GSBD’s joint proxy statement/prospectus and the proxy card are available at www.proxyvote.com.


GOLDMAN SACHS MIDDLE MARKET LENDING CORP.

200 West Street

New York, NY 10282

MERGER PROPOSED—YOUR VOTE IS VERY IMPORTANT

August 4, 2020

Dear Stockholder:

You are cordially invited to attend the Special Meeting of Stockholders (the “MMLC Special Meeting”) of Goldman Sachs Middle Market Lending Corp. (“MMLC”) to be held on October 2, 2020 at 10:30 a.m., Eastern Time, at 30 Hudson Street, Jersey City, New Jersey 07302.

The notice of special meeting and joint proxy statement/prospectus accompanying this letter provide an outline of the business to be conducted at the MMLC Special Meeting. At the MMLC Special Meeting, you will be asked to:

 

(i)

adopt the Amended and Restated Agreement and Plan of Merger, dated as of June 11, 2020 (the “Merger Agreement”), by and among Goldman Sachs BDC, Inc., a Delaware corporation (“GSBD”), MMLC, Evergreen Merger Sub Inc., a Delaware corporation and wholly owned direct subsidiary of GSBD (“Merger Sub”), and Goldman Sachs Asset Management, L.P., a Delaware limited partnership (“GSAM”) (such proposal is referred to herein as the “MMLC Merger Proposal”), which proposal is contingent upon the proposal listed below; and

 

(ii)

approve an amended and restated certificate of incorporation of GSBD (“Amended and Restated GSBD Charter”), which would restrict stockholders that acquire shares of GSBD Common Stock (as defined below) pursuant to the Merger (as defined below) from transferring such shares for certain periods of time (such proposal is referred to herein as the “MMLC Charter Amendment Proposal”), which proposal is contingent upon approval of the MMLC Merger Proposal.

Closing of the Merger (the “Closing”) is contingent upon (a) MMLC stockholder approval of each of the MMLC Merger Proposal and the MMLC Charter Amendment Proposal, (b) GSBD stockholder approval of each of the Merger Agreement, the Amended and Restated GSBD Charter and the issuance of shares of GSBD common stock, par value $0.001 per share (“GSBD Common Stock”) in connection with the Merger and (c) certain other closing conditions. If the Merger does not close, then the Amended and Restated GSBD Charter will not go into effect, even if approved by the MMLC stockholders.

The Merger Agreement provides for a combination of MMLC and GSBD via a merger and related transactions in which Merger Sub would merge with and into MMLC with MMLC continuing as the surviving company (the “First Merger”). Immediately following the First Merger, MMLC (as the surviving company in the First Merger) would merge with and into GSBD with GSBD continuing as the surviving company (the “Second Merger” and, together with the First Merger, the “Merger”).

Subject to the terms and conditions of the Merger Agreement, if the Merger is completed, each holder of MMLC common stock, par value $0.001 per share (“MMLC Common Stock”), issued and outstanding immediately prior to the effective time of the First Merger (other than GSBD or any of its consolidated subsidiaries) will have the right to receive, for each share of MMLC Common Stock, that number of shares of GSBD Common Stock with a net asset value (“NAV”) equal to the NAV per share of MMLC Common Stock (such number of shares of GSBD Common Stock, the “Exchange Ratio”), in each case calculated as of the same date within 48 hours (excluding Sundays and holidays) prior to the closing of the Merger (the “Determination Date”), provided, that the Exchange Ratio shall be subject to adjustment if, between the Determination Date and the effective time of the First Merger, the respective outstanding shares of GSBD Common Stock or MMLC Common Stock will have been increased or decreased or changed into or exchanged for a different number or kind of shares or securities, as a result of any reclassification, recapitalization, stock split, reverse stock split, split-up, combination or exchange of shares, or if a stock dividend or dividend payable in any other securities


will be declared with a record date within such period, as permitted by the Merger Agreement.

In connection with the Merger, GSAM has agreed to waive a portion of its incentive fee for nine quarters, commencing with the quarter ending December 31, 2019 and through and including the quarter ending December 31, 2021, otherwise payable by GSBD under the investment management agreement by and between GSAM and GSBD (the “Incentive Fee Waiver”), for each such quarter in an amount sufficient to ensure that GSBD’s net investment income per weighted share outstanding for such quarter is at least $0.48 per share. The Incentive Fee Waiver helps to ensure that distributions paid to GSBD’s stockholders will not be a return of capital for tax purposes during the merger period. Further, the board of directors of GSBD has approved special distributions of $0.15 per share in total, and payable in three equal quarterly installments currently expected to begin in the first quarter of 2021, subject to the timing of the Closing, to the stockholders of the combined company. Prior to the Closing, the board of directors of MMLC (the “MMLC Board”) will declare a distribution of $75 million, or $1.39 per share (based on MMLC’s outstanding share count as of March 31, 2020), relating to the pre-Closing period, subject to MMLC’s compliance with all applicable regulatory requirements and covenants contained in debt agreements to which MMLC is party or subject.

The market value of the consideration to be received by MMLC stockholders will fluctuate with changes in the market price of GSBD Common Stock. We urge you to obtain current market quotations of GSBD Common Stock. GSBD Common Stock trades on the New York Stock Exchange (the “NYSE”) under the ticker symbol “GSBD.” The following table shows the closing sales price of GSBD Common Stock, as reported on the NYSE on June 10, 2020, the last trading day before the execution of the Merger Agreement.

 

     GSBD
Common
Stock
 

Closing Sales Price at June 10, 2020

   $ 17.11  

Your vote is extremely important. The holders of at least a majority of MMLC’s outstanding shares must be present at the MMLC Special Meeting in order for each of the MMLC Merger Proposal and the MMLC Charter Amendment Proposal to be voted upon. The approval of the MMLC Merger Proposal requires the affirmative vote of the holders of (i) a majority of the outstanding shares of MMLC Common Stock and (ii) a majority of the outstanding shares of MMLC Common Stock held by the stockholders of MMLC, excluding GSAM and its affiliates (the “Unaffiliated MMLC Stockholders”). The approval of the MMLC Charter Amendment Proposal requires the affirmative vote of at least a majority of the outstanding shares of MMLC Common Stock. Abstentions and broker non-votes will not count as affirmative votes cast and will therefore have the same effect as votes against each of the MMLC Merger Proposal and the MMLC Charter Amendment Proposal.

After careful consideration, the MMLC Board, upon recommendation of a committee of the MMLC Board comprised solely of the independent directors of MMLC (the “MMLC Special Committee”), unanimously recommends that MMLC stockholders vote “FOR” each of the MMLC Merger Proposal and the MMLC Charter Amendment Proposal. No other business is expected to be presented at the MMLC Special Meeting.

It is very important that your shares be represented at the MMLC Special Meeting. Even if you plan to attend the meeting in person, we urge you to complete, date and sign the enclosed proxy card and promptly return it in the envelope provided. If you prefer, you can save time by voting through the Internet or by telephone as described in this joint proxy statement/prospectus and on the enclosed proxy card. We encourage you to vote via the Internet, if possible, as it saves us significant time and processing costs. Your vote and participation in the governance of MMLC are very important to us.

This joint proxy statement/prospectus concisely describes the MMLC Special Meeting, the Merger, the documents related to the Merger (including the Merger Agreement), the Amended and Restated GSBD Charter and other related matters that MMLC stockholders ought to know before voting on the MMLC Merger Proposal and the MMLC Charter Amendment Proposal and should be retained for future


reference. Please carefully read this entire document, including “Risk Factors” beginning on page 27, for a discussion of the risks relating to the Merger. MMLC files annual, quarterly and current reports, proxy statements and other information about itself with the SEC. You may also obtain such information, free of charge, and make shareholder inquiries by contacting MMLC at 71 S Wacker Drive, Suite 500, Chicago, Illinois 60606, Attention: AI Shareholder Services, or by calling collect at (312) 655-4702. The SEC also maintains a website at http://www.sec.gov that contains such information.

 

Sincerely yours,

Brendan McGovern

Chief Executive Officer

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of the shares of GSBD Common Stock to be issued under this joint proxy statement/prospectus or determined if this joint proxy statement/prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

This joint proxy statement/prospectus is dated August 4, 2020 and it is first being mailed or otherwise delivered to MMLC stockholders on or about August 11, 2020.

 

Goldman Sachs BDC, Inc.

200 West Street

New York, NY 10282

(212) 902-0300

 

  

Goldman Sachs Middle Market Lending Corp.

200 West Street

New York, NY 10282

(212) 902-0300

 


GOLDMAN SACHS MIDDLE MARKET LENDING CORP.

200 West Street

New York, NY 10282

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

TO BE HELD ON OCTOBER 2, 2020

Notice is hereby given to the owners of shares of common stock of Goldman Sachs Middle Market Lending Corp. (“MMLC”) that:

A Special Meeting of Stockholders (the “MMLC Special Meeting”) of MMLC will be held at 30 Hudson Street, Jersey City, New Jersey 07302, on October 2, 2020 at 10:30 a.m., Eastern Time, for the following purposes:

 

  (i)

adopting the Amended and Restated Agreement and Plan of Merger dated as of June 11, 2020 (the “Merger Agreement”) by and among Goldman Sachs BDC, Inc., a Delaware corporation (“GSBD”), MMLC, Evergreen Merger Sub Inc., a Delaware corporation and wholly owned direct subsidiary of GSBD (“Merger Sub”), and Goldman Sachs Asset Management, L.P., a Delaware limited partnership (“GSAM”), pursuant to which Merger Sub will merge with and into MMLC, with MMLC as the surviving company (the “First Merger”), followed immediately by the merger of MMLC with and into GSBD, with GSBD surviving the second merger (the “Second Merger” and, together with the First Merger, the “Merger”) (such proposal is referred to herein as the “MMLC Merger Proposal”), which proposal is contingent upon approval of the proposal listed below; and

 

  (ii)

approving an amended and restated certificate of incorporation of GSBD (“Amended and Restated GSBD Charter”) to restrict stockholders that acquire shares of GSBD Common Stock (as defined below) pursuant to the Merger from transferring such shares for certain periods of time (such proposal is referred to herein as the “MMLC Charter Amendment Proposal”), which proposal is contingent upon approval of the MMLC Merger Proposal.

Closing of the Merger is contingent upon (a) MMLC stockholder approval of each of the MMLC Merger Proposal and the MMLC Charter Amendment Proposal, (b) GSBD stockholder approval of each of the Merger Agreement, the Amended and Restated GSBD Charter and the issuance of shares of GSBD Common Stock (as defined below) in connection with the Merger and (c) certain other closing conditions. If the Merger does not close, then the Amended and Restated GSBD Charter will not go into effect, even if approved by the MMLC stockholders.

Subject to the terms and conditions of the Merger Agreement, if the Merger is completed, each holder of shares of MMLC common stock, par value $0.001 per share (“MMLC Common Stock”), issued and outstanding immediately prior to the effective time of the First Merger (other than GSBD or any of its consolidated subsidiaries) will have the right to receive, for each share of MMLC Common Stock, that number of shares of GSBD common stock, par value $0.001 per share (“GSBD Common Stock”), with a net asset value (“NAV”) equal to the NAV per share of MMLC Common Stock (such number of shares of GSBD Common Stock, the “Exchange Ratio”), in each case calculated as of the same date within 48 hours (excluding Sundays and holidays) prior to the closing of the Merger (the “Determination Date”), provided, that the Exchange Ratio shall be subject to adjustment if, between the Determination Date and the effective time of the First Merger, the respective outstanding shares of GSBD Common Stock or MMLC Common Stock will have been increased or decreased or changed into or exchanged for a different number or kind of shares or securities, as a result of any reclassification, recapitalization, stock split, reverse stock split, split-up, combination or exchange of shares, or if a stock dividend or dividend payable in any other securities will be declared with a record date within such period, as permitted by the Merger Agreement.

THE MMLC BOARD OF DIRECTORS (THE “MMLC BOARD”), UPON RECOMMENDATION OF A COMMITTEE OF THE MMLC BOARD COMPRISED SOLELY OF THE INDEPENDENT DIRECTORS OF MMLC (THE “MMLC SPECIAL COMMITTEE”), UNANIMOUSLY RECOMMENDS THAT YOU VOTE “FOR” THE MMLC MERGER PROPOSAL AND THE MMLC CHARTER AMENDMENT PROPOSAL.


Enclosed is a copy of the joint proxy statement/prospectus and the proxy card. You have the right to receive notice of, and to vote at, the MMLC Special Meeting if you were a MMLC stockholder of record at the close of business on August 3, 2020. Whether or not you expect to be present in person at the MMLC Special Meeting, please sign the enclosed proxy and return it promptly in the envelope provided, or authorize your proxy via the Internet or telephone. Instructions are shown on the proxy card.

Your vote is extremely important to us. In the event there are not sufficient votes for a quorum or to approve the proposal at the time of the MMLC Special Meeting, the MMLC Special Meeting may be adjourned in order to permit further solicitation of proxies by MMLC.

The Merger and the Merger Agreement are each described in more detail in this joint proxy statement/prospectus, which you should read carefully and in its entirety before authorizing a proxy to vote. Attached to this joint proxy statement/prospectus is a copy of the Merger Agreement as Annex A.

The MMLC Charter Amendment Proposal is described in more detail in this joint proxy statement/prospectus, which you should read carefully and in its entirety before authorizing a proxy to vote. Attached to this joint proxy statement/prospectus is a copy of the Amended and Restated GSBD Charter as Annex B.

MMLC currently intends to hold the MMLC Special Meeting in person. However, MMLC is actively monitoring developments in connection with the coronavirus (COVID-19) pandemic and is sensitive to the public health and travel concerns that stockholders may have and the protocols or guidance that federal, state and local governments and agencies such as the Center for Disease Control and World Health Organization may recommend or impose. In the event it is not possible or advisable to hold the MMLC Special Meeting in person, MMLC will announce alternative arrangements for the meeting as promptly as possible, which may include holding the MMLC Special Meeting solely as a virtual meeting by means of a live webcast. If the MMLC Special Meeting will be held solely through a virtual meeting format, MMLC will announce that fact as promptly as practicable, and details on how to participate will be issued by press release, posted on the website at which MMLC’s proxy materials are available at www.proxyvote.com, and filed with the U.S. Securities and Exchange Commission as additional proxy material. Please monitor the website at which MMLC’s proxy materials are available at www.proxyvote.com for updated information. MMLC encourages you to vote your shares at the MMLC Special Meeting.

 

By Order of the Board of Directors,

 

Caroline Kraus

Secretary

August 4, 2020

 

This is an important meeting. To ensure proper representation at the meeting, please promptly authorize a proxy over the Internet or by telephone, or execute and return the accompanying proxy card, which is being solicited by the MMLC Board. Instructions are shown on the proxy card. Authorizing a proxy is important to ensure a quorum at the MMLC Special Meeting. Proxies may be revoked at any time before they are exercised by submitting a written notice of revocation or a subsequently executed proxy, or by attending the MMLC Special Meeting and voting in person

 

Important notice regarding the availability of proxy materials for the MMLC Special Meeting, MMLC’s joint proxy statement/prospectus and the proxy card are available at www.proxyvote.com.


TABLE OF CONTENTS

 

ABOUT THIS DOCUMENT

     1  

QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETINGS AND THE MERGER

     4  

SUMMARY OF THE MERGER

     16  

RISK FACTORS

     27  

COMPARATIVE FEES AND EXPENSES

     112  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     118  

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF GOLDMAN SACHS BDC, INC.

     120  

SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF GOLDMAN SACHS MIDDLE MARKET LENDING CORP.

     122  

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

     123  

CAPITALIZATION

     141  

THE GSBD SPECIAL MEETING

     142  

THE MMLC SPECIAL MEETING

     146  

THE MERGER

     149  

DESCRIPTION OF THE MERGER AGREEMENT

     190  

ACCOUNTING TREATMENT OF THE MERGER

     208  

CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

     209  

GSBD PROPOSAL 1: APPROVAL OF THE GSBD MERGER PROPOSAL

     221  

GSBD PROPOSAL 2: APPROVAL OF THE GSBD CHARTER AMENDMENT PROPOSAL

     222  

GSBD PROPOSAL 3: APPROVAL OF THE MERGER STOCK ISSUANCE PROPOSAL

     224  

MMLC PROPOSAL 1: APPROVAL OF THE MMLC MERGER PROPOSAL

     225  

MMLC PROPOSAL 2: APPROVAL OF THE MMLC CHARTER AMENDMENT PROPOSAL

     226  

MARKET PRICE, DIVIDEND AND DISTRIBUTION INFORMATION

     228  

BUSINESS OF GOLDMAN SACHS BDC, INC.

     230  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF GOLDMAN SACHS BDC, INC.

     246  

SENIOR SECURITIES OF GOLDMAN SACHS BDC, INC.

     274  

PORTFOLIO COMPANIES OF GOLDMAN SACHS BDC, INC.

     276  

MANAGEMENT OF GOLDMAN SACHS BDC, INC.

     291  

GOLDMAN SACHS BDC, INC. MANAGEMENT AGREEMENTS

     300  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS OF  GOLDMAN SACHS BDC, INC.

     308  

CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS OF GOLDMAN SACHS BDC, INC.

     309  

BUSINESS OF GOLDMAN SACHS MIDDLE MARKET LENDING CORP.

     310  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF GOLDMAN SACHS MIDDLE MARKET LENDING CORP.

     335  

SENIOR SECURITIES OF GOLDMAN SACHS MIDDLE MARKET LENDING CORP.

     360  

PORTFOLIO COMPANIES OF GOLDMAN SACHS MIDDLE MARKET LENDING CORP.

     361  

MANAGEMENT OF GOLDMAN SACHS MIDDLE MARKET LENDING CORP.

     374  

GOLDMAN SACHS MIDDLE MARKET LENDING CORP. MANAGEMENT AGREEMENTS

     382  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS OF GOLDMAN SACHS MIDDLE MARKET LENDING CORP.

     391  

CONTROL PERSONS AND PRINCIPAL STOCKHOLDERS OF GOLDMAN SACHS MIDDLE MARKET LENDING CORP.

     393  

DESCRIPTION OF CAPITAL STOCK OF GOLDMAN SACHS BDC, INC.

     395  

DESCRIPTION OF CAPITAL STOCK OF GOLDMAN SACHS MIDDLE MARKET LENDING CORP.

     403  

GOLDMAN SACHS BDC, INC. DIVIDEND REINVESTMENT PLAN

     410  

COMPARISON OF GSBD AND MMLC STOCKHOLDER RIGHTS

     412  

REGULATION

     415  


CUSTODIAN, TRANSFER AND DISTRIBUTION PAYING AGENT AND REGISTRAR OF GOLDMAN SACHS BDC, INC. AND GOLDMAN SACHS MIDDLE MARKET LENDING CORP.

     422  

BROKERAGE ALLOCATION AND OTHER PRACTICES

     422  

LEGAL MATTERS

     422  

EXPERTS

     422  

OTHER MATTERS

     423  

STOCKHOLDERS SHARING AN ADDRESS

     424  

WHERE YOU CAN FIND MORE INFORMATION

     424  

INDEX TO FINANCIAL STATEMENTS

     F-1  

ANNEX A MERGER AGREEMENT

     A-1  

ANNEX B AMENDED AND RESTATED GSBD CHARTER

     B-1  

ANNEX C OPINION OF THE FINANCIAL ADVISOR TO THE MMLC SPECIAL COMMITTEE

     C-1  

ANNEX D OPINION OF THE FINANCIAL ADVISOR TO THE GSBD SPECIAL COMMITTEE

     D-1  


ABOUT THIS DOCUMENT

This document, which forms part of a registration statement on Form N-14 filed with the U.S. Securities and Exchange Commission (the “SEC”) by GSBD (File No. 333-235856), constitutes a prospectus of GSBD under Section 5 of the Securities Act of 1933, as amended (the “Securities Act”), with respect to the shares of GSBD Common Stock to be issued to MMLC stockholders as required by the Merger Agreement.

This document also constitutes joint proxy statements of GSBD and MMLC under Section 14(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). It also constitutes a notice of meeting with respect to: (1) the GSBD Special Meeting, at which GSBD stockholders will be asked to vote upon the GSBD Merger Proposal, the GSBD Charter Amendment Proposal and the Merger Stock Issuance Proposal; and (2) the MMLC Special Meeting, at which MMLC stockholders will be asked to vote on the MMLC Merger Proposal and the MMLC Charter Amendment Proposal.

You should rely only on the information contained in this joint proxy statement/prospectus. No one has been authorized to provide you with information that is different from that contained in this joint proxy statement/prospectus. This joint proxy statement/prospectus is dated August 4, 2020. You should not assume that the information contained in this joint proxy statement/prospectus is accurate as of any date other than that date. Neither the mailing of this joint proxy statement/prospectus to GSBD stockholders or MMLC stockholders nor the issuance of GSBD Common Stock in connection with the Merger will create any implication to the contrary.

This joint proxy statement/prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any securities, or the solicitation of a proxy, in any jurisdiction to or from any person to whom it is unlawful to make any such offer or solicitation in such jurisdiction.

Except where the context otherwise indicates, information contained in this joint proxy statement/prospectus regarding GSBD has been provided by GSBD and information contained in this joint proxy statement/prospectus regarding MMLC has been provided by MMLC.

When used in this document, unless otherwise indicated in this document or the context otherwise requires:

 

   

“Administrator” refers to State Street Bank and Trust Company, a Massachusetts trust company, and the administrator of GSBD and MMLC;

 

   

“Amended and Restated GSBD Charter” refers to the certificate of incorporation of GSBD, as amended in connection with the GSBD Charter Amendment Proposal;

 

   

“BofA Securities” refers to BofA Securities, Inc., together with its predecessor, Merrill Lynch, Pierce, Fenner & Smith Incorporated, the financial advisor to the GSBD Special Committee;

 

   

“Determination Date” refers to an agreed upon date no more than 48 hours (excluding Sundays and holidays) prior to the Effective Time;

 

   

“Effective Time” refers to the effective time of the First Merger;

 

   

“First Merger” refers to the merger of Merger Sub with and into MMLC, with MMLC as the surviving company;

 

   

“GSAM” or “Investment Adviser” refers to Goldman Sachs Asset Management, L.P., the investment adviser to GSBD and MMLC;

 

   

“GSBD” refers to Goldman Sachs BDC, Inc. and, where applicable, its consolidated subsidiaries;

 

   

“GSBD Administration Agreement” refers to the administration agreement by and between GSBD and the Administrator;

 

   

“GSBD Board” refers to the board of directors of GSBD;

 

1


   

“GSBD Independent Directors” refers to the Independent Directors of the GSBD Board in their capacity as such;

 

   

“GSBD Investment Management Agreement” refers to the Second Amended and Restated Investment Management Agreement, dated June 15, 2018, by and between GSBD and GSAM;

 

   

“GSBD Proposals” means, collectively, the proposals to be voted on at the GSBD Special Meeting;

 

   

“GSBD Requisite Vote” means, collectively, (i) the affirmative vote of a majority of the outstanding shares of GSBD Common Stock to adopt the Merger Agreement, (ii) the affirmative vote of a majority of the outstanding shares of GSBD Common Stock held by the Unaffiliated GSBD Stockholders to adopt the Merger Agreement, (iii) the affirmative vote of a majority of the outstanding shares of GSBD Common Stock to approve the GSBD Charter Amendment Proposal (in the case of each of clauses (i), (ii) and (iii), at a duly called and held meeting of the GSBD stockholders at which a quorum is present) and (iv) the affirmative vote of a majority of the votes cast by the holders of outstanding shares of GSBD Common Stock at a duly called and held meeting at which a quorum is present to approve the Merger Stock Issuance Proposal;

 

   

“GSBD Special Committee” refers to the committee of the GSBD Board comprised solely of GSBD Independent Directors;

 

   

“Independent Director” means, with respect to the GSBD Independent and MMLC Independent Directors, each director who is not an “interested person” of GSBD or MMLC, as applicable, as defined in the Investment Company Act of 1940;

 

   

“Initial Merger Agreement” refers to the Agreement and Plan of Merger dated as of December 9, 2019, by and among GSBD, MMLC, Merger Sub and GSAM, prior to any amendment thereof;

 

   

“Merger” means, together, the First Merger and the Second Merger;

 

   

“Merger Agreement” or “A&R Merger Agreement” refers to the Amended and Restated Agreement and Plan of Merger, dated as of June 11, 2020, by and among GSBD, MMLC, Merger Sub and GSAM, which amended and restated the Initial Merger Agreement in its entirety;

 

   

“Merger Sub” refers to Evergreen Merger Sub Inc., a Delaware corporation and wholly owned direct subsidiary of GSBD;

 

   

“MMLC” refers to Goldman Sachs Middle Market Lending Corp. and, where applicable, its consolidated subsidiaries;

 

   

“MMLC Administration Agreement” refers to the Administration Agreement by and between MMLC and the Administrator;

 

   

“MMLC Board” refers to the board of directors of MMLC;

 

   

“MMLC Distribution” refers to the distribution of $75 million, or $1.39 per share (based on MMLC’s outstanding share count as of March 31, 2020), to MMLC stockholders relating to the pre-closing period that the MMLC Board will declare prior to the Closing, subject to MMLC’s compliance with all applicable regulatory requirements and covenants contained in debt agreements to which MMLC is party or subject.

 

   

“MMLC Independent Directors” refers to the Independent Directors of the MMLC Board in their capacity as such;

 

   

“MMLC Investment Management Agreement” refers to the Investment Management Agreement, dated as of January 13, 2017, by and between MMLC and GSAM;

 

   

“MMLC Proposals” means, collectively, the proposals to be voted on at the MMLC Special Meeting.

 

2


   

“MMLC Requisite Vote” means, collectively, (i) the affirmative vote of a majority of the outstanding shares of MMLC Common Stock to adopt the Merger Agreement, (ii) the affirmative vote of a majority of the outstanding shares of MMLC Common Stock held by the Unaffiliated MMLC Stockholders to adopt the Merger Agreement and (iii) the affirmative vote of a majority of the outstanding shares of MMLC Common Stock to approve the Amended and Restated GSBD Charter, in each case at a duly called and held meeting of the MMLC stockholders;

 

   

“MMLC Special Committee” refers to the committee of MMLC Board comprised solely of MMLC Independent Directors;

 

   

“Morgan Stanley” refers to Morgan Stanley & Co. LLC, the financial advisor to the MMLC Special Committee;

 

   

“NAV” refers to net asset value;

 

   

“Second Merger” refers to the merger of MMLC (as the surviving company of the First Merger) with and into GSBD, with GSBD as the surviving company;

 

   

“Unaffiliated GSBD Stockholders” refers to all of the stockholders of GSBD, excluding GSAM and its affiliates; and

 

   

“Unaffiliated MMLC Stockholders” refers to all of the stockholders of MMLC, excluding GSAM and its affiliates.

 

3


QUESTIONS AND ANSWERS ABOUT THE SPECIAL MEETINGS AND THE MERGER

The questions and answers below highlight only selected information from this joint proxy statement/prospectus. They do not contain all of the information that may be important to you. You should read carefully this entire document to fully understand the Merger Agreement and the transactions contemplated thereby (including the Merger) and the voting procedures for each of the GSBD Special Meeting and the MMLC Special Meeting.

Questions and Answers about the Special Meetings

 

Q:

Why am I receiving these materials?

 

A:

GSBD is furnishing these materials in connection with the solicitation of proxies by GSBD’s board of directors (the “GSBD Board”) for use at the special meeting of GSBD stockholders to be held at 10:30 a.m., Eastern Time, on October 2, 2020 at 30 Hudson Street, Jersey City, New Jersey 07302, and any adjournments or postponements thereof (the “GSBD Special Meeting”).

MMLC is furnishing these materials in connection with the solicitation of proxies by MMLC’s board of directors (the “MMLC Board”) for use at the special meeting of MMLC stockholders to be held at 10:30 a.m., Eastern Time, on October 2, 2020 at 30 Hudson Street, Jersey City, New Jersey 07302, and any adjournments or postponements thereof (the “MMLC Special Meeting”).

This joint proxy statement/prospectus and the accompanying materials are being mailed on or about August 11, 2020 to stockholders of record of GSBD and MMLC described below and are available at www.proxyvote.com.

 

Q:

What items will be considered and voted on at the GSBD Special Meeting?

 

A:

At the GSBD Special Meeting, GSBD stockholders will be asked to (i) adopt the Merger Agreement (such proposal, the “GSBD Merger Proposal”) which proposal is contingent upon the approval of each of the proposals listed below, (ii) approve an amended and restated certificate of incorporation of GSBD (the “Amended and Restated GSBD Charter”) to restrict stockholders that acquire shares of GSBD Common Stock (as defined below) pursuant to the Merger from transferring such shares for certain periods of time (such proposal, the “GSBD Charter Amendment Proposal”), which proposal is contingent upon approval of the GSBD Merger Proposal and the proposal listed below and (iii) approve the issuance of shares of GSBD common stock, $0.001 par value per share (“GSBD Common Stock”) pursuant to the Merger Agreement (such proposal, the “Merger Stock Issuance Proposal”), which proposal is contingent upon the approval of the GSBD Merger Proposal and the GSBD Charter Amendment Proposal.

 

Q:

What items will be considered and voted on at the MMLC Special Meeting?

 

A:

At the MMLC Special Meeting, MMLC stockholders will be asked to (i) adopt the Merger Agreement (such proposal, the “MMLC Merger Proposal”), which proposal is contingent upon approval of the proposal listed below and (ii) approve the Amended and Restated GSBD Charter (such proposal, the “MMLC Charter Amendment Proposal”), which proposal is contingent upon approval of the MMLC Merger Proposal.

 

Q:

How does the GSBD Board recommend voting on the proposals at the GSBD Special Meeting?

 

A:

The GSBD Board, upon recommendation of the GSBD Special Committee, has unanimously approved the Merger Agreement, including the Merger and the related transactions, the Amended and Restated GSBD Charter and the proposed issuance of GSBD Common Stock in connection with the Merger, and directed that such matters be submitted to the stockholders of GSBD for approval at the GSBD Special Meeting. The

 

4


  GSBD Board, upon recommendation of the GSBD Special Committee, unanimously recommends that GSBD stockholders vote “FOR” each of the GSBD Merger Proposal, the GSBD Charter Amendment Proposal and the Merger Stock Issuance Proposal.

 

Q:

How does the MMLC Board recommend voting on the proposals at the MMLC Special Meeting?

 

A:

The MMLC Board, upon recommendation of the MMLC Special Committee, has unanimously approved the Merger Agreement, including the Merger and the related transactions, and the Amended and Restated GSBD Charter, and directed that such matters be submitted to the stockholders of MMLC for approval at the MMLC Special Meeting. The MMLC Board, upon recommendation of the MMLC Special Committee, unanimously recommends that MMLC stockholders vote “FOR” each of the MMLC Merger Proposal and the MMLC Charter Amendment Proposal.

 

Q:

If I am a GSBD stockholder, what is the “Record Date” and what does it mean?

 

A:

The record date for the GSBD Special Meeting is August 3, 2020 (the “GSBD Record Date”). The GSBD Record Date is established by the GSBD Board, and only holders of record of shares of GSBD Common Stock at the close of business on the GSBD Record Date are entitled to receive notice of the GSBD Special Meeting and vote at the GSBD Special Meeting. As of the GSBD Record Date, there were 40,448,044 shares of GSBD Common Stock outstanding.

 

Q:

If I am a MMLC stockholder, what is the “Record Date” and what does it mean?

 

A:

The record date for the MMLC Special Meeting is August 3, 2020 (the “MMLC Record Date”). The MMLC Record Date is established by the MMLC Board, and only holders of record of shares of MMLC common stock, par value $0.001 per share (“MMLC Common Stock”) at the close of business on the MMLC Record Date are entitled to receive notice of the MMLC Special Meeting and vote at the MMLC Special Meeting. As of the MMLC Record Date, there were 53,844,946.589 shares of MMLC Common Stock outstanding.

 

Q:

If I am a GSBD stockholder, how many votes do I have?

 

A:

Each share of GSBD Common Stock held by a holder of record as of the GSBD Record Date has one vote on each matter considered at the GSBD Special Meeting.

 

Q:

If I am a MMLC stockholder, how many votes do I have?

 

A:

Each share of MMLC Common Stock held by a holder of record as of the MMLC Record Date has one vote on each matter considered at the MMLC Special Meeting.

 

Q:

If I am a GSBD stockholder, how do I vote?

 

A:

A GSBD stockholder may vote in person at the GSBD Special Meeting or by proxy in accordance with the instructions provided below. A GSBD stockholder may also authorize a proxy by telephone or through the Internet using the toll-free telephone numbers or web address printed on your proxy card. Authorizing a proxy by telephone or through the Internet requires you to input the control number located on your proxy card. After inputting the control number, you will be prompted to direct your proxy to vote on each proposal. You will have an opportunity to review your directions and make any necessary changes before submitting your directions and terminating the telephone call or Internet link.

 

   

By Internet: www.proxyvote.com

 

   

By telephone: 1-800-690-6903 to reach a toll-free, automated touchtone voting line, or 1-833-670-0593 Monday through Friday 9:00 a.m. until 10:00 p.m. Eastern Time to reach a toll-free, live operator line.

 

5


   

By mail: You may vote by proxy by following the directions and indicating your instructions on the enclosed proxy card, dating and signing the proxy card, and promptly returning the proxy card in the envelope provided, which requires no postage if mailed in the United States. Please allow sufficient time for your proxy card to be received on or prior to 5:00 p.m., Eastern Time, on October 1, 2020.

 

   

In person: You may vote in person at the GSBD Special Meeting by requesting a ballot when you arrive. If your shares of GSBD Common Stock are held through a broker and you attend the GSBD Special Meeting in person, please bring a letter from your broker identifying you as the beneficial owner of the shares and authorizing you to vote your shares at the GSBD Special Meeting.

Important notice regarding the availability of proxy materials for the GSBD Special Meeting. GSBD’s joint proxy statement/prospectus and the proxy card are available at www.proxyvote.com.

 

Q:

If I am a MMLC stockholder, how do I vote?

 

A:

A MMLC stockholder may vote in person at the MMLC Special Meeting or by proxy in accordance with the instructions provided below. A MMLC stockholder may also authorize a proxy by telephone or through the Internet using the toll-free telephone numbers or web address printed on your proxy card. Authorizing a proxy by telephone or through the Internet requires you to input the control number located on your proxy card. After inputting the control number, you will be prompted to direct your proxy to vote on each proposal. You will have an opportunity to review your directions and make any necessary changes before submitting your directions and terminating the telephone call or Internet link.

 

   

By Internet: www.proxyvote.com

 

   

By telephone: 1-800-690-6903 to reach a toll-free, automated touchtone voting line, or 1-833-670-0593 Monday through Friday 9:00 a.m. until 10:00 p.m. Eastern Time to reach a toll-free, live operator line.

 

   

By mail: You may vote by proxy by following the directions and indicating your instructions on the enclosed proxy card, dating and signing the proxy card, and promptly returning the proxy card in the envelope provided, which requires no postage if mailed in the United States. Please allow sufficient time for your proxy card to be received on or prior to 5:00 p.m., Eastern Time, on October 1, 2020.

 

   

In person: You may vote in person at the MMLC Special Meeting by requesting a ballot when you arrive. If your shares of MMLC Common Stock are held through a broker and you attend the MMLC Special Meeting in person, please bring a letter from your broker identifying you as the beneficial owner of the shares and authorizing you to vote your shares at the MMLC Special Meeting.

Important notice regarding the availability of proxy materials for the MMLC Special Meeting. MMLC’s joint proxy statement/prospectus and the proxy card are available at www.proxyvote.com.

 

Q:

What if a GSBD stockholder does not specify a choice for a matter when authorizing a proxy?

 

A:

All properly executed proxies representing shares of GSBD Common Stock received prior to the GSBD Special Meeting will be voted in accordance with the instructions marked thereon. If a proxy card is signed and returned without any instructions marked, the shares of GSBD Common Stock will be voted “FOR” the GSBD Merger Proposal, “FOR” the GSBD Charter Amendment Proposal and “FOR” the Merger Stock Issuance Proposal.

 

Q:

What if a MMLC stockholder does not specify a choice for a matter when authorizing a proxy?

 

A:

All properly executed proxies representing shares of MMLC Common Stock at the MMLC Special Meeting will be voted in accordance with the directions given. If the enclosed proxy card is signed and returned without any directions given, the shares of MMLC Common Stock will be voted “FOR” the MMLC Merger Proposal and “FOR” the MMLC Charter Amendment Proposal.

 

6


Q:

If I am a GSBD stockholder, how can I change my vote or revoke a proxy?

 

A:

You may revoke your proxy and change your vote by giving notice at any time before your proxy is exercised. A revocation may be effected by resubmitting voting instructions via the Internet voting site, by telephone, by obtaining and properly completing another proxy card that is dated later than the original proxy card and returning it, by mail, in time to be received on or prior to 5:00 p.m., Eastern Time, on October 1, 2020, by attending the GSBD Special Meeting and voting in person, or by a notice, provided in writing and signed by you, delivered to GSBD’s Secretary on any business day before the date of the GSBD Special Meeting.

 

Q:

If I am a MMLC stockholder, how can I change my vote or revoke a proxy?

 

A:

You may revoke your proxy and change your vote by giving notice at any time before your proxy is exercised. A revocation may be effected by resubmitting voting instructions via the Internet voting site, by telephone, by obtaining and properly completing another proxy card that is dated later than the original proxy card and returning it, by mail, in time to be received on or prior to 5:00 p.m., Eastern Time, on October 1, 2020, by attending the MMLC Special Meeting and voting in person, or by a notice, provided in writing and signed by you, delivered to MMLC’s Secretary on any business day before the date of the MMLC Special Meeting.

 

Q:

If my shares of GSBD Common Stock or MMLC Common Stock, as applicable, are held in a broker-controlled account or in “street name,” will my broker vote my shares for me?

 

A:

No. If you do not provide your broker with instructions on how to vote your “street name” shares, your broker will not be permitted to vote them.

For this reason, you should provide your broker with instructions on how to vote your shares or arrange to attend the GSBD or MMLC Special Meeting, as applicable, and vote your shares in person. Stockholders are urged to authorize proxies by telephone or the Internet if their broker has provided them with the opportunity to do so. See your voting instruction form for details. If your broker holds your shares and you attend the GSBD or MMLC Special Meeting, as applicable, in person, please bring a letter from your broker identifying you as the beneficial owner of the shares and authorizing you to vote your shares at the GSBD or MMLC Special Meeting, as applicable.

 

Q:

What constitutes a “quorum” for the GSBD Special Meeting?

 

A:

The presence at the GSBD Special Meeting, in person or by proxy, of the holders of a majority of the shares of GSBD Common Stock outstanding on the GSBD Record Date will constitute a quorum. If a GSBD stockholder holds shares in a “street name” through a broker, bank or other nominee and does not provide voting instructions to such broker, bank or other nominee with respect to any of the proposals to be considered at the GSBD Special Meeting, such shares will not be treated as shares present for quorum purposes. If a beneficial owner provides voting instructions to its broker, bank or other nominee holding its shares of GSBD Common Stock on its behalf with respect to any of the proposals to be considered at the GSBD Special Meeting, the shares of GSBD Common Stock will be treated as present for quorum purposes.

If there does not appear to be enough votes for a quorum or to approve the proposals at the GSBD Special Meeting, the GSBD Special Meeting may be adjourned for such periods as the chairman of the GSBD Special Meeting or the holders of a majority of the shares of GSBD Common Stock, present in person or represented by proxy and entitled to vote thereat, will direct from time to time without notice other than announcement at the GSBD Special Meeting. Jonathan Lamm and Joseph McClain are the persons named as proxy and will vote proxies held by one of them for such adjournment, unless marked to be voted against any proposal for which an adjournment is sought, to permit the further solicitation of proxies.

 

7


If sufficient votes in favor of any of the proposals to be considered at the GSBD Special Meeting have been received at the time of the GSBD Special Meeting, the applicable proposal or proposals will be acted upon and such action will be final, regardless of any subsequent adjournments to consider other proposals.

 

Q:

What constitutes a “quorum” for the MMLC Special Meeting?

 

A:

The presence at the MMLC Special Meeting, in person or by proxy, of the holders of a majority of the shares of MMLC Common Stock outstanding on the MMLC Record Date will constitute a quorum. If a MMLC stockholder holds shares in a “street name” through a broker, bank or other nominee and does not provide voting instructions to such broker, bank or other nominee with respect to any of the proposals to be considered at the MMLC Special Meeting, such shares will not be treated as shares present for quorum purposes. If a beneficial owner provides voting instructions to its broker, bank or other nominee holding its shares of MMLC Common Stock on its behalf with respect to any of the proposals to be considered at the MMLC Special Meeting, the shares of MMLC Common Stock will be treated as present for quorum purposes.

If there does not appear to be enough votes for a quorum or to approve the proposals at the MMLC Special Meeting, the MMLC Special Meeting may be adjourned for such periods as the chairman of the MMLC Special Meeting or the holders of a majority of the shares of MMLC Common Stock, present in person or represented by proxy and entitled to vote thereat, will direct from time to time without notice other than announcement at the MMLC Special Meeting. Jonathan Lamm and Joseph McClain are the persons named as proxy and will vote proxies held by one of them for such adjournment, unless marked to be voted against any proposal for which an adjournment is sought, to permit the further solicitation of proxies.

If sufficient votes in favor of any of the proposals to be considered at the MMLC Special Meeting have been received at the time of the MMLC Special Meeting, the applicable proposal or proposals will be acted upon and such action will be final, regardless of any subsequent adjournments to consider other proposals.

 

Q:

What vote is required to approve each of the proposals at the GSBD Special Meeting?

 

A:

The affirmative vote of (i) a majority of the outstanding shares of GSBD Common Stock and (ii) a majority of the outstanding shares of GSBD Common Stock held by the Unaffiliated GSBD Stockholders are required to approve the GSBD Merger Proposal. Abstentions and broker non-votes will have the effect of a vote “against” this proposal.

The affirmative vote of the holders of a majority of the outstanding shares of GSBD Common Stock entitled to vote at the GSBD Special Meeting is required for approval of the GSBD Charter Amendment Proposal. Abstentions and broker non-votes will have the effect of a vote “against” this proposal.

The affirmative vote of the holders of a majority of the votes cast by the holders of outstanding shares of GSBD Common Stock at the GSBD Special Meeting in person or by proxy at a meeting at which a quorum is present is required for approval of the Merger Stock Issuance Proposal (meaning that the number of shares voted “for” the proposal must exceed the number of shares voted “against” such proposal). Abstentions and broker non-votes will not be included in determining the number of votes cast and, as a result, will have no effect on this proposal.

Broker non-votes are described as votes cast by a broker or other nominee on behalf of a beneficial holder who does not provide explicit voting instructions to such broker or nominee and who does not attend the meeting. Each of the GSBD Merger Proposal, the GSBD Charter Amendment Proposal and the Merger Stock Issuance Proposal are non-routine matters for GSBD. As a result, if a GSBD stockholder holds shares in “street name” through a broker, bank or other nominee, the broker, bank or nominee will not be permitted to exercise voting discretion with respect to any of the GSBD Merger Proposal, the GSBD Charter

 

8


Amendment Proposal or the Merger Stock Issuance Proposal. As a result, abstentions and broker non-votes will have no effect on the outcome of the Merger Stock Issuance Proposal. Abstentions and broker non-votes will not count as affirmative votes cast and will therefore have the same effect as votes against each of the GSBD Merger Proposal and the GSBD Charter Amendment Proposal.

 

Q:

What vote is required to approve each of the proposals being considered at the MMLC Special Meeting?

 

A:

The affirmative vote of (i) a majority of the outstanding shares of MMLC Common Stock and (ii) a majority of the outstanding shares of MMLC Common Stock held by the Unaffiliated MMLC Stockholders are required to approve the MMLC Merger Proposal. Abstentions and broker non-votes will have the effect of a vote “against” this proposal.

The affirmative vote of the holders of a majority of the outstanding shares of MMLC Common Stock entitled to vote at the MMLC Special Meeting is required for approval of the MMLC Charter Amendment Proposal. Abstentions and broker non-votes will have the effect of a vote “against” this proposal.

 

Q:

What will happen if all of the proposals being considered at the GSBD Special Meeting and the MMLC Special Meeting are not approved by the required vote?

 

A:

As discussed in more detail in this joint proxy statement/prospectus, the closing of the Merger (the “Closing”) is conditioned on, among other things, (i) approval of the GSBD Merger Proposal, the GSBD Charter Amendment Proposal and the Merger Stock Issuance Proposal by GSBD stockholders at the GSBD Special Meeting, (ii) approval of the MMLC Merger Proposal and the MMLC Charter Amendment Proposal by MMLC stockholders at the MMLC Special Meeting, and (iii) the receipt of any required regulatory and other approvals.

If any of the GSBD Merger Proposal, the GSBD Charter Amendment Proposal or the Merger Stock Issuance Proposal is not approved by the GSBD stockholders, then the Merger will not close. If any of the MMLC Merger Proposal or the MMLC Charter Amendment Proposal is not approved by the MMLC stockholders, then the Merger will not close.

If the Merger does not close because either the GSBD stockholders or the MMLC stockholders do not approve the applicable proposals or any of the other conditions to the Closing is not satisfied or waived, each of GSBD and MMLC will continue to operate pursuant to the current agreements in place for each, and each of GSBD’s and MMLC’s respective directors and executive officers will continue to serve as its directors and officers, respectively, until their successors are duly elected and qualified, or their resignation.

 

Q:

How will the final voting results be announced?

 

A:

Preliminary voting results will be announced at each special meeting. Final voting results will be published by GSBD and MMLC in a current report on Form 8-K within four business days after the date of the GSBD Special Meeting and the MMLC Special Meeting, respectively.

 

Q:

Will GSBD and MMLC incur expenses in soliciting proxies?

 

A:

GSBD and MMLC will equally bear the cost of preparing, printing and mailing this joint proxy statement/prospectus and the applicable accompanying Notice of Special Meeting of Stockholders and proxy card. GSBD and MMLC intend to use the services of Broadridge Investor Communication Services Inc. (“Broadridge”) to aid in the distribution and collection of proxies for an estimated fee of approximately $320,000. No additional compensation will be paid to directors, officers or regular employees for such services.

 

9


For more information regarding expenses related to the Merger, see “Questions and Answers about the Merger—Who is responsible for paying the expenses relating to completing the Merger?”

 

Q:

What does it mean if I receive more than one proxy card?

 

A:

Some of your shares of GSBD Common Stock or MMLC Common Stock, as applicable, may be registered differently or held in different accounts. You should authorize a proxy to vote the shares in each of your accounts by mail, by telephone or via the Internet. If you mail proxy cards, please sign, date and return each proxy card to guarantee that all of your shares are voted.

 

Q:

Are the proxy materials available electronically?

 

A:

In accordance with regulations promulgated by the SEC, GSBD and MMLC have made the registration statement (of which this joint proxy statement/prospectus forms a part), the applicable Notice of Special Meeting of Stockholders and the applicable proxy card available to stockholders of GSBD and MMLC on the Internet. Stockholders may (i) access and review the proxy materials of GSBD and MMLC, as applicable, (ii) authorize their proxies, as described in “The GSBD Special Meeting—Voting of Proxies” and “The MMLC Special Meeting—Voting of Proxies,” and/or (iii) elect to receive future proxy materials by electronic delivery via the Internet address provided below.

The registration statement (of which this joint proxy statement/prospectus forms a part), each Notice of Special Meeting of Stockholders and each proxy card are available at www.proxyvote.com.

 

Q:

Will my vote make a difference?

 

A:

Yes. Your vote is needed to ensure the proposals can be acted upon. Your vote is very important. Your immediate response will help avoid potential delays and may save significant additional expenses associated with soliciting stockholder votes.

 

Q:

Whom can I contact with any additional questions?

 

A:

If you are a GSBD stockholder or a MMLC stockholder, you can contact Goldman Sachs Shareholder Services at the below contact information with any additional questions:

Goldman Sachs Shareholder Services

71 S Wacker Drive, Suite 500

Chicago, Illinois 60606

(312) 655-4702

Attention: AI Shareholder Services

 

Q:

Where can I find more information about GSBD and MMLC?

 

A:

You can find more information about GSBD and MMLC in the documents described under the caption “Where You Can Find More Information.”

 

Q:

What do I need to do now?

 

A:

We urge you to read carefully this entire document, including its annexes. You should also review the documents referenced under “Where You Can Find More Information” and consult with your accounting, legal and tax advisors.

 

10


Questions and Answers about the Merger

 

Q:

What will happen in the Merger?

 

A:

MMLC will be the surviving company of the First Merger and will continue its existence as a corporation under the laws of the State of Delaware until the Second Merger. As of the effective time of the First Merger (the “Effective Time”), the separate corporate existence of Merger Sub will cease. Immediately after the Effective Time, pursuant to the Second Merger, MMLC (as the surviving company of the First Merger) will merge with and into GSBD, with GSBD as the surviving entity.

 

Q:

Why did GSBD, MMLC, Merger Sub and GSAM enter into the Amended and Restated Merger Agreement?

 

A:

In order to comply with provisions of the Investment Company Act of 1940 which require that a merger of affiliated BDCs not result in dilution to either party, the Initial Merger Agreement contained a closing condition whose satisfaction was dependent on the trading price of GSBD’s common stock. Heightened volatility in the current market precipitated by the COVID-19 pandemic created uncertainty as to whether this condition could be met. As a result, on June 11, 2020, GSBD and MMLC entered into the Merger Agreement to, among other things, change the consideration to be paid to MMLC stockholders (other than GSBD or any of its consolidated subsidiaries) from 0.9939 shares of GSBD Common Stock for each share of MMLC Common Stock under the Initial Merger Agreement to NAV for NAV (i.e., a number of shares of GSBD Common Stock with a NAV equal to the NAV per share of MMLC Common Stock, each determined no earlier than 48 hours (excluding Sundays and holidays) prior to the effective time of the Initial Merger) (the “Exchange Ratio”).

 

Q:

What will MMLC stockholders receive in the Merger?

 

A:

Each MMLC stockholder (other than GSBD or any of its consolidated subsidiaries) will be entitled to receive, for each share of MMLC Common Stock, that number of shares of GSBD Common Stock with a NAV equal to the NAV per share of MMLC Common Stock, in each case calculated as of the same date within 48 hours (excluding Sundays and holidays) prior to the closing of the Merger (the “Merger Consideration”). The Exchange Ratio will be subject to adjustment solely to the extent described below.

 

Q:

Is the Exchange Ratio subject to any adjustment?

 

A:

Yes. The Exchange Ratio will be adjusted only if, between the Determination Date and the Effective Time, the respective outstanding shares of GSBD Common Stock or MMLC Common Stock will have been increased or decreased or changed into or exchanged for a different number or kind of shares or securities, as a result of any reclassification, recapitalization, stock split, reverse stock split, split-up, combination or exchange of shares, or if a stock dividend or dividend payable in any other securities will be declared with a record date within such period, as permitted by the Merger Agreement. Because the Exchange Ratio will be determined within 48 hours (excluding Sundays and holidays) prior to the Closing, the time period during which such an adjustment could occur will be relatively short.

 

Q:

Who is responsible for paying the expenses relating to completing the Merger?

 

A:

GSBD and MMLC will equally bear the costs and expenses of preparing, printing and mailing this joint proxy statement/prospectus, including all expenses related to the services of Broadridge, all filing and other fees paid to the SEC in connection with the Merger and all filings and other fees in connection with any filing under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”). Solely in the event that the Merger is consummated, GSAM will reimburse each of GSBD and MMLC, in each case in an amount of up to $4 million, for all fees and expenses incurred and payable by MMLC or on its behalf, on the one hand, or GSBD or on its behalf, on the other hand, in connection with or related to the Merger, the Merger Agreement and the related transactions (including all documented fees and expenses of

 

11


  counsel, accountants, experts and consultants to MMLC or the MMLC Special Committee, on the one hand, or GSBD or the GSBD Special Committee, on the other hand). See “Description of the Merger Agreement—Fees and Expenses.” Before giving effect to the reimbursement, it is anticipated that GSBD will bear expenses of approximately $5.9 million in connection with the Merger ($1.5 million of which had been capitalized by GSBD as of March 31, 2020) and MMLC will bear expenses of approximately $5.8 million in connection with the Merger ($2.0 million of which had been expensed by MMLC as of March 31, 2020).

 

Q:

Will I receive dividends after the Merger?

 

A:

Subject to applicable legal restrictions and the sole discretion of the GSBD Board, GSBD intends to declare and pay regular cash distributions to its stockholders on a quarterly basis. The GSBD Board has approved special distributions of $0.15 per share in total, and payable in three equal quarterly installments currently expected to begin in the first quarter of 2021, subject to the timing of the Closing. For a history of the dividend declarations and distributions paid by GSBD since January 1, 2017, see “Market Price, Dividend and Distribution Information—GSBD.” The amount and timing of past dividends and distributions are not a guarantee of any future dividends or distributions, or the amount thereof, the payment, timing and amount of which will be determined by the GSBD Board and depend on GSBD’s cash requirements, its financial condition and earnings, contractual restrictions, legal and regulatory considerations and other factors. See “Goldman Sachs BDC, Inc. Dividend Reinvestment Plan” for additional information regarding GSBD’s dividend reinvestment plan.

Prior to Closing, the MMLC Board will declare a distribution of $75 million, or $1.39 per share (based on MMLC’s outstanding share count as of March 31, 2020), to MMLC stockholders relating to the pre-closing period, subject to MMLC’s compliance with all applicable regulatory requirements and covenants contained in debt agreements to which MMLC is party or subject (the “MMLC Distribution”). To the extent MMLC’s previously undistributed “investment company taxable income” is in excess of the MMLC Distribution, an additional tax distribution may be required in order for MMLC to satisfy the distribution requirements imposed on MMLC as a regulated investment company under the Internal Revenue Code of 1986, as amended (the “Code”). A portion of the MMLC Distribution may represent a return of capital. For more information, please see “Market Price, Dividend and Distribution Information—MMLC.”

Following the Effective Time, the record holders of shares of MMLC Common Stock will be entitled to receive dividends or other distributions declared by the GSBD Board with a record date after the Effective Time theretofore payable with respect to the whole shares of GSBD Common Stock represented by such shares of MMLC Common Stock. For a history of the dividend declarations and distributions paid by MMLC since January 1, 2017, see “Market Price, Dividend and Distribution Information—MMLC.”

 

Q:

Is the Merger subject to any third party consents?

 

A:

Under the Merger Agreement, GSBD and MMLC have agreed to cooperate with each other and use reasonable best efforts to take, or cause to be taken, in good faith, all actions, and to do, or cause to be done, all things necessary, including to promptly prepare and file all necessary documentation, to effect all applications, notices, petitions and filings (including any required applications, notices or other filings under the HSR Act), to obtain as promptly as practicable all permits of all governmental entities and all permits, consents, approvals, confirmations and authorizations of all third parties, in each case, that are necessary or advisable, to consummate the transactions (including the Merger) in the most expeditious manner practicable, and to comply with the terms and conditions of all such permits, consents, approvals and authorizations of all such third parties and governmental entities. As of the date of this joint proxy statement/prospectus, GSBD and MMLC believe that, subject to the satisfaction of certain conditions, they have obtained all necessary third party consents (including consent under the HSR Act) other than stockholder approval. There can be no assurance that any permits, consents, approvals, confirmations or authorizations will be obtained or that such permits, consents, approvals, confirmations or authorizations will not impose conditions or requirements that,

 

12


  individually or in the aggregate, would or could reasonably be expected to have a material adverse effect on the financial condition, results of operations, assets or business of the combined company following the Merger.

GSBD and MMLC have further agreed to cooperate with each other and use reasonable best efforts to take, or cause to be taken, in good faith, all actions, and to do, or cause to be done, all things necessary for (i) GSBD to maintain (or expand) its existing credit facility (the “GSBD Credit Facility”) to permit GSBD to pay off in full the existing MMLC credit facility (the “MMLC Credit Facility”), and (ii) the Existing MMLC Credit Facility to be repaid in full at the Closing.

 

Q:

How does GSBD’s investment objective and strategy differ from MMLC’s?

 

A:

The investment objective and strategies of GSBD and MMLC are substantially similar. The investment objective of each of GSBD and MMLC is to generate current income and, to a lesser extent, capital appreciation primarily through direct originations of secured debt, including first lien, unitranche, and last-out portions of such loans; second lien debt; unsecured debt, including mezzanine debt; and select equity investments. MMLC has an internal policy pursuant to which it expects to invest, under normal circumstances, at least 80% of MMLC’s net assets (plus any borrowings for investment purposes), directly or indirectly in middle-market corporate credit obligations and related instruments, including other income-producing assets. GSBD does not have such an 80% policy. Further, MMLC uses the term “middle market” to refer to companies with between $5 million and $125 million of annual earnings before interest expense, income tax expense, depreciation and amortization (“EBITDA”) excluding certain one-time, and non-recurring items that are outside the operations of these companies, whereas GSBD uses “middle market” to refer to companies with between $5 million and $200 million of annual EBITDA excluding certain one-time, and non-recurring items that are outside the operations of these companies. The aforementioned distinctions have not, in practice, resulted in differences in investment activity.

As a result of these commonalities, GSAM does not anticipate any portfolio repositioning in connection with the Merger.

 

Q:

How do the distribution procedures, purchase procedures, redemption procedures and exchange rights of GSBD differ from those of MMLC?

 

A:

GSBD and MMLC have substantially similar distribution and purchase procedures. Neither GSBD nor MMLC offers exchange rights with respect to its common stock, and neither GSBD nor MMLC has the right to redeem its common stock. GSBD previously maintained a 10b5-1 plan (the “GSBD 10b5-1 Plan”), which provided for GSBD to repurchase up to $25.0 million of shares of GSBD Common Stock if the stock trades below the most recently announced NAV per share, subject to limitations. The GSBD 10b5-1 Plan was temporarily suspended on December 9, 2019 and expired on March 18, 2020. Shares of GSBD Common Stock trade on the New York Stock Exchange (“NYSE”) under the symbol “GSBD.” Shares of MMLC Common Stock are not listed on a national stock exchange. From time to time, GSBD may offer shares of its securities in public offerings registered under the Securities Act, and each of GSBD and MMLC may offer its respective securities in private placements in reliance on an exemption from the registration requirements of the Securities Act. GSBD has adopted an “opt out” dividend reinvestment plan, which provides for the reinvestment of GSBD’s distributions on behalf of its stockholders unless a stockholder elects to receive such distributions in cash. GSBD anticipates that the combined company will maintain the distribution and purchase procedures of GSBD following the Closing.

 

Q:

How will the combined company be managed following the Merger?

 

A:

The directors of GSBD immediately prior to the First Merger will remain the directors of GSBD and will hold office until their respective successors are duly elected and qualify, or their earlier death, resignation or removal. Notwithstanding the foregoing, upon the consummation of the Merger, (i) the GSBD Board will expand the size of the GSBD Board to eight (8) directors and will appoint the MMLC Independent Directors as of December 9, 2019 who are also members of the MMLC Board as of the date of the Closing (the

 

13


  Closing Date”) to the GSBD Board (the “MMLC Designated Directors”), and (ii) the MMLC Designated Directors will be apportioned among Class I (to serve until the 2021 annual meeting of stockholders) and Class II (to serve until the 2022 annual meeting of stockholders) of the GSBD Board. In addition, the GSBD Board will appoint the chairman of the Audit Committee of MMLC (the “MMLC Audit Committee”) as of the Closing Date to serve as the chairman of the Audit Committee of GSBD (the “GSBD Audit Committee”), effective as of the Closing Date. The officers of GSBD immediately prior to the Merger will remain the officers of GSBD and will hold office until their respective successors are duly appointed and qualify, or their earlier death, resignation or removal. Following the Merger, GSAM will continue to be the investment adviser of GSBD and the GSBD Investment Management Agreement will remain in effect.

 

Q:

How will the composition of the GSBD Board change following the Merger?

 

A:

As stated above, following the Merger, the directors of GSBD immediately prior to the First Merger will remain the directors of GSBD and the GSBD Board will expand the size of the GSBD Board to eight (8) directors in order to appoint the MMLC Designated Directors. The MMLC Designated Directors will be apportioned among Class I (to serve until the 2021 annual meeting of stockholders) and Class II (to serve until the 2022 annual meeting of stockholders) of the GSBD Board.

In addition, the GSBD Board will appoint the chairman of the MMLC Audit Committee as of the Closing Date to serve as the chairman of the GSBD Audit Committee, effective as of the Closing Date.

 

Q:

Are GSBD stockholders able to exercise appraisal rights?

 

A:

No. GSBD stockholders will not be entitled to exercise appraisal rights with respect to any matter to be voted upon at the GSBD Special Meeting. Any GSBD stockholder may abstain from voting or vote against any of such matters.

 

Q:

Are MMLC stockholders able to exercise appraisal rights?

 

A:

No. MMLC stockholders will not be entitled to exercise appraisal rights with respect to any matter to be voted upon at the MMLC Special Meeting. Any MMLC stockholder may abstain from voting or vote against any of such matters.

 

Q:

When do you expect to complete the Merger?

 

A:

While there can be no assurance as to the exact timing, or that the Merger will be completed at all, GSBD and MMLC are working to complete the Merger in the fourth quarter of calendar year 2020. It is currently expected that the Merger will be completed promptly following receipt of the required stockholder approvals at the GSBD Special Meeting and the MMLC Special Meeting and satisfaction of the other closing conditions set forth in the Merger Agreement.

 

Q:

Is the Merger expected to be taxable to GSBD stockholders?

 

A:

No. The Merger is not expected to be a taxable event for GSBD stockholders.

 

Q:

Is the Merger expected to be taxable to MMLC stockholders?

 

A:

No. The Merger is intended to qualify as a “reorganization,” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”), and it is a condition to GSBD’s and MMLC’s respective obligations to complete the Merger that each of them receives a legal opinion to that effect. MMLC stockholders are not expected to recognize any gain or loss for U.S. federal income tax purposes on the exchange of shares of MMLC Common Stock for shares of GSBD Common Stock pursuant to the Merger, except for any gain or loss that may result from the receipt of cash in lieu of fractional shares of GSBD Common Stock. MMLC stockholders should read the section captioned “Certain Material U.S. Federal Income Tax Consequences of the Merger” for a more complete discussion of the U.S. federal

 

14


  income tax consequences of the Merger. Tax matters can be complicated and the tax consequences of the Merger to a MMLC stockholder will depend on the particular tax situation of such stockholder. MMLC stockholders should consult with their own tax advisors to determine the tax consequences of the Merger to them.

 

Q:

What happens if the Merger is not consummated?

 

A:

If the GSBD Requisite Vote or the MMLC Requisite Vote, as applicable, is not obtained with respect to the Merger Agreement, the Amended and Restated GSBD Charter or the issuance of shares of GSBD, or if the Merger is not completed for any other reason, MMLC stockholders will not receive any consideration for their shares of MMLC Common Stock in connection with the Merger. Instead, MMLC will remain an independent company. See “Description of the Merger Agreement—Termination of the Merger Agreement.”

 

Q:

Did the GSBD Special Committee receive an opinion from the financial advisor to the GSBD Special Committee regarding the Exchange Ratio?

 

A:

Yes. For more information, see the section entitled “The Merger—Opinion of the Financial Advisor to the GSBD Special Committee.”

 

Q:

Did the MMLC Special Committee receive an opinion from the financial advisor to the MMLC Special Committee regarding the Exchange Ratio?

 

A:

Yes. For more information, see the section entitled “The Merger—Opinion of the Financial Advisor to the MMLC Special Committee.”

Questions and Answers about the Amended and Restated GSBD Charter

 

Q:

What are the terms of the Amended and Restated GSBD Charter?

 

A:

If approved, the Amended and Restated GSBD Charter would provide that following the Closing, without the prior consent of the GSBD Board, MMLC stockholders who acquire shares of GSBD Common Stock in the Merger (each, an “Affected Stockholder”) would not be able to transfer or sell:

 

   

any shares of GSBD Common Stock acquired by such Affected Stockholder in the Merger for 90 days following the date of filing of the Amended and Restated GSBD Charter (the “Filing Date”), which is expected to be filed on the Closing Date;

 

   

two-thirds of the shares of GSBD Common Stock acquired by such Affected Stockholder in the Merger for 180 days following the Filing Date; and

 

   

one-third of the shares of GSBD Common Stock acquired by such Affected Stockholder in the Merger for 270 days following the Filing Date.

Following approval of the Amended and Restated GSBD Charter, any purported transfer by an Affected Stockholder in violation of these transfer restrictions under the Amended and Restated GSBD Charter (the “Transfer Restrictions”) would have no force or effect.

 

Q:

Are GSBD stockholders (other than the Affected Stockholders following the Closing) subject to the Transfer Restrictions?

 

A:

No, the Transfer Restrictions only apply to the Affected Stockholders (and only to such shares of GSBD Common Stock acquired by the Affected Stockholders in the Merger), and do not apply to shares of GSBD Common Stock acquired by any other stockholder, whether prior to or following the Closing.

 

15


SUMMARY OF THE MERGER

This summary highlights selected information contained elsewhere in this joint proxy statement/prospectus and may not contain all of the information that is important to you. You should carefully read this entire joint proxy statement/prospectus, including the other documents to which this joint proxy statement/prospectus refers for a more complete understanding of the Merger. In particular, you should read the annexes attached to this joint proxy statement/prospectus, including the Merger Agreement, which is attached as Annex A hereto, as it is the legal document that governs the Merger. See “Where You Can Find More Information.” For a discussion of the risk factors you should carefully consider, see the section entitled “Risk Factors” beginning on page 27.

The Parties to the Merger

Goldman Sachs BDC, Inc.

200 West Street

New York, NY 10282

(212) 902-0300

GSBD is a specialty finance company focused on lending to middle-market companies. GSBD is a closed-end management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). GSBD is a Delaware corporation and shares of GSBD Common Stock are currently listed on the NYSE under the symbol “GSBD.” In addition, GSBD has elected to be treated, and expects to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Code, commencing with its taxable year ended December 31, 2013. From GSBD’s formation in 2012 through March 31, 2020, GSBD has originated more than $3.77 billion in aggregate principal amount of debt and equity investments prior to any subsequent exits and repayments. GSBD seeks to generate current income and, to a lesser extent, capital appreciation primarily through direct originations of secured debt, including first lien, unitranche, including last-out portions of such loans, second lien debt, and unsecured debt, including mezzanine debt, as well as through select equity investments.

“Unitranche” loans are first lien loans that may extend deeper in a company’s capital structure than traditional first lien debt and may provide for a waterfall of cash flow priority between different lenders in the unitranche loan. In a number of instances, GSBD may find another lender to provide the “first-out” portion of such loan and retain the “last-out” portion of such loan, in which case, the “first-out” portion of the loan would generally receive priority with respect to payment of principal, interest and any other amounts due thereunder over the “last-out” portion that GSBD would continue to hold. In exchange for the greater risk of loss, the “last-out” portion generally earns a higher interest rate than the “first-out” portion. GSBD uses the term “mezzanine” to refer to debt that ranks senior only to a borrower’s equity securities and ranks junior in right of payment to all of such borrower’s other indebtedness. GSBD may make multiple investments in the same portfolio company.

GSBD invests primarily in U.S. middle-market companies, which GSBD believes are underserved by traditional providers of capital such as banks and public debt markets. In describing GSBD’s business, GSBD generally uses the term “middle-market companies” to refer to companies with between $5 million and $200 million of annual earnings before interest expense, income tax expense, depreciation and amortization (“EBITDA”) excluding certain one-time, and non-recurring items that are outside the operations of these companies. However, GSBD may from time to time invest in larger or smaller companies. GSBD generates revenues primarily through receipt of interest income from the investments GSBD holds. In addition, GSBD generates income from various loan origination and other fees, dividends on direct equity investments and capital gains on the sales of investments. Fees received from portfolio companies (directors’ fees, consulting fees, administrative fees, tax advisory fees and other similar compensation) are paid to GSBD, unless, to the extent



 

16


required by applicable law or exemptive relief therefrom, GSBD only receives its allocable portion of such fees when invested in the same portfolio company as another client account managed by GSAM (such accounts, including MMLC, Goldman Sachs Private Middle Market Credit LLC (“GS PMMC”) and Goldman Sachs Private Middle Market Credit II LLC (“GS PMMC II” and, together with GSBD, MMLC and GS PMMC, the “GS BDCs”), are referred to collectively as the “Accounts”). The companies in which GSBD invests use GSBD’s capital for a variety of purposes, including to support organic growth, fund acquisitions, make capital investments or refinance indebtedness.

Goldman Sachs Middle Market Lending Corp.

200 West Street

New York, NY 10282

(212) 902-0300

MMLC is a specialty finance company focused on lending to middle-market companies. MMLC is a Delaware corporation and a closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act. In addition, MMLC has elected to be treated, and expects to qualify annually, as a RIC under Subchapter M of the Code, commencing with its taxable year ending December 31, 2017. From MMLC’s commencement of operations on January 11, 2017 through March 31, 2020, MMLC has originated $2.32 billion in aggregate principal amount of debt and equity investments prior to any subsequent exits and repayments. MMLC seeks to generate current income and, to a lesser extent, capital appreciation primarily through direct originations of secured debt, including first lien, unitranche, including last-out portions of such loans, second lien debt, and unsecured debt, including mezzanine debt, as well as through select equity investments.

“Unitranche” loans are first lien loans that may extend deeper in a company’s capital structure than traditional first lien debt and may provide for a waterfall of cash flow priority between different lenders in the unitranche loan. In a number of instances, MMLC may find another lender to provide the “first out” portion of such loan and retain the “last out” portion of such loan, in which case, the “first out” portion of the loan would generally receive priority with respect to payment of principal, interest and any other amounts due thereunder over the “last out” portion that MMLC would continue to hold. In exchange for the greater risk of loss, the “last out” portion generally earns a higher interest rate than the “first-out” portion. MMLC uses the term “mezzanine” to refer to debt that ranks senior only to a borrower’s equity securities and ranks junior in right of payment to all of such borrower’s other indebtedness. MMLC may make multiple investments in the same portfolio company.

MMLC invests primarily in U.S. middle-market companies, which MMLC believes are underserved by traditional providers of capital such as banks and the public debt markets. In describing MMLC’s business, MMLC generally uses the term “middle-market companies” to refer to companies with EBITDA of between $5 million and $125 million annually, excluding certain one-time and non-recurring items that are outside the operations of these companies. However, MMLC may from time to time invest in larger or smaller companies. MMLC generates revenues primarily through receipt of interest income from the investments MMLC holds. In addition, MMLC may generate income from various loan origination and other fees, dividends on direct equity investments and capital gains on the sales of investments. Fees received from portfolio companies (directors’ fees, consulting fees, administrative fees, tax advisory fees and other similar compensation) are paid to MMLC, unless, to the extent required by applicable law or exemptive relief therefrom, MMLC only receives its allocable portion of such fees when invested in the same portfolio company as another Account. The companies in which MMLC invests use MMLC’s capital for a variety of purposes, including to support organic growth, fund acquisitions, make capital investments or refinance indebtedness.



 

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Evergreen Merger Sub, Inc.

200 West Street

New York, NY 10282

(212) 902-0300

Merger Sub is a Delaware corporation and a newly formed wholly owned subsidiary of GSBD. Merger Sub was formed in connection with and for the sole purpose of the Merger.

Goldman Sachs Asset Management, L.P.

200 West Street

New York, NY 10282

(212) 902-5400

GSAM serves as GSBD’s and MMLC’s investment adviser and has been registered as an investment adviser with the SEC since 1990. Subject to the supervision of the GSBD Board, which is comprised of a majority of Independent Directors (including an independent Chair), GSAM manages GSBD’s day-to-day operations and provides GSBD with investment advisory and management services and certain administrative services. Subject to the supervision of the MMLC Board, which is comprised of a majority of Independent Directors (including an independent Chair), GSAM manages MMLC’s day-to-day operations and provides MMLC with investment advisory and management services and certain administrative services.

GSAM has been registered as an investment adviser with the SEC since 1990 and is an indirect, wholly-owned subsidiary of The Goldman Sachs Group, Inc. (“Group Inc.”) and an affiliate of Goldman Sachs & Co. LLC (“GS & Co.”). Founded in 1869, Group, Inc. is a publicly-held financial holding company (“FHC”) and a leading global investment banking, securities and investment management firm. As of March 31, 2020, GSAM, including its investment advisory affiliates, had assets under supervision of approximately $1.7 trillion.

Merger Structure

Pursuant to the terms of the Merger Agreement, at the Effective Time, Merger Sub will be merged with and into MMLC in accordance with the Delaware General Corporation Law (the “DGCL”). MMLC will be the surviving company and will continue its existence as a corporation under the laws of the State of Delaware. As of the Effective Time, the separate corporate existence of Merger Sub will cease. Immediately after the occurrence of the Effective Time, in the Second Merger, MMLC (as the surviving company in the First Merger) will merge with and into GSBD in accordance with the DGCL, with GSBD as the surviving entity in the Second Merger.



 

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The following diagram illustrates the First Merger, the Second Merger and the ownership structure of GSBD immediately following the Merger:

LOGO



 

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Based on the number of shares of GSBD Common Stock and MMLC Common Stock issued and outstanding as of March 31, 2020, at the Closing Date, GSBD stockholders would own approximately 41.3% of the outstanding GSBD Common Stock and former MMLC stockholders will own approximately 58.7% of the outstanding GSBD Common Stock. Following the Merger, GSBD will continue its operations as conducted before the Merger with GSAM acting as its investment adviser pursuant to the GSBD Investment Management Agreement.

The Merger Agreement is attached as Annex A to this joint proxy statement/prospectus and is incorporated by reference into this joint proxy statement/prospectus. GSBD and MMLC encourage their respective stockholders to read the Merger Agreement carefully and in its entirety, as it is the principal legal document governing the Merger.

Merger Consideration

If the Merger is consummated, each MMLC stockholder (other than GSBD and its consolidated subsidiaries) will be entitled to receive, for each share of MMLC Common Stock, that number of shares of GSBD Common Stock with a NAV equal to the NAV per share of MMLC Common Stock (such number of shares of GSBD Common Stock, the “Exchange Ratio”), in each case calculated as of the same date within 48 hours (excluding Sundays and holidays) prior to the closing of the Merger (the “Merger Consideration”), subject to adjustment only if, between the Determination Date and the Effective Time, the respective outstanding shares of GSBD Common Stock or MMLC Common Stock will have been increased or decreased or changed into or exchanged for a different number or kind of shares or securities, as a result of any reclassification, recapitalization, stock split, reverse stock split, split-up, combination or exchange of shares, or if a stock dividend or dividend payable in any other securities will be declared with a record date within such period, as permitted by the Merger Agreement. Closing of the Merger (the “Closing”) is contingent upon (a) GSBD stockholder approval of each of the GSBD Merger Proposal, the GSBD Charter Amendment Proposal and the Merger Stock Issuance Proposal (b) MMLC stockholder approval of each of the MMLC Merger Proposal and the MMLC Charter Amendment Proposal and (c) certain other closing conditions. Holders of MMLC Common Stock will receive cash in lieu of fractional shares.

After the Determination Date and until the Merger is completed, the market value of the shares of GSBD Common Stock to be issued in the Merger will continue to fluctuate but the number of shares to be issued to MMLC stockholders will remain fixed.

Market Price of Securities

Shares of GSBD Common Stock trade on NYSE under the symbol “GSBD.” Shares of MMLC Common Stock are not listed on a national stock exchange.

The following table presents the closing sales prices as of the last trading day before the execution of the Merger Agreement and the most recent quarter end, and the most recently determined NAV per share of GSBD Common Stock and the most recently determined NAV per share of MMLC Common Stock.

 

     GSBD
Common
Stock
     MMLC
Common
Stock
 

NAV per Share at March 31, 2020

   $ 14.72      $ 17.08  

Closing Sales Price at March 31, 2020

   $ 12.33        N/A  

Closing Sales Price at June 10, 2020

   $ 17.11        N/A  


 

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Risks Relating to the Merger

The Merger and the other transactions contemplated by the Merger Agreement are subject to, among others, the following risks. GSBD and MMLC stockholders should carefully consider these risks before deciding how to vote on the proposals to be voted on at their respective special meetings.

 

   

Because the market price of GSBD Common Stock will fluctuate, MMLC stockholders cannot be sure of the market value of the Merger Consideration they will receive until the Closing Date.

 

   

Sales of shares of GSBD Common Stock after the completion of the Merger may cause the market price of GSBD Common Stock to decline.

 

   

MMLC stockholders and GSBD stockholders will experience a reduction in percentage ownership and voting power in the combined company as a result of the Merger. See also “Control Persons and Principal Stockholders of Goldman Sachs BDC, Inc.” and “Control Persons and Principal Stockholders of Goldman Sachs Middle Market Lending Corp.”

 

   

GSBD may be unable to realize the benefits anticipated by the Merger, including estimated cost savings, or it may take longer than anticipated to achieve such benefits.

 

   

The Merger may trigger certain “change of control” provisions and other restrictions in contracts of GSBD, MMLC or their affiliates and the failure to obtain any required consents or waivers could adversely impact the combined company.

 

   

The opinions delivered to the GSBD Special Committee and the MMLC Special Committee from their respective financial advisors will not reflect changes in circumstances between signing the Merger Agreement and completion of the Merger.

 

   

If the Merger does not close, neither GSBD nor MMLC will benefit from the expenses incurred in its pursuit.

 

   

The termination of the Merger Agreement could negatively impact MMLC and GSBD.

 

   

The Merger Agreement limits the ability of MMLC and GSBD to pursue alternatives to the Merger.

 

   

The Merger is subject to closing conditions, including stockholder approvals, that, if not satisfied or (to the extent legally allowed) waived, will result in the Merger not being completed, which may result in material adverse consequences to MMLC’s and GSBD’s business and operations.

 

   

GSBD and MMLC will be subject to operational uncertainties and contractual restrictions while the Merger is pending.

 

   

GSBD and MMLC may, to the extent legally allowed, waive one or more conditions to the Merger without resoliciting stockholder approval.

 

   

The shares of GSBD Common Stock to be received by MMLC stockholders as a result of the Merger will have substantially the same rights associated with them as shares of MMLC Common Stock currently held by them except for the transfer restrictions imposed by the Amended and Restated GSBD Charter.

 

   

The market price of GSBD Common Stock after the Merger may be affected by factors different from those affecting GSBD Common Stock currently.

See the section captioned “Risk Factors—Risks Relating to the Merger” below for a more detailed discussion of these factors.



 

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Tax Consequences of the Merger

The Merger is intended to qualify as a “reorganization,” within the meaning of Section 368(a) of the Code, and it is a condition to GSBD’s and MMLC’s respective obligations to complete the Merger that each of them receives a legal opinion to that effect. Accordingly, the Merger is not expected to be a taxable event for MMLC stockholders for U.S. federal income tax purposes as to the shares of GSBD Common Stock they receive in the Merger, except for any gain or loss that may result from the receipt of cash in lieu of fractional shares of GSBD Common Stock.

MMLC stockholders should read the section captioned “Certain Material U.S. Federal Income Tax Consequences of the Merger” for a more complete discussion of the U.S. federal income tax consequences of the Merger. Tax matters can be complicated and the tax consequences of the Merger to MMLC stockholders will depend on their particular tax situation. Holders of MMLC Common Stock should consult with their own tax advisors to determine the tax consequences of the Merger to them.

The Merger is not expected to be a taxable event for GSBD stockholders.

Special Meeting of GSBD Stockholders

GSBD plans to hold the GSBD Special Meeting on October 2, 2020, at 10:00 a.m., Eastern Time, at 30 Hudson Street, Jersey City, New Jersey 07302. At the GSBD Special Meeting, holders of GSBD Common Stock will be asked to approve (i) the GSBD Merger Proposal, (ii) GSBD Charter Amendment Proposal and (iii) the Merger Stock Issuance Proposal.

A GSBD stockholder can vote at the GSBD Special Meeting if such stockholder owned shares of GSBD Common Stock at the close of business on the GSBD Record Date. As of that date, there were approximately 40,448,044 shares of GSBD Common Stock outstanding and entitled to vote, approximately 141,873 of which, or 0.4%, were owned beneficially or of record by directors and executive officers of GSBD.

Special Meeting of MMLC Stockholders

MMLC plans to hold the MMLC Special Meeting on October 2, 2020, at 10:30 a.m., Eastern Time, at 30 Hudson Street, Jersey City, New Jersey 07302. At the MMLC Special Meeting, holders of MMLC Common Stock will be asked to approve each of the MMLC Merger Proposal and the MMLC Charter Amendment Proposal.

A MMLC stockholder can vote at the MMLC Special Meeting if such stockholder owned shares of MMLC Common Stock at the close of business on the MMLC Record Date. As of that date, there were approximately 53,844,946.589 shares of MMLC Common Stock outstanding and entitled to vote. Approximately 55,854 of such total outstanding shares, or 0.1%, were owned beneficially or of record by directors and executive officers of MMLC.

GSBD Board Recommendation

The GSBD Board, upon recommendation of the GSBD Special Committee, has unanimously approved the Merger Agreement, including the Merger and the related transactions, the Amended and Restated GSBD Charter, the proposed issuance of GSBD Common Stock in connection with the Merger and directed that such matters be submitted to the stockholders of GSBD for approval at the GSBD Special Meeting. The GSBD Board, upon recommendation of the GSBD Special Committee, unanimously recommends that GSBD stockholders vote “FOR” each of the GSBD Merger Proposal, the GSBD Charter Amendment Proposal and the Merger Stock Issuance Proposal.



 

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MMLC Board Recommendation

The MMLC Board, upon recommendation of the MMLC Special Committee, has unanimously approved the Merger Agreement, including the Merger and the related transactions, and the Amended and Restated GSBD Charter, and directed that such matters be submitted to the stockholders of MMLC for approval. The MMLC Board, upon recommendation of the MMLC Special Committee, unanimously recommends that MMLC stockholders vote FOR each of the MMLC Merger Proposal and the MMLC Charter Amendment Proposal.

Vote Required—GSBD

Each share of GSBD Common Stock held by a holder of record as of the GSBD Record Date has one vote on each matter considered at the GSBD Special Meeting.

The GSBD Merger Proposal

The approval of the GSBD Merger Proposal requires the affirmative vote of (i) a majority of the outstanding shares of GSBD Common Stock and (ii) a majority of the outstanding shares of GSBD Common Stock held by the Unaffiliated GSBD Stockholders. Abstentions and broker non-votes will not count as affirmative votes cast and will therefore have the same effect as a vote “against” the GSBD Merger Proposal.

The GSBD Charter Amendment Proposal

The approval of the GSBD Charter Amendment Proposal requires the affirmative vote of the holders of a majority of the outstanding shares of GSBD Common Stock. Abstentions and broker non-votes will not count as affirmative votes cast and will therefore have the same effect as a vote “against” the GSBD Charter Amendment Proposal.

The Merger Stock Issuance Proposal

The approval of the Merger Stock Issuance Proposal requires the affirmative vote of at least a majority of the votes cast by holders of GSBD Common Stock at a meeting at which a quorum is present. Abstentions and broker non-votes will have no effect on the outcome of the Merger Stock Issuance Proposal.

Vote Required—MMLC

Each share of MMLC Common Stock held by a holder of record as of the MMLC Record Date has one vote on each matter considered at the MMLC Special Meeting.

The MMLC Merger Proposal

The approval of the MMLC Merger Proposal requires the affirmative vote of (i) a majority of the outstanding shares of MMLC Common Stock and (ii) a majority of the outstanding shares of MMLC Common Stock held by the Unaffiliated MMLC Stockholders. Abstentions and broker non-votes will not count as affirmative votes cast and will therefore have the same effect as votes “against” the MMLC Merger Proposal.

The MMLC Charter Amendment Proposal

The approval of the MMLC Charter Amendment Proposal requires the affirmative vote of the holders of a majority of the outstanding shares of MMLC Common Stock. Abstentions and broker non-votes will not count as affirmative votes cast and will therefore have the same effect as a vote “against” the MMLC Charter Amendment Proposal.



 

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Transfer Restrictions under the Amended and Restated GSBD Charter

If approved, the Amended and Restated GSBD Charter would provide that following the Closing, without the prior consent of the GSBD Board, an MMLC stockholder who acquires shares of GSBD Common Stock in the Merger (each, an “Affected Stockholder”) would not be permitted to transfer (whether by sale, gift, merger, by operation of law or otherwise), assign, pledge, or otherwise dispose of or encumber:

 

   

any shares of GSBD Common Stock acquired by such Affected Stockholder in the Merger for 90 days following the date of filing of the Amended and Restated GSBD Charter, which is expected to be filed on the Closing Date (the “Filing Date”);

 

   

two-thirds of the shares of GSBD Common Stock acquired by such Affected Stockholder in the Merger for 180 days following the Filing Date; and

 

   

one-third of the shares of GSBD Common Stock acquired by such Affected Stockholder in the Merger for 270 days following the Filing Date.

Completion of the Merger

As more fully described in this joint proxy statement/prospectus and in the Merger Agreement, the completion of the Merger depends on a number of conditions being satisfied or, where legally permissible, waived. For information on the conditions that must be satisfied or waived for the Merger to occur, see “Description of the Merger Agreement—Conditions to Closing the Merger.” While there can be no assurances as to the exact timing, or that the Merger will be completed at all, GSBD and MMLC are working to complete the Merger in the fourth quarter of calendar year 2020. It is currently expected that the Merger will be completed promptly following receipt of the required stockholder approvals at the GSBD Special Meeting and the MMLC Special Meeting and satisfaction of the other closing conditions set forth in the Merger Agreement.

Termination of the Merger

The Merger Agreement contains certain termination rights for GSBD and MMLC, each of which is discussed below in “Description of the Merger Agreement—Termination of the Merger Agreement.”

Other Actions Taken in Connection with the Merger

In connection with the Merger, GSAM has agreed to waive a portion of its incentive fee for nine quarters, commencing with the quarter ending December 31, 2019 and through and including the quarter ending December 31, 2021, otherwise payable by GSBD under the GSBD Investment Management Agreement (the “Incentive Fee Waiver”), for each such quarter in an amount sufficient to ensure that GSBD’s net investment income per weighted share outstanding for such quarter is at least $0.48 per share. The Incentive Fee Waiver helps to ensure that distributions paid to GSBD’s stockholders will not be a return of capital for tax purposes during the merger period. Further, the GSBD Board has approved special distributions of $0.15 per share in total, and payable in three equal quarterly installments currently expected to begin in the first quarter of 2021, subject to the timing of the Closing, to the stockholders of the combined company.

Management of the Combined Company

The Merger Agreement provides for changes in the composition of the GSBD Board, which is discussed below in “Description of the Merger—Management of the Combined Company.” The directors of GSBD immediately prior to the First Merger will remain the directors of GSBD and the GSBD Board will expand the size of the GSBD Board to eight (8) directors in order to appoint the MMLC Designated Directors. The MMLC Designated Directors will be apportioned among Class I (to serve until the 2021 annual meeting of stockholders) and Class II (to serve until the 2022 annual meeting of stockholders) of the GSBD Board.



 

24


In addition, the GSBD Board will appoint the chairman of the MMLC Audit Committee as of the Closing Date to serve as the chairman of the GSBD Audit Committee, effective as of the Closing Date.

The officers of GSBD immediately prior to the Merger will remain the officers of GSBD and will hold office until their respective successors are duly appointed and qualify, or their earlier death, resignation or removal. Following the Merger, GSAM will continue to be the investment adviser of GSBD and the GSBD Investment Management Agreement will remain in effect.

Reasons for the Merger

GSBD

The GSBD Board consulted with its legal and other advisors, as well as GSBD’s management and GSAM, and considered numerous factors, including the unanimous recommendation of the GSBD Special Committee, and determined that the Merger is in GSBD’s best interests and the best interests of GSBD stockholders, and that GSBD stockholders will not suffer any dilution for purposes of Rule 17a-8 of the 1940 Act as a result of the Merger.

Certain material factors considered by the GSBD Board and the GSBD Special Committee as a group that favored the conclusion of the GSBD Board and the GSBD Special Committee that the Merger is in GSBD’s best interests and the best interests of GSBD stockholders included, among others:

 

   

the expected accretion to the net investment income of the combined company in both the short-term and the long-term;

 

   

the expected increased scale and liquidity of the combined company after the Closing;

 

   

the acquisition of a known, diversified portfolio of assets;

 

   

the expected greater access to long-term, low-cost, flexible debt capital;

 

   

that there would be no economic dilution to GSBD stockholders;

 

   

the potential for operational synergies via the elimination of redundant expenses;

 

   

the similarities in investment strategies and risks of GSBD and MMLC;

 

   

the tax consequences of the Merger; and

 

   

the fact that the GSBD Special Committee received an opinion regarding the Exchange Ratio from BofA Securities, financial advisor to the GSBD Special Committee.

The foregoing list does not include all the factors that the GSBD Board considered in approving the proposed Merger and the Merger Agreement and recommending that GSBD stockholders approve the issuance of shares of GSBD Common Stock necessary to effectuate the Merger. For a further discussion of the material factors considered by the GSBD Board, see “The Merger—Reasons for the Merger.”

MMLC

The MMLC Board consulted with its legal and other advisors, as well as MMLC’s management and GSAM, and considered numerous factors, including the unanimous recommendation of the MMLC Special Committee, and determined that the Merger is in MMLC’s best interests and the best interests of MMLC stockholders, and that MMLC stockholders will not suffer any dilution for purposes of Rule 17a-8 of the 1940 Act as a result of the Merger.



 

25


Certain material factors considered by the MMLC Board and the MMLC Special Committee as a group that favored the conclusion of the MMLC Board and the MMLC Special Committee that the Merger is in MMLC’s best interests and the best interests of MMLC stockholders included, among others:

 

   

the expected accretion to the net investment income of the combined company in both the short-term and long-term;

 

   

the expected increased scale and liquidity of the combined company after the Closing;

 

   

the combination with a known, diversified portfolio of assets;

 

   

the expected greater access to long-term, low-cost, flexible debt capital;

 

   

that there would be no economic dilution to MMLC stockholders;

 

   

the potential for operational synergies via the elimination of redundant expenses;

 

   

the similarities in investment strategies and risks of GSBD and MMLC;

 

   

the continuity of GSAM and the management team;

 

   

the tax consequences of the Merger;

 

   

the more favorable management fee structure under the GSBD Investment Management Agreement to be applicable to the combined company after the Closing as compared to the terms of the MMLC Investment Management Agreement; and

 

   

the fact that the MMLC Special Committee received an opinion regarding the Exchange Ratio from Morgan Stanley, financial advisor to the MMLC Special Committee.

The foregoing list does not include all the factors that the MMLC Board considered in approving the Merger Agreement and recommending that MMLC stockholders approve the Merger Agreement.

For a further discussion of the material factors considered by the MMLC Board, see “The Merger—Reasons for the Merger.”

MMLC and GSBD Stockholders Do Not Have Appraisal Rights

Neither the MMLC stockholders nor the GSBD stockholders will be entitled to exercise appraisal rights in connection with the Merger under the laws of the State of Delaware.



 

26


RISK FACTORS

In addition to the other information included in this document, stockholders should carefully consider the matters described below in determining whether to approve (i) in the case of MMLC stockholders, the MMLC Merger Proposal and the MMLC Charter Amendment Proposal and (ii) in the case of GSBD stockholders, the GSBD Merger Proposal, the GSBD Charter Amendment Proposal and the Merger Stock Issuance Proposal. The risks associated with an investment in GSBD and MMLC are substantially similar because GSBD and MMLC have the same investment adviser and co-invest in transactions together and with affiliates of GSAM and have the same investment objectives and strategies. The risks set out below are not the only risks GSBD and MMLC and, following the Merger, the combined company, face. Additional risks and uncertainties not currently known to GSBD or MMLC or that they currently deem to be immaterial also may materially adversely affect their or, following the Merger, the combined company’s, business, financial condition or operating results. If any of the following events occur, GSBD or MMLC or, following the Merger, the combined company’s, business, financial condition or results of operations could be materially adversely affected.

Risks Relating to the Merger

Because the market price of GSBD Common Stock will fluctuate, MMLC stockholders cannot be sure of the market value of the Merger Consideration they will receive until the Closing Date.

The market value of the Merger Consideration may vary from the closing price of GSBD Common Stock on the date the Merger was announced, on the date that this joint proxy statement/prospectus was mailed to stockholders, on the date of the MMLC Special Meeting or the date of the GSBD Special Meeting and on the date the Merger is completed and thereafter. Any change in the market price of GSBD Common Stock prior to completion of the Merger will affect the market value of the Merger Consideration that MMLC stockholders will receive upon completion of the Merger.

Accordingly, at the time of the MMLC Special Meeting, MMLC stockholders will not know or be able to calculate the market price of the Merger Consideration they would receive upon completion of the Merger. Neither MMLC nor GSBD is permitted to terminate the Merger Agreement or resolicit the vote of their respective stockholders solely because of changes in the market price of shares of GSBD Common Stock.

The market price and liquidity of the market for GSBD Common Stock may be significantly affected by numerous factors, some of which are beyond GSBD’s control and may not be directly related to GSBD’s operating performance. These factors include:

 

   

significant volatility in the market price and trading volume of securities of BDCs or other companies in GSBD’s sector, which are not necessarily related to the operating performance of the companies;

 

   

changes in regulatory policies, accounting pronouncements or tax guidelines, particularly with respect to RICs and BDCs;

 

   

loss of GSBD’s qualification as a RIC or a BDC;

 

   

changes in market interest rates, including the decommissioning of LIBOR, and decline in the prices of debt;

 

   

changes in earnings or variations in operating results;

 

   

changes in the value of GSBD’s portfolio investments;

 

   

changes in accounting guidelines governing valuation of GSBD’s investments;

 

   

any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts;

 

   

departure of GSAM’s or any of its affiliates’ key personnel;

 

27


   

operating performance of companies comparable to GSBD;

 

   

general economic trends and other external factors; and

 

   

loss of a major funding source.

See “Special Note Regarding Forward-Looking Statements” for other factors that could cause the market price of GSBD Common Stock to change.

Closing sales prices of GSBD Common Stock as reported on NYSE for the quarter ended March 31, 2020, ranged from a low of $8.38 to a high of $22.45 and for the quarter ended June 30, 2020, ranged from a low of $11.40 to a high of $18.09. However, historical trading prices are not necessarily indicative of future performance. You should obtain current market quotations for shares of GSBD Common Stock prior to the special meetings.

Sales of shares of GSBD Common Stock after the completion of the Merger may cause the market price of GSBD Common Stock to decline.

Based on the number of outstanding shares of MMLC Common Stock as of March 31, 2020, GSBD would issue approximately 57.4 million shares of GSBD Common Stock to the Affected Stockholders pursuant to the Merger Agreement. Subject to compliance with the lock-up provisions of the Amended and Restated GSBD Charter, the Affected Stockholders may decide not to hold the shares of GSBD Common Stock that they will receive pursuant to the Merger Agreement. Without the prior consent of the GSBD Board:

 

   

for 90 days following the Filing Date, an Affected Stockholder is not permitted to transfer (whether by sale, gift, merger, by operation of law or otherwise), assign, pledge, or otherwise dispose of or encumber any shares of GSBD Common Stock acquired by the Affected Stockholder in connection with the Merger Agreement;

 

   

for 180 days following the Filing Date, an Affected Stockholder is not permitted to transfer (whether by sale, gift, merger, by operation of law or otherwise), assign, pledge, or otherwise dispose of or encumber two-thirds of the shares of GSBD Common Stock acquired by the Affected Stockholder in connection with the Merger Agreement; and

 

   

for 270 days following the Filing Date, an Affected Stockholder is not permitted to transfer (whether by sale, gift, merger, by operation of law or otherwise), assign, pledge, or otherwise dispose of or encumber one-third of the shares of GSBD Common Stock acquired by the Affected Stockholder in connection with the Merger Agreement.

Following the Closing and the expiration of applicable lock-up periods, subject to applicable securities laws, sales of substantial amounts of shares of GSBD Common Stock, or the perception that such sales could occur, could adversely affect the prevailing market prices for GSBD Common Stock. If this occurs, it could impair GSBD’s ability to raise additional capital through the sale of equity securities should it desire to do so. GSBD cannot predict what effect, if any, future sales of securities, or the availability of securities for future sales, will have on the market price of GSBD Common Stock prevailing from time to time.

In addition, certain MMLC stockholders, such as funds with limitations on their permitted holdings of stock in individual issuers, may be required to sell the shares of GSBD Common Stock that they receive pursuant to the Merger Agreement. In addition, GSBD stockholders may decide not to hold their shares of GSBD Common Stock after completion of the Merger. In each case, such sales of GSBD Common Stock could have the effect of depressing the market price for GSBD Common Stock and may take place promptly following the completion of the Merger and, to the extent applicable, the expiration of the relevant lock-up periods.

MMLC stockholders and GSBD stockholders will experience a reduction in percentage ownership and voting power in the combined company as a result of the Merger.

MMLC stockholders will experience a substantial reduction in their respective percentage ownership interests and effective voting power in respect of the combined company relative to their respective percentage

 

28


ownership interests in MMLC prior to the Merger. Consequently, MMLC stockholders should expect to exercise less influence over the management and policies of the combined company following the Merger than they currently exercise over the management and policies of MMLC. GSBD stockholders will experience a substantial reduction in their respective percentage ownership interests and effective voting power in respect of the combined company relative to their respective ownership interests in GSBD prior to the Merger. Consequently, GSBD stockholders should expect to exercise less influence over the management and policies of the combined company following the Merger than they currently exercise over the management and policies of GSBD.

If the Merger were consummated as of March 31, 2020 based on the pro forma number of shares of GSBD Common Stock to be issued and outstanding on the Closing Date, GSBD stockholders would own approximately 41.3% of the outstanding GSBD Common Stock and MMLC stockholders would own approximately 58.7% of the outstanding GSBD Common Stock. In addition, prior to completion of the Merger, subject to certain restrictions in the Merger Agreement, GSBD and MMLC may each issue additional shares of GSBD Common Stock and MMLC Common Stock, respectively, which would further reduce the percentage ownership of the combined company held by current GSBD stockholders or to be held by MMLC stockholders, as applicable. After completion of the Merger, GSBD may issue additional shares of GSBD Common Stock at prices below GSBD Common Stock’s then-current NAV per share, subject to certain restrictions under the 1940 Act, including stockholder approval of such issuance. The issuance or sale by GSBD of shares of GSBD Common Stock at a discount to NAV poses a risk of dilution to stockholders.

GSBD may be unable to realize the benefits anticipated by the Merger, including estimated cost savings, or it may take longer than anticipated to achieve such benefits.

The realization of certain benefits anticipated as a result of the Merger will depend in part on the integration of MMLC’s investment portfolio with GSBD’s and the integration of MMLC’s business with GSBD’s. There can be no assurance that MMLC’s investment portfolio or business can be operated profitably or integrated successfully into GSBD’s operations in a timely fashion or at all. The dedication of management resources to such integration may detract attention from the day-to-day business of the combined company and there can be no assurance that there will not be substantial costs associated with the transition process or there will not be other material adverse effects as a result of these integration efforts. Such effects, including, but not limited to, incurring unexpected costs or delays in connection with such integration and failure of MMLC’s investment portfolio to perform as expected, could have a material adverse effect on the financial results of the combined company.

GSBD also expects to achieve certain cost savings from the Merger when the two companies have fully integrated their portfolios. It is possible that the estimates of the potential cost savings could ultimately be incorrect. The cost savings estimates also assume GSBD will be able to combine the operations of GSBD and MMLC in a manner that permits those cost savings to be fully realized. If the estimates turn out to be incorrect or if GSBD is not able to successfully combine MMLC’s investment portfolio or business with the operations of GSBD, the anticipated cost savings may not be fully realized or realized at all or may take longer to realize than expected.

The Merger may trigger certain “change of control” provisions and other restrictions in contracts of GSBD, MMLC or their affiliates and the failure to obtain any required consents or waivers could adversely impact the combined company.

Certain agreements of GSBD and MMLC or their affiliates, which may include agreements governing indebtedness of GSBD or MMLC, will or may require the consent or waiver of one or more counterparties in connection with the Merger. The failure to obtain any such consent or waiver may permit such counterparties to terminate, or otherwise increase their rights or GSBD’s or MMLC’s obligations under, any such agreement because the Merger or other transactions contemplated by the Merger Agreement may violate an anti-assignment, change of control or similar provision relating to any of such transactions. If this occurs, GSBD may have to seek

 

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to replace that agreement with a new agreement or seek an amendment to such agreement. GSBD and MMLC cannot assure you that GSBD will be able to replace or amend any such agreement on comparable terms or at all. If these types of provisions are triggered in agreements governing indebtedness of GSBD or MMLC, the lender or holder of the debt instrument could accelerate repayment under such indebtedness and negatively affect GSBD’s business, financial condition, results of operations and cash flows.

If any such agreement is material, the failure to obtain consents, amendments or waivers under, or to replace on similar terms or at all, any of these agreements could adversely affect the financial performance or results of operations of the combined company following the Merger, including preventing GSBD from operating a material part of MMLC’s business.

In addition, the consummation of the Merger may violate, conflict with, result in a breach of provisions of, or the loss of any benefit under, constitute a default (or an event that, with or without notice or lapse of time or both, would constitute a default) under, or result in the termination, cancellation, acceleration or other change of any right or obligation (including any payment obligation) under, certain agreements of GSBD or MMLC. Any such violation, conflict, breach, loss, default or other effect could, either individually or in the aggregate, have a material adverse effect on the financial condition, results of operations, assets or business of the combined company following completion of the Merger.

The opinions delivered to the GSBD Special Committee and the MMLC Special Committee from the financial advisors to the GSBD Special Committee and MMLC Special Committee, respectively, will not reflect changes in circumstances between signing the Merger Agreement and completion of the Merger.

Neither the GSBD Special Committee nor the MMLC Special Commitee has obtained an updated opinion as of the date of this joint proxy statement/prospectus from the financial advisor to the GSBD Special Committee or the financial advisor to the MMLC Special Committee, respectively, and neither anticipates obtaining an updated opinion prior to the Closing Date. Changes in the operations and prospects of GSBD or MMLC, general market and economic conditions and other factors that may be beyond the control of GSBD or MMLC, and on which the respective financial advisors’ opinions were based, may significantly alter the value of MMLC or the price of shares of GSBD Common Stock by the time the Merger is completed. The opinions do not speak as of the time the Merger will be completed or as of any date other than the date of such opinions. Because neither the GSBD Special Committee nor the MMLC Special Committee currently anticipates asking its respective financial advisor to update its opinion, the opinions will not address the fairness from a financial point of view of the Exchange Ratio at the time the Merger is completed. The recommendations of the GSBD Board and the MMLC Board that their respective stockholders vote FOR approval of the matters described in this joint proxy statement/prospectus are made as of the date of this joint proxy statement/prospectus. For a description of the opinion that the GSBD Special Committee received from the financial advisor to the GSBD Special Committee, see “The Merger—Opinion of the Financial Advisor to the GSBD Special Committee.” For a description of the opinion that the MMLC Special Committee received from the financial advisor to the MMLC Special Committee, see “The Merger—Opinion of the Financial Advisor to the MMLC Special Committee.”

If the Merger does not close, neither GSBD nor MMLC will benefit from the expenses incurred in its pursuit.

The Merger may not be completed. If the Merger is not completed, GSBD and MMLC will have incurred substantial expenses for which no ultimate benefit will have been received. Both companies have incurred out-of-pocket expenses in connection with the Merger for investment banking, legal and accounting fees and financial printing and other related charges, much of which will be incurred even if the Merger is not completed.

 

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The termination of the Merger Agreement could negatively impact MMLC and GSBD.

If the Merger Agreement is terminated, there may be various consequences, including:

 

   

MMLC’s and GSBD’s businesses may have been adversely impacted by the failure to pursue other beneficial opportunities due to the focus of management on the Merger, without realizing any of the anticipated benefits of completing the Merger;

 

   

the market price of GSBD Common Stock might decline to the extent that the market price prior to termination reflects a market assumption that the Merger will be completed;

 

   

in the case of MMLC, it may not be able to find a party willing to pay an equivalent or more attractive price than the price GSBD agreed to pay in the Merger; and

The Merger Agreement limits the ability of GSBD and MMLC to pursue alternatives to the Merger.

The Merger Agreement contains provisions that limit each of GSBD’s and MMLC’s ability to discuss, facilitate or commit to competing third party proposals to acquire all or a significant part of GSBD or MMLC, as applicable.

The Merger is subject to closing conditions, including stockholder approvals, that, if not satisfied or (to the extent legally allowed) waived, will result in the Merger not being completed, which may result in material adverse consequences to MMLC’s and GSBD’s business and operations.

The Merger is subject to closing conditions, including certain approvals of MMLC’s and GSBD’s respective stockholders that, if not satisfied, will prevent the Merger from being completed. The closing condition that MMLC stockholders approve the MMLC Merger Proposal may not be waived under applicable law and must be satisfied for the Merger to be completed. MMLC currently expects that all directors and executive officers of MMLC will vote their shares of MMLC Common Stock in favor of the proposals presented at the MMLC Special Meeting. If MMLC stockholders do not approve the MMLC Merger Proposal and the Merger is not completed, the resulting failure of the Merger could have a material adverse impact on MMLC’s business and operations. The closing condition that GSBD stockholders approve the GSBD Merger Proposal, the GSBD Charter Amendment Proposal and the Merger Stock Issuance Proposal may not be waived under applicable law and must be satisfied for the Merger to be completed. GSBD currently expects that all directors and executive officers of GSBD will vote their shares of GSBD Common Stock in favor of the proposals presented at the GSBD Special Meeting. If GSBD stockholders do not approve each of the GSBD Merger Proposal, the GSBD Charter Amendment Proposal and the Merger Stock Issuance Proposal and the Merger is not completed, the resulting failure of the Merger could have a material adverse impact on GSBD’s business and operations. In addition to the required approvals of MMLC’s and GSBD stockholders, the Merger is subject to a number of other conditions beyond MMLC’s and GSBD’s control that may prevent, delay or otherwise materially adversely affect its completion. Neither MMLC nor GSBD can predict whether and when these other conditions will be satisfied.

GSBD and MMLC will be subject to operational uncertainties and contractual restrictions while the Merger is pending.

Uncertainty about the effect of the Merger may have an adverse effect on GSBD and MMLC and, consequently, on the combined company following completion of the Merger. These uncertainties may cause those that deal with GSBD and MMLC to seek to change their existing business relationships with GSBD and MMLC, respectively. In addition, the Merger Agreement restricts GSBD and MMLC from taking actions that they might otherwise consider to be in their best interests. These restrictions may prevent GSBD and MMLC from pursuing certain business opportunities that may arise prior to the completion of the Merger. Please see the section entitled “Description of the Merger Agreement—Conduct of Business Pending Completion of the Merger” for a description of the restrictive covenants to which GSBD and MMLC are subject.

 

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GSBD and MMLC may, to the extent legally allowed, waive one or more conditions to the Merger without resoliciting stockholder approval.

Certain conditions to GSBD’s and MMLC’s obligations to complete the Merger may be waived, in whole or in part, to the extent legally allowed, either unilaterally or by agreement of GSBD and MMLC. In the event that any such waiver does not require resolicitation of stockholders, the parties to the Merger Agreement will have the discretion to complete the Merger without seeking further stockholder approval. The conditions requiring the approval of GSBD stockholders and MMLC stockholders, however, cannot be waived.

The shares of GSBD Common Stock to be received by MMLC stockholders as a result of the Merger will have substantially the same rights associated with them as shares of MMLC Common Stock currently held by them except for the transfer restrictions imposed by the Amended and Restated GSBD Charter.

The rights associated with GSBD Common Stock to be received by the MMLC stockholders as a result of the Merger are substantially the same as the rights associated with the shares of MMLC Common Stock currently held by them except for the transfer restrictions imposed by the Amended and Restated GSBD Charter. Under the Amended and Restated GSBD Charter, transfer restrictions will be imposed on the Affected Stockholders such that, without the consent of the Board:

 

   

for 90 days following the Filing Date, an Affected Stockholder is not permitted to transfer (whether by sale, gift, merger, by operation of law or otherwise), assign, pledge, or otherwise dispose of or encumber any shares of GSBD Common Stock acquired by the Affected Stockholder in connection with the Merger Agreement;

 

   

for 180 days following the Filing Date, an Affected Stockholder is not permitted to transfer (whether by sale, gift, merger, by operation of law or otherwise), assign, pledge, or otherwise dispose of or encumber two-thirds of the shares of GSBD Common Stock acquired by the Affected Stockholder in connection with the Merger Agreement; and

for 270 days following the Filing Date, an Affected Stockholder is not permitted to transfer (whether by sale, gift, merger, by operation of law or otherwise), assign, pledge, or otherwise dispose of or encumber one-third of the shares of GSBD Common Stock acquired by the Affected Stockholder in connection with the Merger Agreement.

See “Comparison of GSBD and MMLC Stockholder Rights.”

The market price of GSBD Common Stock after the Merger may be affected by factors different from those affecting GSBD Common Stock currently.

The businesses of GSBD and MMLC differ in some respects and, accordingly, the results of operations of the combined company and the market price of GSBD Common Stock after the Merger may be affected by factors different from those currently affecting the independent results of operations of each of GSBD and MMLC, such as a larger stockholder base.

Accordingly, the historical trading prices and financial results of GSBD may not be indicative of these matters for the combined company following the Merger. For a discussion of the business of GSBD and of certain factors to consider in connection with its business, see “Business of Goldman Sachs BDC, Inc.” For a discussion of the business of MMLC and of certain factors to consider in connection with its business, see “Business of Goldman Sachs Middle Market Lending Corp.” As described elsewhere in the joint proxy statement/prospectus, the risks associated with an investment in GSBD and MMLC are substantially similar.

 

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Risks Relating to GSBD

Risks Relating to GSBD’s Business and Structure

Political, social and economic uncertainty, including uncertainty related to the COVID-19 pandemic, creates and exacerbates risks.

Social, political, economic and other conditions and events will occur that create uncertainty and have significant impacts on issuers, industries, governments and other systems, including the financial markets, to which GSBD and its investments are exposed. In addition, global economies and financial markets are increasingly interconnected, and political, economic and other conditions and events in one country, region, or financial market may adversely impact issuers in a different country, region or financial market. Furthermore, the occurrence of, among other events, natural or man-made disasters, severe weather or geological events, fires, floods, earthquakes, outbreaks of disease (such as the novel coronavirus (“COVID-19”) pandemic, avian influenza or H1N1/09), epidemics, pandemics, malicious acts, cyber-attacks, terrorist acts or the occurrence of climate change, also adversely impact GSBD’s performance from time to time. Such events may result in, and have resulted in, closing borders, securities exchange closures, health screenings, healthcare service delays, quarantines, cancellations, supply chain disruptions, lower consumer demand, market volatility and general uncertainty. Such events have adversely impacted, and may continue to adversely impact, GSBD’s portfolio companies and markets and economies over the short- and long-term, including in ways that cannot necessarily be foreseen. GSBD has been, and may continue to be, negatively impacted if the value of GSBD’s portfolio company holdings were further harmed by such political or economic conditions or events. Moreover, such negative political and economic conditions and events have disrupted, and could continue to disrupt, the processes necessary for GSBD’s operations. This has created, and may continue to create, widespread business continuity issues for GSBD and GSBD’s portfolio companies and heightened cybersecurity, information security and operational risks as a result of, among other things, remote work arrangements.

For example, in December 2019, COVID-19 emerged in China and has since spread rapidly to other countries, including the United States. This outbreak has led, and for an unknown period of time will continue to lead, to disruptions in local, regional, national and global markets and economies affected thereby. The global impact of the outbreak is rapidly evolving, and many countries have reacted by instituting quarantines, prohibitions on travel and the closure of offices, businesses, schools, retail stores and other public venues. While several countries, as well as certain states in the United States, have begun to lift the public health restrictions with a view to reopening their economies, recurring COVID-19 outbreaks have led to the re-introduction of such restrictions in certain states in the United States and globally and could continue to lead to the re-introduction of such restrictions elsewhere. Even after the COVID-19 pandemic subsides, the U.S. economy and most other major global economies may continue to experience a recession, and GSBD anticipates its business and operations could be materially adversely affected by a prolonged recession in the U.S. and other major markets. With respect to the U.S. credit markets (in particular for middle market loans), this outbreak has resulted in, and until fully resolved is likely to continue to result in, the following, among other things: (i) government imposition and/or re-imposition of various forms of shelter-in-place orders and the closing of “non-essential” businesses, resulting in significant disruption to the businesses of many middle-market loan borrowers including supply chains, demand and practical aspects of their operations, as well as furloughs or lay-offs of employees (while such measures are hoped to be temporary, their impact may persist or become permanent); (ii) increased draws by borrowers on revolving lines of credit; (iii) increased requests by borrowers for amendments, forbearance agreements and waivers of provisions of their credit agreements in order to avoid default, increased defaults by such borrowers and/or increased difficulty in obtaining refinancing at the maturity dates of their loans; (iv) volatility and disruption of these markets including greater volatility in pricing and spreads and difficulty in valuing loans during periods of increased volatility, and liquidity issues; and (v) rapidly evolving proposals and/or actions by state and federal governments to address problems in functioning of the markets and by businesses and the economy in general which will not necessarily adequately address the problems facing the loan market and middle market businesses. The COVID-19 outbreak is having, and any future outbreaks could have, an adverse impact on the markets and the economy in general, which could have a material adverse impact on, among other things, the ability of lenders to originate loans, the volume and type of loans originated, and the volume and type of amendments and waivers granted to borrowers and remedial actions taken in the event of a

 

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borrower default, each of which could negatively impact the amount and quality of loans available for investment by GSBD and returns to GSBD, among other things. As of the date of this joint proxy statement/prospectus, it is impossible to determine the scope of this outbreak, or any future outbreaks, how long any such outbreak, market disruption or uncertainties may last, the effect any governmental actions will have or the full potential impact on GSBD and GSBD’s portfolio companies. Further, even after the pandemic subsides, the U.S. economy, as well as most other major global economies may continue to experience a recession, and GSBD anticipates GSBD’s business could be materially and adversely affected by a prolonged recession in the U.S. and other major markets.

Although it is impossible to predict the precise nature and consequences of these events, or of any political or policy decisions and regulatory changes occasioned by emerging events or uncertainty on applicable laws or regulations that impact GSBD, GSBD’s portfolio companies and GSBD’s investments, it is clear that these types of events are impacting and will, for at least some time, continue to impact GSBD and GSBD’s portfolio companies. In many instances, the impact will be adverse and profound. For example, middle market companies in which GSBD may invest are being significantly impacted by these emerging events and the uncertainty caused by these events. The effects of a public health emergency may materially and adversely impact (i) the value and performance of GSBD and GSBD’s portfolio companies, (ii) the ability of GSBD’s borrowers to continue to meet loan covenants or repay loans provided by GSBD on a timely basis or at all, which may require GSBD to restructure GSBD’s investments or write down the value of GSBD’s investments, (iii) GSBD’s ability to comply with the covenants and other terms of GSBD’s debt obligations and to repay such obligations, on a timely basis or at all, (iv) GSBD’s ability to comply with certain regulatory requirements, such as asset coverage requirements under the 1940 Act, (v) GSBD’s ability maintain GSBD’s distributions at their current level or to pay them at all or (vi) GSBD’s ability to source, manage and divest investments and achieve GSBD’s investment objectives, all of which could result in significant losses to GSBD. GSBD will also be negatively affected if the operations and effectiveness of any of GSBD’s portfolio companies (or any of the key personnel or service providers of the foregoing) is compromised or if necessary or beneficial systems and processes are disrupted.

Disruptions in the capital markets caused by the COVID-19 pandemic have increased the spread between the yields realized on risk-free and higher risk securities, resulting in illiquidity in parts of the capital markets. These and future market disruptions and/or illiquidity can be expected to have an adverse effect on GSBD’s business, financial condition, results of operations and cash flows. Unfavorable economic conditions also would be expected to increase GSBD’s funding costs, limit GSBD’s access to the capital markets or result in a decision by lenders not to extend credit to GSBD. These events have limited and could continue to limit GSBD’s investment originations, limit GSBD’s ability to grow and have a material negative impact on GSBD’s and GSBD’s portfolio companies’ operating results and the fair values of GSBD’s debt and equity investments.

The capital markets are currently in a period of disruption and economic uncertainty. Such market conditions have materially and adversely affected debt and equity capital markets, which have had, and may continue to have, a negative impact on GSBD’s business and operations.

The U.S. capital markets have experienced extreme disruption following the global outbreak of COVID-19. Such disruptions have been evidenced by volatility in global stock markets as a result of, among other things, uncertainty regarding the COVID-19 pandemic and the fluctuating price of commodities such as oil. Despite actions of the U.S. federal government and foreign governments, these events have contributed to worsening general economic conditions that are materially and adversely impacting broader financial and credit markets and reducing the availability of debt and equity capital for the market as a whole. These conditions could continue for a prolonged period of time or worsen in the future.

Significant changes or volatility in the capital markets have negatively affected, and may continue to negatively affect, the valuations of GSBD’s investments. While most of GSBD’s investments are not publicly traded, applicable accounting standards require GSBD to assume as part of GSBD’s valuation process that GSBD’s investments are sold in a principal market to market participants (even if GSBD plan to hold an investment to maturity). GSBD’s valuations, and particularly valuations of private investments and private companies, are inherently uncertain, fluctuate over short periods of time and are often based on estimates,

 

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comparisons and qualitative evaluations of private information that may not reflect the full impact of the COVID-19 pandemic and measures taken in response thereto. Any public health emergency, including the COVID-19 pandemic or an outbreak of other existing or new epidemic diseases, or the threat thereof, and the resulting financial and economic market uncertainty could have a significant adverse impact on GSBD and the fair value of GSBD’s investments and GSBD’s portfolio companies.

Significant changes in the capital markets, such as the disruption in economic activity caused by the COVID-19 pandemic, have limited and could continue to limit GSBD’s investment originations, limit GSBD’s ability to grow and have a material negative impact on GSBD’s and GSBD’s portfolio companies’ operating results and the fair values of GSBD’s debt and equity investments. Additionally, the recent disruption in economic activity caused by the COVID-19 pandemic has had, and may continue to have, a negative effect on the potential for liquidity events involving GSBD’s investments. The illiquidity of GSBD’s investments may make it difficult for GSBD to sell such investments to access capital if required. As a result, GSBD could realize significantly less than the value at which GSBD has recorded its investments if GSBD were required to sell them to increase GSBD’s liquidity. An inability on GSBD’s part to raise incremental capital, and any required sale of all or a portion of GSBD’s investments as a result, could have a material adverse effect on GSBD’s business, financial condition or results of operations.

Further, current market conditions may make it difficult to raise equity capital, extend the maturity of or refinance GSBD’s existing indebtedness or obtain new indebtedness with similar terms and any failure to do so could have a material adverse effect on GSBD’s business. The debt capital available to GSBD in the future, if available at all, may bear a higher interest rate and may be available only on terms and conditions less favorable than those of GSBD’s existing debt and such debt may need to be incurred in a rising interest rate environment. If GSBD are unable to raise new debt or refinance GSBD’s existing debt, then GSBD’s equity investors will not benefit from the potential for increased returns on equity resulting from leverage, and GSBD may be unable to make new commitments or to fund existing commitments to GSBD’s portfolio companies. Any inability to extend the maturity of or refinance GSBD’s existing debt, or to obtain new debt, could have a material adverse effect on GSBD’s business, financial condition or results of operations.

GSBD is exposed to risks associated with changes in interest rates.

GSBD’s debt investments may be based on floating rates, such as LIBOR, the Euro Interbank Offered Rate, the Federal Funds Rate or the Prime Rate. General interest rate fluctuations may have a substantial negative impact on GSBD’s investments, the value of GSBD’s securities and GSBD’s rate of return on invested capital. Currently, most of GSBD’s floating rate investments are linked to LIBOR and it is unclear how increased regulatory oversight and the future of LIBOR may affect market liquidity and the value of the financial obligations to be held by or issued to GSBD that are linked to LIBOR, or how such changes could affect GSBD’s investments and transactions and financial condition or results of operations. Central banks and regulators in a number of major jurisdictions (for example, the United States, United Kingdom, European Union, Switzerland and Japan) have convened working groups to find, and implement the transition to, suitable replacements for interbank offered rates (“IBORs”). The U.K. Financial Conduct Authority (the “FCA”), which regulates LIBOR, has announced that it intends not to compel panel banks to contribute to LIBOR after 2021. The E.U. Benchmarks Regulation imposed conditions under which only compliant benchmarks may be used in new contracts after 2021. To identify a successor rate for U.S. dollar LIBOR, the Alternative Reference Rates Committee (“ARRC”), a U.S.-based group convened by the Federal Reserve Board and the Federal Reserve Bank of New York, was formed. The ARRC has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by the U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. In addition, on March 25, 2020, the FCA reaffirmed the central assumption that firms cannot rely on LIBOR being published after the end of 2021. However, the outbreak of COVID-19 may adversely impact the timing of many firms’ transition planning, and GSBD continues to assess the potential impact of the COVID-19 outbreak on GSBD’s transition plans. Although SOFR appears to be the preferred replacement rate for U.S. dollar LIBOR, at this time, it is not possible to predict the effect of any such changes,

 

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any establishment of alternative reference rates, whether the COVID-19 outbreak will have further effect on LIBOR transition timelines or plans, or other reforms to LIBOR that may be enacted in the United States, United Kingdom or elsewhere. The elimination of LIBOR or any other changes or reforms to the determination or supervision of LIBOR or alternative reference rates could have an adverse impact on the market for or value of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to GSBD. In addition, if LIBOR ceases to exist, GSBD may need to renegotiate the credit agreements extending beyond 2021 with GSBD’s portfolio companies that utilize LIBOR as a factor in determining the interest rate, in order to replace LIBOR with the new standard that is established, which may have an adverse effect on GSBD’s overall financial condition or results of operations. As such, some or all of these credit agreements may bear a lower interest rate, which would adversely impact GSBD’s financial condition or results of operations. Moreover, if LIBOR ceases to exist, GSBD may need to renegotiate certain terms of the GSBD Credit Facility. If GSBD is unable to do so, amounts drawn under GSBD’s revolving facility may bear interest at a higher rate, which would increase the cost of GSBD’s borrowings and, in turn, affect GSBD’s results of operations.

Because GSBD has borrowed money, and may issue preferred stock to finance investments, GSBD’s net investment income depends, in part, upon the difference between the rate at which GSBD borrows funds or pay distributions on preferred stock and the rate that GSBD’s investments yield. As a result, GSBD can offer no assurance that a significant change in market interest rates will not have a material adverse effect on GSBD’s net investment income.

A reduction in the interest rates on new investments relative to interest rates on current investments could also have an adverse impact on GSBD’s net interest income. However, an increase in interest rates could decrease the value of any investments GSBD holds which earn fixed interest rates, including subordinated loans, senior and junior secured and unsecured debt securities and loans and high yield bonds, and also could increase GSBD’s interest expense, thereby decreasing GSBD’s net income. Also, an increase in interest rates available to investors could make an investment in GSBD’s common stock less attractive if GSBD are not able to increase GSBD’s dividend rate, which could reduce the value of GSBD’s common stock. Further, rising interest rates could also adversely affect GSBD’s performance if such increases cause GSBD’s borrowing costs to rise at a rate in excess of the rate that GSBD’s investments yield.

In periods of rising interest rates, to the extent GSBD borrows money subject to a floating interest rate, GSBD’s cost of funds would increase, which could reduce GSBD’s net investment income. Further, rising interest rates could also adversely affect GSBD’s performance if such increases cause GSBD’s borrowing costs to rise at a rate in excess of the rate that GSBD’s investments yield. Further, rising interest rates could also adversely affect GSBD’s performance if GSBD holds investments with floating interest rates, subject to specified minimum interest rates (such as a LIBOR floor), while at the same time engaging in borrowings subject to floating interest rates not subject to such minimums. In such a scenario, rising interest rates may increase GSBD’s interest expense, even though GSBD’s interest income from investments is not increasing in a corresponding manner as a result of such minimum interest rates.

If general interest rates rise, there is a risk that the portfolio companies in which GSBD holds floating rate securities will be unable to pay escalating interest amounts, which could result in a default under their loan documents with GSBD. Rising interest rates could also cause portfolio companies to shift cash from other productive uses to the payment of interest, which may have a material adverse effect on their business and operations and could, over time, lead to increased defaults. In addition, rising interest rates may increase pressure on GSBD to provide fixed rate loans to GSBD’s portfolio companies, which could adversely affect GSBD’s net investment income, as increases in GSBD’s cost of borrowed funds would not be accompanied by increased interest income from such fixed-rate investments.

A change in the general level of interest rates can be expected to lead to a change in the interest rate GSBD receives on many of GSBD’s debt investments. Accordingly, a change in the interest rate could make it easier for GSBD to meet or exceed the performance threshold in the GSBD Investment Management Agreement and may result in a substantial increase in the amount of incentive fees payable to GSAM with respect to the portion of the Incentive Fee based on income.

 

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Global economic, political and market conditions may adversely affect GSBD’s business, financial condition and results of operations, including GSBD’s revenue growth and profitability.

The current worldwide financial market situation, as well as various social and political tensions in the United States and around the world, have contributed and may continue to contribute to increased market volatility, may have long-term effects on the United States and worldwide financial markets, and may cause economic uncertainties or deterioration in the United States and worldwide. GSBD monitors developments and seeks to manage its investments in a manner consistent with achieving its investment objective, but there can be no assurance that GSBD will be successful in doing so. In August 2011 and then affirmed in August 2013, Standard & Poor’s Rating Services lowered its long-term sovereign credit rating on the United States from “AAA” to “AA+”. Additionally, in January 2012, Standard & Poor’s Rating Services lowered its long-term sovereign credit rating for several large European countries. These ratings negatively impacted global markets and economic conditions. Although U.S. lawmakers have taken steps to avoid further downgrades, U.S. budget deficit concerns and similar conditions in Europe, China and elsewhere have increased the possibility of additional credit-rating downgrades and worsening global economic and market conditions. There can be no assurance that current or future governmental measures to mitigate these conditions will be effective. These conditions, government actions and future developments may cause interest rates and borrowing costs to rise, which may adversely affect GSBD’s ability to access debt financing on favorable terms and may increase the interest costs of its borrowers, hampering their ability to repay GSBD. Continued or future adverse economic conditions could have a material adverse effect on GSBD’s business, financial condition and results of operations.

In October 2014, the Federal Reserve announced that it was concluding its bond-buying program, or quantitative easing, which was designed to stimulate the economy and expand the Federal Reserve’s holdings of long-term securities, suggesting that key economic indicators, such as the unemployment rate, had showed signs of improvement since the inception of the program. It is possible that, without quantitative easing by the Federal Reserve, these developments, along with the United States government’s credit and deficit concerns and other global economic conditions, could cause interest rates and borrowing costs to rise, which may negatively impact GSBD’s ability to access the debt markets on favorable terms. While the Federal Reserve recently decreased its federal funds target rate in response to the COVID-19 pandemic, if key economic indicators, such as the unemployment rate or inflation, do not progress at a rate consistent with the Federal Reserve’s objectives, the target range for the federal funds rate may increase and cause interest rates and borrowing costs to rise, which may negatively impact GSBD’s ability to access the debt markets on favorable terms and may also increase the costs of its borrowers, hampering their ability to repay GSBD.

Legislation may be adopted that could significantly affect the regulation of U.S. financial markets. Areas subject to potential change, amendment or repeal include the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) and the authority of the Federal Reserve and the Financial Stability Oversight Council. These or other regulatory changes could result in greater competition from banks and other lenders with which GSBD competes for lending and other investment opportunities. The United States may also potentially withdraw from or renegotiate various trade agreements and take other actions that would change current trade policies of the United States. GSBD cannot predict which, if any, of these actions will be taken or, if taken, their effect on the financial stability of the United States. Such actions could have a material adverse effect on GSBD’s business, financial condition and results of operations.

GSBD’s operation as a BDC imposes numerous constraints on GSBD and significantly reduces its operating flexibility. In addition, if GSBD fails to maintain its status as a BDC, GSBD might be regulated as a closed-end investment company, which would subject GSBD to additional regulatory restrictions.

The 1940 Act imposes numerous constraints on the operations of BDCs. For example, BDCs generally are required to invest at least 70% of their total assets primarily in securities of qualifying U.S. private companies or thinly traded public companies, cash, cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less from the time of investment. These constraints may hinder GSAM’s ability to take advantage of attractive investment opportunities and to achieve GSBD’s investment objective.

 

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Furthermore, any failure to comply with the requirements imposed on BDCs by the 1940 Act could cause the SEC to bring an enforcement action against GSBD and/or expose GSBD to claims of private litigants.

GSBD may be precluded from investing in what GSAM believes are attractive investments if such investments are not qualifying assets for purposes of the 1940 Act. If GSBD does not invest a sufficient portion of its assets in qualifying assets, GSBD will be prohibited from making any additional investment that is not a qualifying asset and could be forced to forgo attractive investment opportunities. Similarly, these rules could prevent GSBD from making follow-on investments in existing portfolio companies (which could result in the dilution of GSBD’s position).

If GSBD fails to maintain its status as a BDC, GSBD might be regulated as a closed-end investment company that is required to register under the 1940 Act, which would subject GSBD to additional regulatory restrictions and significantly decrease its operating flexibility. In addition, any such failure could cause an event of default under any outstanding indebtedness GSBD might have, which could have a material adverse effect on GSBD’s business, financial condition or results of operations.

GSBD will be subject to corporate-level U.S. federal income tax on all of its income if GSBD is unable to maintain its qualification for tax treatment as a RIC under Subchapter M of the Code, which would have a material adverse effect on its financial performance.

Although GSBD has elected to be treated, and expects to qualify annually, as a RIC under Subchapter M of the Code, GSBD cannot assure you that GSBD will be able to maintain RIC status. To maintain RIC status and be relieved of U.S. federal income taxes on income and gains distributed to GSBD stockholders, GSBD must meet the annual distribution, source-of-income and asset diversification requirements described below.

 

   

The annual distribution requirement for a RIC will generally be satisfied if GSBD distributes to its stockholders on an annual basis at least 90% of GSBD’s investment company taxable income (generally, GSBD’s net ordinary income plus the excess of its realized net short-term capital gains over realized net long-term capital losses, determined without regard to the dividends paid deduction) for each taxable year. Because GSBD uses debt financing, it is subject to an asset coverage ratio requirement under the 1940 Act, and GSBD is subject to certain covenants contained in its credit agreements and other debt financing agreements. This asset coverage ratio requirement and these covenants could, under certain circumstances, restrict GSBD from making distributions to its stockholders that are necessary for GSBD to satisfy the distribution requirement. If GSBD is unable to obtain cash from other sources, and thus is unable to make sufficient distributions to its stockholders, GSBD could fail to maintain its RIC tax treatment and thus become subject to corporate-level U.S. federal income tax (and any applicable U.S. state and local taxes).

 

   

The source-of-income requirement will be satisfied if at least 90% of GSBD’s gross income for each year is derived from dividends, interest, gains from the sale of stock or securities or foreign currencies, payments with respect to loans of certain securities, net income derived from an interest in a “qualified publicly traded partnership” or other income derived with respect to GSBD’s business of investing in such stock or securities or foreign currencies.

 

   

The asset diversification requirement will be satisfied if, at the end of each quarter of GSBD’s taxable year, at least 50% of the value of GSBD’s assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs and other acceptable securities, and no more than 25% of the value of GSBD’s assets is invested in the securities (other than U.S. government securities or securities of other RICs) of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by GSBD and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly traded partnerships.” Failure to meet these requirements may result in GSBD’s having to dispose of certain investments quickly in order to prevent the loss of its RIC status. Because most of GSBD’s investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.

 

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If GSBD fails to maintain its RIC status for any reason, and GSBD does not qualify for certain relief provisions under the Code, GSBD would be subject to corporate-level U.S. federal income tax (and any applicable U.S. state and local taxes). In this event, the resulting taxes and any resulting penalties could substantially reduce GSBD’s net assets, the amount of its income available for distribution and the amount of GSBD’s distributions to its stockholders, which would have a material adverse effect on its financial performance.

GSBD is dependent upon management personnel of GSAM for GSBD’s future success.

GSBD does not have any employees. GSBD depends on the experience, diligence, skill and network of business contacts of the GSAM Credit Alternatives investment team. The GSAM Credit Alternatives investment team, together with other investment professionals that GSAM currently retains or may subsequently retain, identifies, evaluates, negotiates, structures, closes, monitors and manages GSBD’s investments. GSBD’s future success will depend to a significant extent on the continued service and coordination of GSAM’s senior investment professionals. The departure of any of GSAM’s key personnel, including members of the investment committee of GSAM’s Private Credit Group (the “Investment Committee”), or of a significant number of the investment professionals of GSAM, could have a material adverse effect on GSBD’s business, financial condition or results of operations. In addition, GSBD cannot assure you that GSAM will remain GSBD’s investment adviser or that GSBD will continue to have access to GSAM or its investment professionals. See “—GSAM can resign on 60 days’ notice. GSBD may not be able to find a suitable replacement within that time, resulting in a disruption in GSBD’s operations that could adversely affect its financial condition, business and results of operations.”

GSAM, its principals, investment professionals and employees and the members of its Investment Committee have certain conflicts of interest.

GSAM, its principals, affiliates, investment professionals and employees, the members of its Investment Committee and GSBD’s officers and directors serve or may serve now or in the future as investment advisers, officers, directors, principals of, or in other capacities with respect to, public or private entities (including other BDCs and other investment funds) that operate in the same or a related line of business as GSBD. For example, GSBD has the same management team and Investment Committee as the other GS BDCs, including MMLC. Therefore, GSBD expects these individuals may have obligations to investors in such other BDCs, the fulfillment of which might not be in GSBD’s best interests or the best interests of its stockholders and GSBD expects that investment opportunities will satisfy the investment criteria for both GSBD and such other BDCs. In addition, GSAM and its affiliates also manage other Accounts, and expect to manage other Accounts in the future, that have investment mandates that are similar, in whole or in part, to ours and, accordingly, may invest in asset classes similar to those targeted by GSBD. As a result, GSAM and/or its affiliates may face conflicts in allocating investment opportunities between GSBD and such other entities. The fact that GSBD’s investment advisory fees may be lower than those of certain other Accounts advised by GSAM could result in this conflict of interest affecting GSBD adversely relative to such other Accounts.

Subject to applicable law, GSBD may invest alongside Group Inc., together with GS & Co., GSAM and its other subsidiaries (collectively, “Goldman Sachs”) and its Accounts. In certain circumstances, negotiated co-investments by GSBD and other accounts may be made only pursuant to an order from the SEC permitting GSBD to do so. Together with GSAM, GS PMMC and MMLC, GSBD received an exemptive order from the SEC that permits GSBD to participate in negotiated co-investment transactions with certain affiliates (including the other GS BDCs), each of whose investment adviser is GSAM, after the date of the exemptive order, subject to certain conditions, such as that co-investments be made in a manner consistent with GSBD’s investment objectives, positions, policies, strategies and restrictions, as well as regulatory requirements and pursuant to the conditions required by the exemptive relief, and are allocated fairly among participants. As a result of such order, there could be significant overlap in GSBD’s investment portfolio and the investment portfolios of the other GS BDCs and/or other Accounts managed by GSAM. If GSBD is unable to rely on its exemptive relief for a

 

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particular opportunity, when GSAM identifies certain investments, it will be required to determine which accounts should make the investment at the potential exclusion of other Accounts. In such circumstances, GSAM will adhere to its investment allocation policy in order to determine the account to which to allocate the opportunity. The policy currently provides that GSAM allocate opportunities through a rotation system or in such other manner as GSAM determines to be equitable. Accordingly, it is possible that GSBD may not be given the opportunity to participate in investments made by other Accounts. See “—GSBD’s ability to enter into transactions with its affiliates is restricted.”

Goldman Sachs’ financial and other interests may incentivize Goldman Sachs to favor other Accounts.

GSAM receives performance-based compensation in respect of its investment management activities on GSBD’s behalf, which rewards GSAM for positive performance of GSBD’s investment portfolio. As a result, GSAM may make investments for GSBD that present a greater potential for return but also a greater risk of loss or that are more speculative than would be the case in the absence of performance-based compensation. In addition, GSAM may simultaneously manage other accounts (including the other GS BDCs and future BDCs) for which GSAM may be entitled to receive greater fees or other compensation (as a percentage of performance or otherwise) than it receives in respect of GSBD. In addition, subject to applicable law, Goldman Sachs may invest in other accounts (including other BDCs (including the GS BDCs)), and such investments may constitute substantial percentages of such other accounts’ outstanding equity interests. Therefore, GSAM may have an incentive to favor such other accounts over GSBD. To address these types of conflicts, GSAM has adopted policies and procedures under which investment opportunities will be allocated in a manner that it believes is consistent with its obligations as an investment adviser. However, the amount, timing, structuring or terms of an investment by GSBD may differ from, and performance may be different than, the investments and performance of other accounts.

GSBD’s financial condition and results of operations depend on GSAM’s ability to manage GSBD’s future growth effectively.

GSBD’s ability to achieve its investment objective depends on GSAM’s ability to identify, invest in and monitor companies that meet GSBD’s investment criteria. Accomplishing this result on a cost-effective basis is largely a function of the structuring of GSBD’s investment process and the ability of GSAM to provide competent, attentive and efficient services to GSBD. GSBD’s executive officers and the members of the Investment Committee have substantial responsibilities in connection with their roles at GSAM, with respect to the other GS BDCs and other clients of GSAM, as well as responsibilities under the GSBD Investment Management Agreement. GSBD may also be called upon to provide significant managerial assistance to certain of GSBD’s portfolio companies. These demands on their time, which will increase as the number of investments grow, may distract them or slow the rate of investment. In order to grow, GSAM may need to hire, train, supervise, manage and retain new employees. However, GSBD cannot assure you that they will be able to do so effectively. Any failure to manage GSBD’s future growth effectively could have a material adverse effect on GSBD’s business, financial condition and results of operations.

GSBD’s ability to grow depends on its ability to raise additional capital.

GSBD will need to periodically access the capital markets to raise cash to fund new investments. If GSBD does not have adequate capital available for investment, its performance could be adversely affected. In addition, GSBD has elected to be treated, and expects to qualify annually, as a RIC under Subchapter M of the Code, commencing with its taxable year ended December 31, 2013. To maintain GSBD’s status as a RIC, among other requirements, GSBD is required to timely distribute to its stockholders at least 90% of GSBD’s investment company taxable income (determined without regard to the dividends-paid deduction), which is generally GSBD’s net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses, if any, for each taxable year. Consequently, such distributions will not be available to fund new investments. GSBD expects to use debt financing and issue additional securities to fund its growth, if any.

 

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Unfavorable economic or capital market conditions may increase GSBD’s funding costs, limit its access to the capital markets or result in a decision by lenders not to extend credit to GSBD. An inability to successfully access the capital markets could limit GSBD’s ability to grow its business and fully execute its business strategy and could decrease its earnings, if any. GSBD may pursue growth through acquisitions or strategic investments in new businesses. Completion and timing of any such acquisitions or strategic investments may be subject to a number of contingencies and risks. There can be no assurance that the integration of an acquired business will be successful or that an acquired business will prove to be profitable or sustainable.

Regulations governing GSBD’s operation as a BDC affect its ability to raise, and the way in which GSBD raises, additional capital. These constraints may hinder GSAM’s ability to take advantage of attractive investment opportunities and to achieve GSBD’s investment objective.

Regulations governing GSBD’s operation as a BDC affect its ability to raise additional capital, and the ways in which GSBD can do so. Raising additional capital may expose GSBD to risks, including the typical risks associated with leverage, and may result in dilution to GSBD’s current stockholders. The 1940 Act limits GSBD’s ability to borrow amounts or issue debt securities or preferred stock, which GSBD refers to collectively as “senior securities,” to amounts such that its asset coverage ratio, as defined under the 1940 Act, equals at least 150% immediately after such borrowing or issuance if certain requirements are met (except in connection with certain trading practices or investments), rather than 200%, as previously required and as described below. Consequently, if the value of GSBD’s assets declines, GSBD may be required to sell a portion of its investments and, depending on the nature of GSBD’s leverage, repay a portion of its indebtedness at a time when this may be disadvantageous to GSBD and, as a result, its stockholders. The Small Business Credit Availability Act (the “SBCAA”) modified the applicable provisions of the 1940 Act to reduce the required asset coverage ratio applicable to BDCs to 150%, subject to certain approval and disclosure requirements. Under the legislation, BDCs are able to increase their leverage capacity if stockholders approve a proposal to do so. At GSBD’s 2018 annual meeting of stockholders held on June 15, 2018, GSBD stockholders approved the proposal to apply the modified asset coverage requirements in Section 61(a)(2) of the 1940 Act to GSBD. As a result of this approval, (1) GSBD is now required to maintain asset coverage for GSBD’s senior securities of 150% rather than 200% and (2) GSBD and GSAM have reduced the management fee from 1.50% (0.375% per quarter) to 1.00% (0.25% per quarter) on the average value of GSBD’s gross assets, excluding cash and cash equivalents, but including assets purchased with borrowed amounts, at the end of the two most recently completed calendar quarters. Considerations and risks related to increased leverage include: (a) the potential for magnified gains and losses on amounts invested, (b) increased debt service costs, (c) the potential for increased incentive fees for GSAM and (d) fewer proceeds remaining for distributions for stockholders in the case of a liquidation event. On September 17, 2018, GSBD entered into an amendment to its senior secured revolving credit agreement (as amended, the “GSBD Credit Facility”) to, among other things, reduce the existing minimum asset coverage ratio covenant from 200% to 150%.

GSBD is generally not able to issue and sell its common stock at a price per share below NAV per share. GSBD may, however, sell its common stock, or warrants, options or rights to acquire GSBD’s common stock, at a price below the then-current NAV per share of its common stock (i) with the consent of a majority of GSBD’s common stockholders (and a majority of GSBD’s common stockholders who are not affiliates of ours) and (ii) if, among other things, a majority of the GSBD Independent Directors and a majority of its directors who have no financial interest in the transaction determine that a sale is in the best interests of GSBD and its stockholders. If GSBD Common Stock trades at a discount to NAV, this restriction could adversely affect GSBD’s ability to raise capital.

GSBD borrows money, which may magnify the potential for gain or loss and may increase the risk of investing in GSBD.

As part of GSBD’s business strategy, GSBD may borrow from and issue senior debt securities to banks, insurance companies and other lenders or investors. Holders of these senior securities will have fixed-dollar

 

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claims on GSBD’s assets that are superior to the claims of GSBD’s common stockholders. If the value of GSBD’s assets decreases, leveraging would cause NAV to decline more sharply than it otherwise would have if GSBD did not employ leverage. Similarly, any decrease in GSBD’s income would cause net income to decline more sharply than it would have had GSBD not borrowed. Such a decline could negatively affect GSBD’s ability to make distributions to its common stockholders. In addition, GSBD would have to service any additional debt that it incurs, including interest expense on debt and dividends on preferred stock that GSBD may issue, as well as the fees and costs related to the entry into or amendments to debt facilities. These expenses (which may be higher than the expenses on GSBD’s current borrowings in a rising interest rate environment) would decrease net investment income, and GSBD’s ability to pay such expenses will depend largely on GSBD’s financial performance and will be subject to prevailing economic conditions and competitive pressures. Moreover, leverage will increase the management fee payable to GSAM, which is based on GSBD’s gross assets, including those assets acquired through the use of leverage but excluding cash and cash equivalents. Additionally, GSBD will be able to incur additional leverage if GSBD is able to obtain exemptive relief from the SEC to exclude the debt of any small business investment company (“SBIC”) subsidiary GSBD may form in the future from the leverage requirements otherwise applicable to BDCs. GSBD has not yet applied to the Small Business Administration (the “SBA”) for approval to form a SBIC and has not yet applied for exemptive relief from the SEC. GSBD can offer no assurances as to whether or when GSBD will be able to form a SBIC subsidiary or obtain such exemptive relief.

In addition to having fixed-dollar claims on GSBD’s assets that are superior to the claims of GSBD’s common stockholders, any obligations to the lenders will be secured by a first priority security interest in GSBD’s portfolio of investments and cash. In the case of a liquidation event, those lenders would receive proceeds to the extent of their security interest before any distributions are made to GSBD stockholders. Furthermore, the GSBD Credit Facility imposes, and any credit agreement or other debt financing agreement into which GSBD may enter may impose, financial and operating covenants that restrict its investment activities (including restrictions on industry concentrations), remedies on default and similar matters. In connection with borrowings, GSBD’s lenders may also require GSBD to pledge assets.

Lastly, GSBD may be unable to obtain its desired leverage, which would, in turn, affect stockholders’ return on investment.

At GSBD’s 2018 annual meeting of stockholders held on June 15, 2018, GSBD stockholders approved the proposal to apply the modified asset coverage requirements in Section 61(a)(2) of the 1940 Act to GSBD. As a result of this approval, (1) GSBD is now required to maintain asset coverage for its senior securities of 150% (if certain requirements are met) rather than 200% and (2) GSBD and GSAM have reduced the management fee from 1.50% (0.375% per quarter) to 1.00% (0.25% per quarter) on the average value of GSBD’s gross assets, excluding cash and cash equivalents, but including assets purchased with borrowed amounts, at the end of the two most recently completed calendar quarters.

The following table illustrates the effect of leverage on returns from an investment in GSBD’s common stock assuming various annual returns on GSBD’s portfolio, net of expenses. The calculations in the table below are hypothetical, and actual returns may be higher or lower than those appearing in the table below.

 

Assumed Return on GSBD’s Portfolio (Net of Expenses)

     (10.00 )%      (5.00 )%      0.00     5.00     10.00 %

Corresponding Return to GSBD common stockholder(1)

     (31.81 )%      (18.83 )%      (5.86 )%      7.11     20.08 %

 

(1)

Based on (i) $1,543.20 million in total assets including debt issuance costs as of March 31, 2020, (ii) $917.80 million in outstanding indebtedness as of March 31, 2020, (iii) $594.86 million in net assets as of March 31, 2020 and (iv) an annualized average interest rate on GSBD’s indebtedness, as of March 31, 2020, excluding fees (such as fees on undrawn amounts and amortization of financing costs), of 3.80%.

 

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GSBD operates in a highly competitive market for investment opportunities.

A number of entities, including the other GS BDCs, compete with GSBD to make the types of investments that GSBD makes in middle-market companies. GSBD competes with other BDCs, commercial and investment banks, commercial financing companies, CLOs, private funds, including hedge funds, and, to the extent they provide an alternative form of financing, private equity funds. Many of GSBD’s competitors are more experienced, substantially larger and have considerably greater financial, technical and marketing resources than GSBD does. Some competitors may have a lower cost of funds and access to funding sources that are not available to GSBD. In addition, some of GSBD’s competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than GSBD. Furthermore, certain of GSBD’s competitors are not subject to the regulatory restrictions that the 1940 Act imposes on GSBD as a BDC and that the Code imposes on GSBD as a RIC. Additionally, an investment opportunity may be appropriate for one or more of GSBD and the other GS BDCs or any other Accounts and co-investment may not be possible. In these instances GSAM will adhere to its investment allocation policy in order to determine to which entity to allocate the opportunity. Also, as a result of this competition, GSBD may not be able to secure attractive investment opportunities from time to time.

GSBD does not seek to compete primarily based on the interest rates GSBD offers and GSAM believes that some of GSBD’s competitors may make loans with interest rates that are comparable to or lower than the rates GSBD offers. Rather, GSBD competes with its competitors based on GSBD’s reputation in the market, its existing investment platform, the seasoned investment professionals of GSAM, its experience and focus on middle-market companies, its disciplined investment philosophy, its extensive industry focus and relationships and its flexible transaction structuring.

GSBD may lose investment opportunities if GSBD does not match its competitors’ pricing, terms and structure. If GSBD matches its competitors’ pricing, terms and structure, GSBD may experience decreased net interest income and increased risk of credit loss. As a result of operating in such a competitive environment, GSBD may make investments that are on less favorable terms than what GSBD may have originally anticipated, which may impact its return on these investments. GSBD cannot assure investors that the competitive pressures GSBD faces will not have a material adverse effect on its business, financial condition and results of operations.

GSAM will be paid the management fee even if the value of stockholders’ investments declines and GSAM’s incentive fee may create incentives for it to make certain kinds of investments.

The management fee is payable even in the event the value of your investment declines. The management fee is calculated as a percentage of the average value of GSBD’s gross assets including borrowed funds (excluding cash or cash equivalents) at the end of the prior two completed calendar quarters. Accordingly, the management fee is payable regardless of whether the value of GSBD’s gross assets and/or your investment has decreased during the then-current quarter and creates an incentive for GSAM to incur leverage.

In addition, the incentive fee payable by GSBD to GSAM may create an incentive for GSAM to make investments on GSBD’s behalf that are risky or more speculative than would be the case in the absence of such a compensation arrangement and also to incur leverage, which will tend to enhance returns where GSBD’s portfolio has positive returns. GSAM receives the incentive fee based, in part, upon capital gains realized on GSBD’s investments. As a result, GSAM may have an incentive to invest more in companies whose securities are likely to yield capital gains, as compared to income-producing securities. Such a practice could result in GSBD’s investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during cyclical economic downturns.

The incentive fee payable by GSBD to GSAM also may create an incentive for GSAM to invest on GSBD’s behalf in instruments that have a deferred interest feature. Under these investments, GSBD accrues the interest over the life of the investment but does not receive the cash income from the investment until the end of the term.

 

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GSBD’s net investment income used to calculate the income portion of its incentive fee, however, includes accrued interest. Thus, a portion of this incentive fee is based on income that GSBD has not yet received in cash. This risk could be increased because GSAM is not obligated to reimburse GSBD for any incentive fees received even if GSBD subsequently incurs losses or never receives in cash the accrued income (including accrued income with respect to original issue discount (“OID”), payment-in-kind (“PIK”) interest and zero coupon securities).

When GSBD uses financial leverage, the management fees payable to GSAM will be higher than if GSBD did not use leverage, irrespective of the return on the incremental assets. In addition, as leverage generally would magnify positive returns, if any, on GSBD’s portfolio, as noted above, the use of leverage may cause GSBD’s net investment income to exceed the quarterly hurdle rate for the incentive fee on income payable to GSAM at a lower average return on GSBD’s portfolio.

The incentive fee based on income takes into account GSBD’s past performance.

The incentive fee based on income will be determined and paid quarterly in arrears at the end of each calendar quarter by reference to GSBD’s aggregate net investment income, as adjusted, from the calendar quarter then ending and the eleven preceding calendar quarters (or if shorter, the number of quarters that have occurred since January 1, 2015) (such period the “GSBD Trailing Twelve Quarters”). The effect of calculating the incentive fee using reference to the GSBD Trailing Twelve Quarters is that, in certain limited circumstances, an incentive fee based on income will be payable to GSAM although GSBD’s net income for such quarter did not exceed the hurdle rate or the incentive fee will be higher than it would have been if calculated based on GSBD’s performance for the applicable quarter without taking into account the GSBD Trailing Twelve Quarters. For example, if GSBD experiences a net loss for any particular quarter, an incentive fee may still be paid to GSAM if such net loss is less than the net loss for the most recent quarter that preceded the GSBD Trailing Twelve Quarters. In such circumstances, GSAM would be entitled to an incentive fee whereas it would not have been entitled to an incentive fee if calculated solely on the basis of GSBD’s performance for the applicable quarter.

GSBD incurs significant costs as a result of being a public company.

GSBD incurs legal, accounting and other expenses, including costs associated with the periodic reporting requirements applicable to a company whose securities are registered under the Exchange Act, as well as additional corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). These requirements may place a strain on GSBD’s systems and resources. The Exchange Act requires that GSBD file annual, quarterly and current reports with respect to GSBD’s business and financial condition. The Sarbanes-Oxley Act requires that GSBD maintain effective disclosure controls and procedures and internal control over financial reporting, which requires significant resources and management oversight. GSBD is implementing additional procedures, processes, policies and practices for the purpose of addressing the standards and requirements applicable to public companies. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on GSBD’s business, financial condition, results of operations and cash flows. GSBD has incurred, and expects to incur in the future, significant additional annual expenses related to these steps and directors’ and officers’ liability insurance, director fees, reporting requirements of the SEC, transfer agent fees, additional administrative expenses payable to the Administrator to compensate it for hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses associated with being a public company.

Efforts to comply with Section 404 of the Sarbanes-Oxley Act involve significant expenditures, and non-compliance with Section 404 of the Sarbanes-Oxley Act may adversely affect GSBD and the market price of its securities.

GSBD is subject to the Sarbanes-Oxley Act, and the related rules and regulations promulgated by the SEC. Under current SEC rules, GSBD is required to report on internal control over financial reporting pursuant to

 

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Section 404 of the Sarbanes-Oxley Act and regulations of the SEC thereunder, and GSBD’s independent registered public accounting firm must audit the effectiveness of internal controls over financial reporting. GSBD is required to review on an annual basis its internal control over financial reporting, and on a quarterly and annual basis to evaluate and disclose changes in its internal control over financial reporting.

As a result, GSBD incurs additional expenses that may negatively impact its financial performance and its ability to make distributions. This process also may result in a diversion of management’s time and attention. GSBD cannot be certain as to the timing of completion of any evaluation, testing and remediation actions or the impact of the same on its operations, and GSBD may not be able to ensure that the process is effective or that its internal control over financial reporting is or will be effective in a timely manner. In the event that GSBD is unable to maintain or achieve compliance with Section 404 of the Sarbanes-Oxley Act and related rules, GSBD and the market price of GSBD Common Stock would be adversely affected.

Potential conflicts of interest with other businesses of Goldman Sachs could impact GSBD’s investment returns.

There are significant potential conflicts of interest that could negatively impact GSBD’s investment returns. A number of these potential conflicts of interest with affiliates of GSAM and Group Inc. are discussed in more detail elsewhere in this joint proxy statement/prospectus.

Group Inc., including its affiliates and personnel, is a BHC and a worldwide, full-service investment banking, broker-dealer, asset management and financial services organization, and a major participant in global financial markets that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. As such, it acts as an investor, investment banker, research provider, investment manager, financier, adviser, market maker, trader, prime broker, derivatives dealer, lender, counterparty, agent and principal. In those and other capacities, Goldman Sachs and its affiliates advise clients in all markets and transactions and purchase, sell, hold and recommend a broad array of investments, including securities, derivatives, loans, commodities, currencies, credit default swaps, indices, baskets and other financial instruments and products for its own accounts or for the accounts of their customers and have other direct and indirect interests in the global fixed income, currency, commodity, equity, bank loans and other markets in which GSBD invests or may invest. Such additional businesses and interests will likely give rise to potential conflicts of interest and may restrict the way GSBD operates its business. For example, (1) GSBD may not be able to conduct transactions relating to investments in portfolio companies because GSAM is not permitted to obtain or use material nonpublic information in effecting purchases and sales in public securities transactions for GSBD or (2) Goldman Sachs, the clients it advises, and its personnel may engage (or consider engaging) in commercial arrangements or transactions with GSBD (subject to any limitations under the law), and/or may compete for commercial arrangements or transactions in the same types of companies, assets, securities or other assets or instruments as GSBD. Transactions by, advice to and activities of such accounts (including potentially Goldman Sachs acting on a proprietary basis), may involve the same or related companies, securities or other assets or instruments as those in which GSBD invests and may negatively affect GSBD (including its ability to engage in a transaction or other activities) or the prices or terms at which its transactions or other activities may be effected. For example, Goldman Sachs may be engaged to provide advice to an account that is considering entering into a transaction with GSBD, and Goldman Sachs may advise the account not to pursue the transaction with GSBD, or otherwise in connection with a potential transaction provide advice to the account that would be adverse to GSBD. See “—GSAM, its principals, investment professionals and employees and the members of its Investment Committee have certain conflicts of interest” and “—GSBD’s ability to enter into transactions with its affiliates is restricted.” In addition, GS & Co. may, to the extent permitted by applicable law, including the limitations set forth in Section 57(k) of the 1940 Act, receive compensation from GSBD or from the borrowers if GSBD makes any investments based on opportunities that such employees or personnel of GS & Co. have referred to GSBD. Such compensation might incentivize GS & Co. or its employees or personnel to refer opportunities or to recommend investments that might otherwise be unsuitable for GSBD. Further, any such compensation paid by GSBD, or paid by the

 

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borrower (to which GSBD would otherwise have been entitled) in connection with such investments, may negatively impact its returns. Furthermore, Goldman Sachs is currently, and in the future expects to be, raising capital for new public and private investment vehicles that have, or when formed will have, the primary purpose of middle-market direct lending. These investment vehicles, as well as existing investment vehicles (including the other GS BDCs), will compete with GSBD for investments. Although GSAM and its affiliates will endeavor to allocate investment opportunities among their clients, including GSBD, in a fair and equitable manner and consistent with applicable allocation procedures, it is expected that, in the future, GSBD may not be given the opportunity to participate in investments made by other accounts or that GSBD may participate in such investments to a lesser extent due to participation by such other accounts.

In addition, Goldman Sachs or another investment account or vehicle managed or controlled by Goldman Sachs may hold securities, loans or other instruments of a portfolio company in a different class or a different part of the capital structure than securities, loans or other instruments of such portfolio company held by GSBD. As a result, Goldman Sachs or such other investment account or vehicle may pursue or enforce rights or activities, or refrain from pursuing or enforcing rights or activities, on behalf of its own account, that could have an adverse effect on GSBD. In addition, to the extent Goldman Sachs has invested in a portfolio company for its own account, Goldman Sachs may limit the transactions engaged in by GSBD with respect to such portfolio company or issuer for reputational, legal, regulatory or other reasons.

Goldman Sachs has influence, and may continue to exert influence, over GSBD’s management and affairs and over most votes requiring stockholder approval.

Group Inc. has owned a significant portion of GSBD Common Stock since the inception of GSBD’s operations. As of March 31, 2020, Group Inc. owned approximately 16.05% of GSBD Common Stock. Group Inc. and its affiliates, may in the future acquire additional shares of GSBD Common Stock in the open market, but will limit its collective ownership to below 25.0% of GSBD Common Stock. Therefore, Group Inc. is able to exert, and may be able to continue to exert, influence over GSBD’s management and policies and have significant voting influence on most votes requiring stockholder approval. This concentration of ownership may also have the effect of delaying, preventing or deterring a change of control of GSBD, could deprive its stockholders of an opportunity to receive a premium for their common stock as part of a sale of GSBD and might ultimately affect the market price of GSBD Common Stock. GSAM has the authority to vote securities held by Group Inc., including on matters that may present a conflict of interest between GSAM and other stockholders.

The GSBD Board may change GSBD’s investment objective, operating policies and strategies without prior notice or stockholder approval.

The GSBD Board has the authority to modify or waive certain of GSBD’s operating policies and strategies without prior notice (except as required by the 1940 Act or other applicable laws) and without stockholder approval. However, absent stockholder approval, GSBD may not change the nature of its business so as to cease to be, or withdraw its election as, a BDC. GSBD cannot predict the effect any changes to its current operating policies and strategies would have on its business, operating results and market price of its securities. Nevertheless, the effects may adversely affect GSBD’s business and impact its ability to make distributions or make payments with respect to GSBD’s indebtedness.

Changes in laws or regulations governing GSBD’s operations or the operations of its portfolio companies, changes in the interpretation thereof or newly enacted laws or regulations, or any failure by GSBD or its portfolio companies to comply with these laws or regulations, could require changes to certain of GSBD’s or its portfolio companies’ business practices, negatively impact GSBD’s or its portfolio companies’ operations, cash flows or financial condition, impose additional costs on GSBD or its portfolio companies or otherwise adversely affect GSBD’s business or the business of its portfolio companies.

GSBD and its portfolio companies are subject to regulation at the local, state, federal and, in some cases, foreign levels. These laws and regulations, as well as their interpretation, are likely to change from time to time,

 

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and new laws and regulations may be enacted. Accordingly, any change in these laws or regulations, changes in their interpretation, or newly enacted laws or regulations, or any failure by GSBD or its portfolio companies to comply with these laws or regulations, could require changes to certain of GSBD’s or its portfolio companies’ business practices, negatively impact GSBD’s or its portfolio companies’ operations, cash flows or financial condition, impose additional costs on GSBD or its portfolio companies or otherwise adversely affect GSBD’s business or the business of its portfolio companies. In addition to the legal, tax and regulatory changes that are expected to occur, there may be unanticipated changes and uncertainty regarding any such changes. The legal, tax and regulatory environment for BDCs, investment advisers and the instruments that they utilize (including derivative instruments) is continuously evolving. In addition, there is significant uncertainty regarding certain legislation and the regulations that have been adopted and future regulations that will need to be adopted pursuant to such legislation) and, consequently, the full impact that such legislation will ultimately have on GSBD and the markets in which GSBD trades and invests is not fully known. Such uncertainty and any resulting confusion may itself be detrimental to the efficient functioning of the markets and the success of certain investment strategies.

The Dodd-Frank Act impacts many aspects of the financial services industry. Many of the provisions of the Dodd-Frank Act have been implemented, while others will still require final rulemaking by regulatory authorities. While the full impact of the Dodd-Frank Act on GSBD and its portfolio companies may not be known for an extended period of time, the Dodd-Frank Act, including current rules and regulations and proposed rules implementing its provisions and the interpretation of those rules, along with other legislative and regulatory proposals directed at the financial services industry that are proposed or pending in the U.S. Congress, may negatively impact the operations, cash flows or financial condition of GSBD and its portfolio companies, impose additional costs on GSBD and its portfolio companies, intensify the regulatory supervision of GSBD and its portfolio companies or otherwise adversely affect GSBD’s business or the business of its portfolio companies.

Over the last several years, there also has been an increase in regulatory attention to the extension of credit outside of the traditional banking sector, raising the possibility that some portion of the non-bank financial sector will be subject to new regulation. While it cannot be known at this time whether any regulation will be implemented or what form it will take, increased regulation of non-bank credit extension could negatively impact GSBD’s operations, cash flows or financial condition, impose additional costs on GSBD, intensify the regulatory supervision of GSBD or otherwise adversely affect its business.

On March 23, 2018, President Trump signed into law the SBCAA, which modified the applicable provisions of the 1940 Act to reduce the required asset coverage ratio applicable to BDCs from 200% to 150%, subject to certain approval and disclosure requirements (including either stockholder approval or approval of both a majority of the directors who have no financial interest in the matter and a majority of the directors who are not “interested persons,” as defined in the 1940 Act, of the BDC). On May 1, 2018, the GSBD Board approved the submission to stockholders of a proposal to approve the application of the modified asset coverage requirements at GSBD’s 2018 annual meeting of stockholders. On June 15, 2018, GSBD stockholders approved the application of the modified asset coverage requirements in Section 61(a)(2) of the 1940 Act to GSBD. See “—Regulations governing GSBD’s operation as a BDC affect its ability to raise, and the way in which GSBD raises, additional capital. These constraints may hinder GSAM’s ability to take advantage of attractive investment opportunities and to achieve GSBD’s investment objective.”

The Tax Cuts and Jobs Act could have a negative effect on GSBD, GSBD’s subsidiaries, its portfolio companies and the holders of its securities.

On December 22, 2017, President Trump signed H.R. 1 (the “Tax Cuts and Jobs Act”) into law. The Tax Cuts and Jobs Act makes significant changes to the United States income tax rules applicable to both individuals and entities, including corporations. The Tax Cuts and Jobs Act includes provisions that, among other things, reduce the U.S. corporate tax rate, introduce a capital investment deduction, limit the interest deduction, limit the use of net operating losses to offset future taxable income and make extensive changes to the U.S. international

 

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tax system. The Tax Cuts and Jobs Act is complex and far-reaching, and GSBD cannot predict the impact its enactment will have on GSBD, GSBD’s subsidiaries, its portfolio companies and the holders of its securities.

GSAM can resign on 60 days’ notice. GSBD may not be able to find a suitable replacement within that time, resulting in a disruption in GSBD’s operations that could adversely affect its financial condition, business and results of operations.

GSAM has the right, under the GSBD Investment Management Agreement, to resign at any time upon 60 days’ written notice, regardless of whether GSBD has found a replacement. If GSAM resigns, GSBD may not be able to find a new external investment adviser or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If GSBD is unable to do so quickly, its operations are likely to experience a disruption, GSBD’s financial condition, business and results of operations as well as its ability to pay distributions are likely to be adversely affected, and the market price of GSBD’s securities may decline.

GSAM’s responsibilities and its liability to GSBD are limited under the GSBD Investment Management Agreement, which may lead GSAM to act in a riskier manner on GSBD’s behalf than it would when acting for its own account.

GSAM has not assumed any responsibility to GSBD other than to render the services described in the GSBD Investment Management Agreement, and it will not be responsible for any action of the GSBD Board in declining to follow GSAM’s advice or recommendations. Pursuant to the GSBD Investment Management Agreement, GSAM and its directors, members, stockholders, partners, officers, employees or controlling persons will not be liable to GSBD for its acts under the GSBD Investment Management Agreement, absent willful misfeasance, bad faith or gross negligence in the performance of its duties, or by reason of its reckless disregard of its obligations and duties under the GSBD Investment Management Agreement. These protections may lead GSAM to act in a riskier manner when acting on GSBD’s behalf than it would when acting for its own account. See “—GSAM will be paid the management fee even if the value of stockholders’ investments declines and GSAM’s incentive fee may create incentives for it to make certain kinds of investments.”

GSBD’s ability to enter into transactions with its affiliates is restricted.

As a BDC, GSBD is prohibited under the 1940 Act from knowingly participating in certain transactions with its affiliates without the prior approval of a majority of the GSBD Independent Directors who have no financial interest in the transaction or, in some cases, the prior approval of the SEC. For example, any person that owns, directly or indirectly, 5% or more of GSBD’s outstanding voting securities is deemed GSBD’s affiliate for purposes of the 1940 Act and, if this is the only reason such person is GSBD’s affiliate, GSBD is generally prohibited from buying any asset from or selling any asset (other than GSBD’s capital stock) to such affiliate, absent the prior approval of such directors. The 1940 Act also prohibits “joint” transactions with an affiliate, which could include joint investments in the same portfolio company, without approval of the GSBD Independent Directors or, in some cases, the prior approval of the SEC. Moreover, except in certain limited circumstances, GSBD is prohibited from buying any asset from or selling any asset to a holder of more than 25% of GSBD’s voting securities, absent prior approval of the SEC. The analysis of whether a particular transaction constitutes a joint transaction requires a review of the relevant facts and circumstances then existing.

In certain circumstances, negotiated co-investments may be made only pursuant to an order from the SEC permitting GSBD to do so. On January 4, 2017, GSBD received an exemptive order from the SEC that permits GSBD to participate in negotiated co-investment transactions with certain affiliates (including the other GS BDCs), each of whose investment adviser is GSAM, in a manner consistent with GSBD’s investment objectives, positions, policies, strategies and restrictions, as well as regulatory requirements and pursuant to the conditions required by the exemptive relief. As a result of such order, there could be significant overlap in GSBD’s investment portfolio and the investment portfolios of the other GS BDCs and/or other Accounts. Additionally, if

 

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GSAM advises other vehicles in the future, GSBD may co-invest on a concurrent basis with such other affiliates, subject to compliance with the exemptive relief, applicable regulations and regulatory guidance, as well as applicable allocation procedures.

GSBD may experience fluctuations in its quarterly results.

GSBD could experience fluctuations in its quarterly operating results due to a number of factors, including interest rates payable on debt investments GSBD makes, default rates on such investments, the level of GSBD’s expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which GSBD encounters competition in certain markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods or the full fiscal year.

The continued uncertainty related to the sustainability and pace of economic recovery in the U.S. and globally could have a negative impact on GSBD’s business.

GSBD’s business is directly influenced by the economic cycle, and could be negatively impacted by a downturn in economic activity in the United States as well as globally. Fiscal and monetary actions taken by U.S. and non-U.S. government and regulatory authorities could have a material adverse impact on GSBD’s business. To the extent uncertainty regarding the U.S. or global economy negatively impacts consumer confidence and consumer credit factors, GSBD’s business, financial condition and results of operations could be adversely affected. Moreover, Federal Reserve policy, including with respect to certain interest rates and the decision to end its quantitative easing policy, along with the general policies of the current Presidential administration, may also adversely affect the value, volatility and liquidity of dividend- and interest-paying securities. Market volatility, rising interest rates and/or a return to unfavorable economic conditions could adversely affect GSBD’s business.

GSBD’s activities may be limited as a result of potentially being deemed to be controlled by a bank holding company.

Goldman Sachs is a BHC under the Bank Holding Company Act of 1956, as amended (the “BHCA”) and therefore subject to supervision and regulation by the Federal Reserve. In addition, Goldman Sachs is an FHC under the BHCA, which is a status available to BHCs that meet certain criteria. FHCs may engage in a broader range of activities than BHCs that are not FHCs. However, the activities of FHCs and their affiliates remain subject to certain restrictions imposed by the BHCA and related regulations. Because Goldman Sachs may be deemed to “control” GSBD within the meaning of the BHCA, these restrictions could apply to GSBD as well. Accordingly, the BHCA and other applicable banking laws, rules, regulations and guidelines, and their interpretation and administration by the appropriate regulatory agencies, including the Federal Reserve, may restrict GSBD’s investments, transactions and operations and may restrict the transactions and relationships between GSAM, Goldman Sachs and their affiliates, on the one hand, and GSBD on the other hand. For example, the BHCA regulations applicable to Goldman Sachs and GSBD may, among other things, restrict its ability to make certain investments or the size of certain investments, impose a maximum holding period on some or all of its investments and restrict GSBD’s and GSAM’s ability to participate in the management and operations of the companies in which GSBD invests. In addition, certain BHCA regulations may require aggregation of the positions owned, held or controlled by related entities. Thus, in certain circumstances, positions held by Goldman Sachs and its affiliates (including GSAM) for client and proprietary accounts may need to be aggregated with positions held by GSBD. In this case, where BHCA regulations impose a cap on the amount of a position that may be held, Goldman Sachs may utilize available capacity to make investments for its proprietary accounts or for the accounts of other clients, which may require GSBD to limit and/or liquidate certain investments.

These restrictions may materially adversely affect GSBD by, among other things, affecting GSAM’s ability to pursue certain strategies within GSBD’s investment program or trade in certain securities. In addition,

 

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Goldman Sachs may cease in the future to qualify as an FHC, which may subject GSBD to additional restrictions. Moreover, there can be no assurance that the bank regulatory requirements applicable to Goldman Sachs and GSBD, or the interpretation thereof, will not change, or that any such change will not have a material adverse effect on GSBD.

Goldman Sachs may in the future, in its sole discretion and without notice to investors, engage in activities impacting GSBD and/or GSAM in order to comply with the BHCA or other legal requirements applicable to, or reduce or eliminate the impact or applicability of any bank regulations or other restrictions on, Goldman Sachs, GSBD or other Accounts. Goldman Sachs may seek to accomplish this result by causing GSAM to resign as GSBD’s investment adviser, voting for changes to the GSBD Board, causing Goldman Sachs personnel to resign from the GSBD Board, reducing the amount of Goldman Sachs’ investment in GSBD (if any), revoking GSBD’s right to use the Goldman Sachs name or any combination of the foregoing, or by such other means as it determines in its sole discretion. Any replacement investment adviser appointed by GSBD may be unaffiliated with Goldman Sachs.

Recent Commodity Futures Trading Commission rules may have a negative impact on GSBD and GSAM.

The Commodity Futures Trading Commission (the “CFTC”) and the SEC have issued final rules establishing that certain swap transactions are subject to CFTC regulation. Engaging in such swap or other commodity interest transactions such as futures contracts or options on futures contracts may cause GSBD to fall within the definition of “commodity pool” under the Commodity Exchange Act and related CFTC regulations. GSAM has claimed relief from CFTC registration and regulation as a commodity pool operator pursuant to CFTC Rule 4.5 with respect to GSBD’s operations, with the result that GSBD will be limited in its ability to use futures contracts or options on futures contracts or engage in swap transactions. Specifically, CFTC Rule 4.5 imposes strict limitations on using such derivatives other than for hedging purposes, whereby the use of derivatives not used solely for hedging purposes is generally limited to situations where (i) the aggregate initial margin and premiums required to establish such positions does not exceed five percent of the liquidation value of GSBD’s portfolio, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into; or (ii) the aggregate net notional value of such derivatives does not exceed 100% of the liquidation value of GSBD’s portfolio. Moreover, GSBD anticipates entering into transactions involving such derivatives to a very limited extent solely for hedging purposes or otherwise within the limitations of CFTC Rule 4.5.

GSBD is dependent on information systems, and systems failures, as well as operating failures, could significantly disrupt GSBD’s business, which may, in turn, negatively affect its liquidity, financial condition or results of operations.

GSBD’s business is dependent on GSAM’s and third parties’ communications and information systems. Any failure or interruption of those systems, including as a result of the termination of the Investment Advisory Agreement or an agreement with any third party service providers, could cause delays or other problems in GSBD’s activities. GSBD’s financial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond GSBD’s control and adversely affect its business. There could be:

 

   

sudden electrical or telecommunications outages;

 

   

natural disasters such as earthquakes, tornadoes and hurricanes;

 

   

disease pandemics;

 

   

events arising from local or larger scale political or social matters, including terrorist acts; and

 

   

cyber attacks.

In addition to GSBD’s dependence on information systems, poor operating performance by its service providers could adversely impact GSBD.

 

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These events, in turn, could have a material adverse effect on GSBD’s operating results and negatively affect the market price of its securities and its ability to pay distributions to its stockholders.

Terrorist attacks, acts of war, global health emergencies or natural disasters may impact the businesses in which GSBD invests and harm GSBD’s business, operating results and financial condition.

Terrorist acts, acts of war, global health emergencies or natural disasters may disrupt GSBD’s operations, as well as the operations of the businesses in which GSBD invests. Such acts have created, and continue to create, economic and political uncertainties and have contributed to global economic instability. Future terrorist activities, military or security operations, global health emergencies or natural disasters could further weaken the domestic/global economies and create additional uncertainties, which may negatively impact the businesses in which GSBD invests directly or indirectly and, in turn, could have a material adverse impact on GSBD’s business, operating results and financial condition. Losses from terrorist attacks, global health emergencies and natural disasters are generally uninsurable.

Cybersecurity risks and cyber incidents may adversely affect GSBD’s business by causing a disruption to its operations, a compromise or corruption of its confidential information and/or damage to its business relationships, all of which could negatively impact GSBD’s business, financial condition and operating results.

A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of GSBD’s information resources. These incidents may be an intentional attack or an unintentional event and could involve a third party or GSBD’s own personnel gaining unauthorized access to its information systems for purposes of obtaining ransom payments, misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for loss or misappropriation of data, stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to GSBD’s reputation or business relationships. As GSBD’s reliance on technology has increased, so have the risks posed to its information systems, both internal and those provided by Goldman Sachs and third party service providers. Goldman Sachs and these third party service providers have implemented processes, procedures and internal controls to help mitigate cybersecurity risks and cyber intrusions, but these measures, as well as GSBD’s increased awareness of the nature and extent of a risk of a cyber incident, do not guarantee that a cyber incident will not occur and/or that GSBD’s financial results, operations or confidential information will not be negatively impacted by such an incident.

There are risks associated with any potential merger with or purchase of assets of another fund, including this Merger.

GSAM recommended the Merger to the GSBD Board and may in the future recommend to the GSBD Board that GSBD merge with or acquire all or substantially all of the assets of one or more funds including a fund that could be managed by GSAM (including another BDC). GSBD does not expect that GSAM would recommend any such merger or asset purchase unless it determines that it would be in GSBD’s best interests, with such determination dependent on factors it deems relevant, which may include historical and projected financial performance of GSBD and any proposed merger partner, portfolio composition, potential synergies from the merger or asset sale, available alternative options and market conditions. In addition, no such merger or asset purchase would be consummated absent the meeting of various conditions required by applicable law or contract, at such time, which may include approval of the board of directors and common equity holders of both funds. If GSAM is the investment adviser of both funds, as in this Merger, various conflicts of interest exist with respect to such transaction. Such conflicts of interest may potentially arise from, among other things, differences between the compensation payable to GSAM by GSBD and by the entity resulting from such a merger or asset sale or efficiencies or other benefits to GSAM as a result of managing a single, larger fund instead of two separate funds.

 

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GSBD’s ability to enter into transactions involving derivatives and financial commitment transactions may be limited.

In November 2019, the SEC published a proposed rulemaking regarding the ability of a BDC (or a registered investment company) to use derivatives and other transactions that create future payment or delivery obligations (except reverse repurchase agreements and similar financing transactions). If adopted as proposed, BDCs that use derivatives would be subject to a value-at-risk (“VaR”) leverage limit, certain other derivatives risk management program and testing requirements and requirements related to board reporting. These new requirements would apply unless the BDC qualified as a “limited derivatives user,” as defined in the SEC’s proposal. A BDC that enters into reverse repurchase agreements or similar financing transactions would need to aggregate the amount of indebtedness associated with the reverse repurchase agreements or similar financing transactions with the aggregate amount of any other senior securities representing indebtedness when calculating the BDC’s asset coverage ratio. Under the proposed rule, a BDC may enter into an unfunded commitment agreement that is not a derivatives transaction, such as an agreement to provide financing to a portfolio company, if the BDC has a reasonable belief, at the time it enters into such an agreement, that it will have sufficient cash and cash equivalents to meet its obligations with respect to all of its unfunded commitment agreements, in each case as it becomes due. If the BDC cannot meet this test, it is required to treat unfunded commitments as a derivatives transaction subject to the requirements of the rule. Collectively, these proposed requirements, if adopted, may limit GSBD’s ability to use derivatives and/or enter into certain other financial contracts.

The United Kingdom referendum decision to leave the European Union may create significant risks and uncertainty for global markets and GSBD’s investments.

The decision made in the United Kingdom referendum in June 2016 to leave the European Union (commonly known as “Brexit”) has led to volatility in global financial markets, and in particular in the markets of the United Kingdom and across Europe, and may also lead to weakening in political, regulatory, consumer, corporate and financial confidence in the United Kingdom and Europe. On January 31, 2020, the United Kingdom withdrew from the European Union subject to a withdrawal agreement that permits the United Kingdom to effectively remain in the European Union from an economic perspective during a transition phase that expires at the end of 2020. During this transition phase, the United Kingdom and the European Union will seek to negotiate and finalize a new, more permanent trade deal. Consequently, due to this political uncertainty, it is not possible to anticipate whether the United Kingdom and the European Union will be able to agree on and implement a new trade agreement or what the nature of such trade arrangement will be. In the event that no agreement is reached, the relationship between the United Kingdom and the European Union would be based on the World Trade Organization rules. While certain measures are being proposed and/or will be introduced, at the European Union level or at the member state level, which are designed to minimize disruption in the financial markets, it is not currently possible to determine whether such measures would achieve their intended effects. Notwithstanding the foregoing, the extent and process by the United Kingdom to exit the European Union, and the longer term economic, legal, political, regulatory and social framework to be put in place between the United Kingdom and the European Union remain unclear and may lead to ongoing political and economic uncertainty and periods of exacerbated volatility in both the United Kingdom and in wider European markets for some time. The mid-to-long-term uncertainty may have a negative effect on the performance of any investments in issuers that are economically tied to the United Kingdom or Europe. Additionally, the decision made in the United Kingdom referendum may lead to a call for similar referenda in other European jurisdictions which may cause increased economic volatility and uncertainty in the European and global markets. This volatility and uncertainty may have an adverse effect on the economy generally and on the ability of GSBD and its portfolio companies to execute their respective strategies and to receive attractive returns.

Certain investors are limited in their ability to make significant investments in GSBD.

Private funds that are excluded from the definition of “investment company” either pursuant to Section 3(c)(1) or 3(c)(7) of the 1940 Act are restricted from acquiring directly or through a controlled entity

 

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more than 3% of GSBD’s total outstanding voting stock (measured at the time of the acquisition, including through conversion of convertible securities). Investment companies registered under the 1940 Act and BDCs are also subject to this restriction as well as other limitations under the 1940 Act that would restrict the amount that they are able to invest in GSBD’s securities. As a result, certain investors may be precluded from acquiring additional shares, at a time that they might desire to do so.

Stockholders may be subject to filing requirements under the Exchange Act as a result of their investment in GSBD.

Ownership information for any person or group that beneficially owns more than 5% of GSBD Common Stock will have to be disclosed in a Schedule 13G or other filings with the SEC. Beneficial ownership for these purposes is determined in accordance with the rules of the SEC, and includes having voting or investment power over the securities. Although GSBD will provide in its quarterly statements the amount of outstanding stock, the responsibility for determining the filing obligation and preparing the filing remains with the investor. In addition beneficial owners of 10% or more of GSBD Common Stock will be subject to reporting obligations under Section 16(a) of the Exchange Act.

Stockholders may be subject to the short-swing profits rules under the Exchange Act as a result of their investment in GSBD.

Persons with the right to appoint a director or who beneficially own more than 10% of GSBD Common Stock may be subject to Section 16(b) of the Exchange Act, which recaptures for GSBD’s benefit profits from the purchase and sale of stock registered under the Exchange Act within a six-month period.

Risks Relating to GSBD’s Portfolio Company Investments

GSBD’s investments are very risky and highly speculative.

GSBD invests primarily through direct originations of secured debt, including first lien, unitranche, and last-out portions of such loans; second lien debt; unsecured debt, including mezzanine debt; and select equity investments. The securities in which GSBD invests typically are not rated by any rating agency, and if they were rated, they would be below investment grade (rated lower than “Baa3” by Moody’s Investors Service and lower than “BBB-” by Fitch Ratings or S&P), which is an indication of having predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. Investments that are rated below investment grade are sometimes referred to as “junk bonds,” “high yield bonds” or “leveraged loans.” Therefore, GSBD’s investments may result in an above average amount of risk and volatility or loss of principal. GSBD also may invest in other assets, including U.S. government securities and structured securities. These investments entail additional risks that could adversely affect GSBD’s investment returns.

Secured Debt. When GSBD makes a secured debt investment, GSBD generally takes a security interest in the available assets of the portfolio company, including the equity interests of any subsidiaries, which GSBD expects to help mitigate the risk that GSBD will not be repaid. However, there is a risk that the collateral securing GSBD’s debt investment may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital. In some circumstances, GSBD’s lien could be subordinated to claims of other creditors, such as trade creditors. In addition, deterioration in a portfolio company’s financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for the debt investment. Consequently, the fact that GSBD’s debt is secured does not guarantee that GSBD will receive principal and interest payments according to the debt investment’s terms, or at all, or that GSBD will be able to collect on the loan, in full or at all, should GSBD enforce its remedies.

 

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Unsecured Debt, including Mezzanine Debt. GSBD’s unsecured debt investments, including mezzanine debt investments, generally will be subordinated to senior debt in the event of an insolvency. This may result in an above average amount of risk and loss of principal.

Equity Investments. When GSBD invests in secured debt or unsecured debt, including mezzanine debt, GSBD may acquire equity securities from the company in which GSBD makes the investment. In addition, GSBD may invest in the equity securities of portfolio companies independent of any debt investment. GSBD’s goal is ultimately to dispose of such equity interests and realize gains upon GSBD’s disposition of such interests. However, the equity interests GSBD holds may not appreciate in value and, in fact, may decline in value. Accordingly, GSBD may not be able to realize gains from its equity interests, and any gains that GSBD does realize on the disposition of any equity interests may not be sufficient to offset any other losses GSBD experiences.

Investing in middle-market companies involves a number of significant risks.

Investing in middle-market companies involves a number of significant risks, including:

 

   

such companies may have limited financial resources and may be unable to meet their obligations under their debt securities that GSBD holds, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of GSBD’s realizing any guarantees it may have obtained in connection with GSBD’s investment;

 

   

such companies typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns;

 

   

such companies are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on GSBD’s portfolio company and, in turn, on GSBD;

 

   

such companies generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position;

 

   

there is generally little public information about these companies, they and their financial information are not subject to the reporting requirements of the Exchange Act and other regulations that govern public companies and GSBD may be unable to uncover all material information about these companies, which may prevent GSBD from making a fully informed investment decision and cause GSBD to lose money on GSBD’s investments;

 

   

GSBD’s executive officers, directors and investment adviser may, in the ordinary course of business, be named as defendants in litigation arising from GSBD’s investments in the portfolio companies; and

 

   

such companies may have difficulty accessing the capital markets to meet future capital needs, which may limit their ability to grow or to repay their outstanding indebtedness, including any debt securities held by GSBD, upon maturity.

Many of GSBD’s portfolio securities do not have a readily available market price, and GSBD values these securities at fair value as determined in good faith under procedures adopted by the GSBD Board, which valuation is inherently subjective and may not reflect what GSBD may actually realize for the sale of the investment.

The majority of GSBD’s investments are, and are expected to continue to be, in debt instruments that do not have readily ascertainable market prices. The fair value of assets that are not publicly traded or whose market

 

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prices are not readily available are determined in good faith under procedures adopted by the GSBD Board. The GSBD Board utilizes the services of independent third party valuation firms (“Independent Valuation Advisors”) in determining the fair value of a portion of the securities in GSBD’s portfolio as of each quarter end. Investment professionals from GSAM also prepare portfolio company valuations using sources and/or proprietary models depending on the availability of information on GSBD’s assets and the type of asset being valued, all in accordance with GSBD’s valuation policy. The participation of GSAM in GSBD’s valuation process could result in a conflict of interest, since the management fee is based in part on GSBD’s gross assets and also because GSAM is receiving a performance-based incentive fee.

Because fair valuations, and particularly fair valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time and are often based to a large extent on estimates, comparisons and qualitative evaluations of private information, it may be more difficult for investors to value accurately GSBD’s investments and could lead to undervaluation or overvaluation of GSBD Common Stock. In addition, the valuation of these types of securities may result in substantial write-downs and earnings volatility.

GSBD’s NAV as of a particular date may be materially greater than or less than the value that would be realized if GSBD’s assets were to be liquidated as of such date. For example, if GSBD was required to sell a certain asset or all or a substantial portion of GSBD’s assets on a particular date, the actual price that GSBD would realize upon the disposition of such asset or assets could be materially less than the value of such asset or assets as reflected in GSBD’s NAV. Volatile market conditions could also cause reduced liquidity in the market for certain assets, which could result in liquidation values that are materially less than the values of such assets as reflected in GSBD’s NAV.

The lack of liquidity in GSBD’s investments may adversely affect its business.

Various restrictions render GSBD’s investments relatively illiquid, which may adversely affect its business. As GSBD generally makes investments in private companies, substantially all of these investments are subject to legal and other restrictions on resale or are otherwise less liquid than publicly traded securities. GSAM is not permitted to obtain or use material nonpublic information in effecting purchases and sales in public securities transactions for GSBD, which could create an additional limitation on the liquidity of GSBD’s investments. The illiquidity of GSBD’s investments may make it difficult for GSBD to sell such investments if the need arises. Therefore, if GSBD is required to or desires to liquidate all or a portion of its portfolio quickly, GSBD could realize significantly less than the value at which GSBD has recorded its investments or could be unable to dispose of its investments in a timely manner or at such times as GSBD deems advisable.

GSBD’s portfolio may be focused in a limited number of portfolio companies, which will subject GSBD to a risk of significant loss if any of these companies default on their obligations under any of their debt instruments or if there is a downturn in a particular industry.

GSBD is classified as a non-diversified investment company within the meaning of the 1940 Act, which means that GSBD is not limited by the 1940 Act with respect to the proportion of its assets that GSBD may invest in securities of a single issuer, excluding limitations on investments in certain other financial and investment companies. To the extent that GSBD assumes large positions in the securities of a small number of issuers or industries, GSBD’s NAV may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer. GSBD may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. In addition, the aggregate returns GSBD realizes may be significantly adversely affected if a small number of investments perform poorly or if GSBD needs to write down the value of any one investment. Additionally, a downturn in any particular industry in which GSBD is invested could significantly affect its aggregate returns. Further, any industry in which GSBD is meaningfully concentrated at any given time could be subject to significant risks that could adversely impact GSBD’s aggregate returns. For example, as of March 31, 2020, Health Care Providers & Services, together with Health Care Technology and Health Care Equipment &

 

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Supplies, represented 22.2% of GSBD’s portfolio at fair value. GSBD’s investments in Health Care Providers & Services, Health Care Technology and Health Care Equipment & Supplies are subject to substantial risks, including, but not limited to, the risk that the laws and regulations governing the business of health care companies, and interpretations thereof, may change frequently. Current or future laws and regulations could force our portfolio companies engaged in health care to change their policies related to how they operate, restrict revenue, change costs, change reserve levels and change business practices. In addition, as of March 31, 2020, Software represented 8.3% of GSBD’s portfolio at fair value. GSBD’s investments in Software are subject to substantial risks, including, but not limited to, intense competition, changing technology, shifting user needs, frequent introductions of new products and services, competitors in different industries and ranging from large established companies to emerging startups, decreasing average selling prices of products and services resulting from rapid technological changes, cybersecurity risks and cyber incidents and various legal and regulatory risks.

GSBD may not be in a position to exercise control over its portfolio companies or to prevent decisions by management of its portfolio companies that could decrease the value of GSBD’s investments.

GSBD does not generally hold controlling equity positions in its portfolio companies. While GSBD is obligated as a BDC to offer to make managerial assistance available to its portfolio companies, there can be no assurance that management personnel of its portfolio companies will accept or rely on such assistance. To the extent that GSBD does not hold a controlling equity interest in a portfolio company, GSBD is subject to the risk that such portfolio company may make business decisions with which GSBD disagrees, and the stockholders and management of such portfolio company may take risks or otherwise act in ways that are adverse to GSBD’s interests. Due to the lack of liquidity for the debt and equity investments that GSBD typically holds in its portfolio companies, GSBD may not be able to dispose of its investments in the event GSBD disagrees with the actions of a portfolio company and may therefore suffer a decrease in the value of GSBD’s investments.

In addition, GSBD may not be in a position to control any portfolio company by investing in its debt securities. As a result, GSBD is subject to the risk that a portfolio company in which GSBD invests may make business decisions with which GSBD disagrees and the management of such company, as representatives of the holders of their common equity, may take risks or otherwise act in ways that do not serve GSBD’s interests as debt investors.

GSBD may be subject to risks associated with investments in real estate loans.

GSAM, on GSBD’s behalf, may periodically invest in loans related to real estate and real estate-related assets, and such investments will be subject to the risks inherent to investment in real estate-related assets generally. These risks include, but are not limited to, regional, national and international economic conditions; the supply and demand for properties; the financial resources of tenants, buyers and sellers of properties; changes in building, environmental, zoning and other laws and regulations; changes in real property tax rates; changes in interest rates and the availability of financing; which may render the sale or refinancing of properties difficult or impracticable; environmental liabilities; uninsured losses; acts of God; natural disasters; terrorist attacks; acts of war (declared and undeclared); strikes; and other factors which are beyond the control of GSAM and GSBD.

GSBD may be subject to risks associated with investments in energy companies.

The energy industry has been in a period of disruption and volatility that has been characterized by fluctuations in oil and gas prices and production levels. This disruption and volatility has led to, and future disruptions and volatility may lead to, decreases in the credit quality and performance of GSBD’s potential debt and equity investments in energy companies, which could, in turn, negatively impact the fair value of GSBD’s investments in energy companies. Any prolonged decline in oil and gas prices or production levels could adversely impact the ability of GSBD’s potential portfolio companies in the energy industry to satisfy financial or operating covenants that may be imposed by GSBD and other lenders or to make payments to GSBD as and when due, which could have a material adverse effect on GSBD’s business, financial condition and results of

 

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operations. In addition, energy companies are subject to supply and demand fluctuations in the markets in which they operate, which are impacted by numerous factors, including weather, use of renewable fuel sources, natural disasters, governmental regulation and general economic conditions, in addition to the effects of increasing regulation and general operational risks, any of which could have a material adverse effect on the performance and value of GSBD’s energy-related investments as well as its cash flows from such investments.

GSBD’s failure to make follow-on investments in its portfolio companies could impair the value of GSBD’s portfolio.

Following an initial investment in a portfolio company, GSBD may make additional investments in that portfolio company as “follow-on” investments, in order to:

 

   

increase or maintain in whole or in part GSBD’s equity ownership percentage or debt participations;

 

   

exercise warrants, options or convertible securities that were acquired in the original or subsequent financing; or

 

   

attempt to preserve or enhance the value of GSBD’s investment.

GSBD may elect not to make follow-on investments or may lack sufficient funds to make those investments.

GSBD will have the discretion to make any follow-on investments, subject to the availability of capital resources. The failure to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and GSBD’s initial investment, or may result in a missed opportunity for GSBD to increase its participation in a successful operation. Even if GSBD has sufficient capital to make a desired follow-on investment, GSBD may elect not to make a follow-on investment because GSBD may not want to increase its concentration of risk, because GSBD prefers other opportunities or because GSBD is inhibited by compliance with BDC requirements, compliance with covenants contained in the agreements governing its indebtedness or compliance with the requirements for maintenance of GSBD’s RIC status.

GSBD’s portfolio companies may prepay loans, which may reduce stated yields in the future if the capital returned cannot be invested in transactions with equal or greater expected yields.

Certain of the loans GSBD makes are prepayable at any time, with some prepayable at no premium to par. GSBD cannot predict when such loans may be prepaid. Whether a loan is prepaid will depend both on the continued positive performance of the portfolio company and the existence of favorable financing market conditions that permit such company to replace existing financing with less expensive capital. In periods of rising interest rates, the risk of prepayment of floating-rate loans may increase if other financing sources are available. As market conditions change frequently, it is unknown when, and if, this may be possible for each portfolio company. In the case of some of these loans, having the loan prepaid early may reduce the achievable yield for GSBD in the future below the current yield disclosed for GSBD’s portfolio if the capital returned cannot be invested in transactions with equal or greater expected yields.

Investments in common and preferred equity securities, many of which are illiquid with no readily available market, involve a substantial degree of risk.

Although common stock has historically generated higher average total returns than fixed income securities over the long term, common stock also has experienced significantly more volatility in those returns. GSBD’s equity investments may fail to appreciate and may decline in value or become worthless, and GSBD’s ability to recover its investment will depend on its portfolio company’s success. Investments in equity securities involve a number of significant risks, including:

 

   

any equity investment GSBD makes in a portfolio company could be subject to further dilution as a result of the issuance of additional equity interests and to serious risks as a junior security that will be subordinate to all indebtedness (including trade creditors) or senior securities in the event that the issuer is unable to meet its obligations or becomes subject to a bankruptcy process;

 

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to the extent that the portfolio company requires additional capital and is unable to obtain it, GSBD may not recover its investment; and

 

   

in some cases, equity securities in which GSBD invests will not pay current dividends, and GSBD’s ability to realize a return on its investment, as well as to recover its investment, will be dependent on the success of the portfolio company.

Even if the portfolio company is successful, GSBD’s ability to realize the value of its investment may be dependent on the occurrence of a liquidity event, such as a public offering or the sale of the portfolio company. It is likely to take a significant amount of time before a liquidity event occurs or GSBD can otherwise sell its investment. In addition, the equity securities GSBD receives or invests in may be subject to restrictions on resale during periods in which it could be advantageous to sell them.

There are special risks associated with investing in preferred securities, including:

 

   

preferred securities may include provisions that permit the issuer, at its discretion, to defer distributions for a stated period without any adverse consequences to the issuer. If GSBD owns a preferred security that is deferring its distributions, GSBD may be required to report income for tax purposes before GSBD receives such distributions;

 

   

preferred securities are subordinated to debt in terms of priority to income and liquidation payments, and therefore will be subject to greater credit risk than debt;

 

   

preferred securities may be substantially less liquid than many other securities, such as common stock or U.S. government securities; and

 

   

generally, preferred security holders have no voting rights with respect to the issuing company, subject to limited exceptions.

Additionally, when GSBD invests in debt securities, GSBD may acquire warrants or other equity securities as well. GSBD’s goal is ultimately to dispose of such equity interests and realize gains upon its disposition of such interests. However, the equity interests GSBD receives may not appreciate in value and, in fact, may decline in value. Accordingly, GSBD may not be able to realize gains from its equity interests and any gains that GSBD does realize on the disposition of any equity interests may not be sufficient to offset any other losses GSBD experiences.

GSBD may invest, to the extent permitted by law, in the equity securities of investment funds that are operating pursuant to certain exceptions to the 1940 Act and, to the extent GSBD so invests, will bear GSBD’s ratable share of any such company’s expenses, including management and performance fees. GSBD will also remain obligated to pay the management fee and incentive fee to GSAM with respect to the assets invested in the securities and instruments of such companies. With respect to each of these investments, each of GSBD’s common stockholders will bear his or her share of the management fee and incentive fee due to GSAM as well as indirectly bearing the management and performance fees and other expenses of any such investment funds or advisers.

By originating loans to companies that are experiencing significant financial or business difficulties, GSBD may be exposed to distressed lending risks.

As part of GSBD’s lending activities, GSBD may originate loans to companies that are experiencing significant financial or business difficulties, including companies involved in bankruptcy or other reorganization and liquidation proceedings. Although the terms of such financing may result in significant financial returns to GSBD, they involve a substantial degree of risk. The level of analytical sophistication, both financial and legal, necessary for successful financing to companies experiencing significant business and financial difficulties is unusually high. There is no assurance that GSBD will correctly evaluate the value of the assets collateralizing

 

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GSBD’s loans or the prospects for a successful reorganization or similar action. In any reorganization or liquidation proceeding relating to a company that GSBD funds, GSBD may lose all or part of the amounts advanced to the borrower or may be required to accept collateral with a value less than the amount of the loan advanced by GSBD to the borrower.

GSBD may be exposed to special risks associated with bankruptcy cases.

Many of the events within a bankruptcy case are adversarial and often beyond the control of the creditors. While creditors generally are afforded an opportunity to object to significant actions, there can be no assurance that a bankruptcy court would not approve actions that may be contrary to GSBD’s interests. Furthermore, there are instances where creditors can lose their ranking and priority if they are considered to have taken over management of a borrower.

The reorganization of a company can involve substantial legal, professional and administrative costs to a lender and the borrower; it is subject to unpredictable and lengthy delays; and during the process a company’s competitive position may erode, key management may depart and a company may not be able to invest its capital adequately. In some cases, the debtor company may not be able to reorganize and may be required to liquidate assets. The debt of companies in financial reorganization will, in most cases, not pay current interest, may not accrue interest during reorganization and may be adversely affected by an erosion of the issuer’s fundamental value.

In addition, lenders can be subject to lender liability claims for actions taken by them where they become too involved in the borrower’s business or exercise control over the borrower. For example, GSBD could become subject to a lender’s liability claim, if, among other things, the borrower requests significant managerial assistance from GSBD and GSBD provides such assistance as contemplated by the 1940 Act.

Declines in market prices and liquidity in the corporate debt markets can result in significant net unrealized depreciation of GSBD’s portfolio, which in turn would affect its results of operations.

As a BDC, GSBD is required to carry its investments at market value or, if no market value is ascertainable, at fair value as determined in good faith under procedures adopted by the GSBD Board. GSBD may take into account the following types of factors, if relevant, in determining the fair value of GSBD’s investments: the enterprise value of a portfolio company (the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time), the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow (taking into consideration current market interest rates and credit spreads), the markets in which the portfolio company does business, a comparison of the portfolio company’s securities to similar publicly traded securities and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, GSBD uses the pricing indicated by the external event to corroborate its valuation. While most of GSBD’s investments are not publicly traded, applicable accounting standards require GSBD to assume as part of its valuation process that GSBD’s investments are sold in a principal market to market participants (even if GSBD plans on holding an investment through its maturity). As a result, volatility in the capital markets can also adversely affect GSBD’s investment valuations. Decreases in the market values or fair values of GSBD’s investments are recorded as unrealized depreciation. The effect of all of these factors on GSBD’s portfolio can reduce GSBD’s NAV by increasing net unrealized depreciation in its portfolio. Depending on market conditions, GSBD could incur substantial realized losses and may suffer unrealized losses, which could have a material adverse impact on GSBD’s business, financial condition and results of operations.

Economic recessions or downturns could impair GSBD’s portfolio companies and harm its operating results.

GSBD’s portfolio companies may be susceptible to economic downturns or recessions and may be unable to repay GSBD’s loans during these periods. Therefore, during these periods GSBD’s non-performing assets may

 

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increase and the value of its portfolio may decrease if GSBD is required to write down the values of its investments. Adverse economic conditions may also decrease the value of collateral securing some of GSBD’s loans and the value of its equity investments. Economic slowdowns or recessions could lead to financial losses in GSBD’s portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase GSBD’s funding costs, limit GSBD’s access to the capital markets or result in a decision by lenders not to extend credit to GSBD. These events could prevent GSBD from increasing investments and harm its operating results.

A portfolio company’s failure to satisfy financial or operating covenants imposed by GSBD or other lenders could lead to defaults and, potentially, acceleration of the time when the loans are due and foreclosure on the portfolio company’s assets representing collateral for its obligations. This could trigger cross defaults under other agreements and jeopardize GSBD’s portfolio company’s ability to meet its obligations under the debt that GSBD holds and the value of any equity securities GSBD owns. GSBD may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company.

GSBD’s portfolio companies may have incurred or issued, or may in the future incur or issue, debt or equity securities that rank equally with, or senior to, GSBD’s investments in such companies, which could have an adverse effect on GSBD in any liquidation of the portfolio company.

GSBD’s portfolio companies may have, or may be permitted to incur, other debt, or issue other equity securities that rank equally with, or senior to, GSBD’s investments. By their terms, such instruments may provide that the holders are entitled to receive payment of dividends, interest or principal on or before the dates on which GSBD is entitled to receive payments in respect of GSBD’s investments. These debt instruments would usually prohibit the portfolio companies from paying interest on or repaying GSBD’s investments in the event and during the continuance of a default under such debt. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of securities ranking senior to GSBD’s investment in that portfolio company typically are entitled to receive payment in full before GSBD receives any distribution in respect of its investment. After repaying such holders, the portfolio company may not have any remaining assets to use for repaying its obligation to GSBD. In the case of securities ranking equally with GSBD’s investments, GSBD would have to share on an equal basis any distributions with other security holders in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.

Additionally, certain loans that GSBD makes to portfolio companies may be secured on a second priority basis by the same collateral securing senior secured debt, which will be secured on a first priority basis. The first priority liens on the collateral will secure the portfolio company’s obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the portfolio company under the agreements governing the loans. The holders of obligations secured by the first priority liens on the collateral will generally control the liquidation of and be entitled to receive proceeds from any realization of the collateral to repay their obligations in full before GSBD. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the loan obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens. If such proceeds are not sufficient to repay amounts outstanding under the loan obligations secured by the second priority liens, then GSBD, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the portfolio company’s remaining assets, if any.

The rights GSBD may have with respect to the collateral securing any junior priority loans GSBD makes to its portfolio companies may also be limited pursuant to the terms of one or more intercreditor agreements that GSBD enters into with the holders of senior debt. Under such an intercreditor agreement, at any time that senior obligations are outstanding, GSBD may forfeit certain rights with respect to the collateral to the holders of the senior obligations. These rights may include the right to commence enforcement proceedings against the collateral, the right to control the conduct of such enforcement proceedings, the right to approve amendments to

 

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collateral documents, the right to release liens on the collateral and the right to waive past defaults under collateral documents. GSBD may not have the ability to control or direct such actions, even if GSBD’s rights as a junior lender are adversely affected. In addition, a bankruptcy court may choose not to enforce an intercreditor agreement or other arrangement with creditors. Similar risks to the foregoing may apply where GSBD holds the last-out piece of a unitranche loan.

GSBD may also make unsecured loans to portfolio companies, meaning that such loans will not benefit from any interest in collateral of such companies. Liens on such portfolio companies’ collateral, if any, will secure the portfolio company’s obligations under its outstanding secured debt and may secure certain future debt that is permitted to be incurred by the portfolio company under its secured loan agreements. The holders of obligations secured by such liens will generally control the liquidation of, and be entitled to receive proceeds from, any realization of such collateral to repay their obligations in full before GSBD. In addition, the value of such collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from sales of such collateral would be sufficient to satisfy GSBD’s unsecured loan obligations after payment in full of all secured loan obligations. If such proceeds were not sufficient to repay the outstanding secured loan obligations, then GSBD’s unsecured claims would rank equally with the unpaid portion of such secured creditors’ claims against the portfolio company’s remaining assets, if any.

GSBD’s portfolio companies may be highly leveraged.

Some of GSBD’s portfolio companies may be highly leveraged, which may have adverse consequences to these companies and to GSBD as an investor. These companies may be subject to restrictive financial and operating covenants, and the leverage may impair these companies’ ability to finance their future operations and capital needs. As a result, these companies’ flexibility to respond to changing business and economic conditions and to take advantage of business opportunities may be limited. Further, a leveraged company’s income and net assets will tend to increase or decrease at a greater rate than if borrowed money were not used.

GSBD’s investments in non-U.S. companies may involve significant risks in addition to the risks inherent in U.S. investments.

GSBD’s investment strategy contemplates potential investments in securities of non-U.S. companies to the extent permissible under the 1940 Act. Investing in non-U.S. companies may expose GSBD to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of non-U.S. taxes (potentially at confiscatory levels), less liquid markets, less available information than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility. These risks are likely to be more pronounced for investments in companies located in emerging markets and particularly for middle-market companies in these economies.

Although most of GSBD’s investments are denominated in U.S. dollars, GSBD’s investments that are denominated in a non-U.S. currency will be subject to the risk that the value of a particular currency will change in relation to the U.S. dollar. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation and political developments. GSBD may employ hedging techniques to minimize these risks, but GSBD cannot assure you that such strategies will be effective or without risk to GSBD.

GSBD may be exposed to risks if it engages in hedging transactions.

Subject to applicable provisions of the 1940 Act and applicable CFTC regulations, GSBD may enter into hedging transactions in a manner consistent with SEC guidance, which may expose GSBD to risks associated

 

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with such transactions. Such hedging may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of GSBD’s portfolio positions from changes in currency exchange rates and market interest rates. Use of these hedging instruments may include counterparty credit risk.

Hedging against a decline in the values of GSBD’s portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline. However, such hedging can establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transactions may also limit the opportunity for gain if the values of the underlying portfolio positions should increase. Moreover, it may not be possible to hedge against an exchange rate or interest rate fluctuation that is so generally anticipated that GSBD is not able to enter into a hedging transaction at an acceptable price.

The success of any hedging transactions GSBD may enter into will depend on its ability to correctly predict movements in currencies and interest rates. Therefore, while GSBD may enter into such transactions to seek to reduce currency exchange rate and interest rate risks, unanticipated changes in currency exchange rates or interest rates may result in poorer overall investment performance than if GSBD had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged may vary. Moreover, for a variety of reasons, GSBD may not seek to (or be able to) establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent GSBD from achieving the intended hedge and expose GSBD to risk of loss. In addition, it may not be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities is likely to fluctuate as a result of factors not related to currency fluctuations. See also “—Risks Relating to GSBD’s Business and Structure—GSBD is exposed to risks associated with changes in interest rates.”

GSBD may form one or more CLOs, which may subject GSBD to certain structured financing risks.

To the extent permissible under risk retention rules adopted pursuant to Section 941 of the Dodd-Frank Act and applicable provisions of the 1940 Act, to finance investments, GSBD may securitize certain of GSBD’s investments, including through the formation of one or more CLOs, while retaining all or most of the exposure to the performance of these investments. This would involve contributing a pool of assets to a special purpose entity, and selling debt interests in such entity on a non-recourse or limited-recourse basis to purchasers. Any interest in any such CLO held by GSBD may be considered a “non-qualifying asset” for purposes of Section 55 of the 1940 Act.

If GSBD creates a CLO, GSBD will depend on distributions from the CLO’s assets out of its earnings and cash flows to enable GSBD to make distributions to its stockholders. The ability of a CLO to make distributions will be subject to various limitations, including the terms and covenants of the debt it issues. For example, tests (based on interest coverage or other financial ratios or other criteria) may restrict GSBD’s ability, as holder of a CLO’s equity interests, to receive cash flow from these investments. There is no assurance any such performance tests will be satisfied. Also, a CLO may take actions that delay distributions in order to preserve ratings and to keep the cost of present and future financings lower, or the CLO may be obligated to retain cash or other assets to satisfy over-collateralization requirements commonly provided for holders of the CLO’s debt. As a result, there may be a lag, which could be significant, between the repayment or other realization on a loan or other assets in, and the distribution of cash out of, a CLO, or cash flow may be completely restricted for the life of the CLO. If GSBD does not receive cash flow from any such CLO that is necessary to satisfy the annual distribution requirement for maintaining GSBD’s RIC status, and GSBD is unable to obtain cash from other sources necessary to satisfy this requirement, GSBD could fail to maintain its status as a RIC, which would have a material adverse effect on GSBD’s financial performance.

 

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In addition, a decline in the credit quality of loans in a CLO due to poor operating results of the relevant borrower, declines in the value of loan collateral or increases in defaults, among other things, may force a CLO to sell certain assets at a loss, reducing its earnings and, in turn, cash potentially available for distribution to GSBD for distribution to GSBD stockholders.

To the extent that any losses are incurred by the CLO in respect of any collateral, such losses will be borne first by GSBD as owner of equity interests. Finally, any equity interests that GSBD retains in a CLO will not be secured by the assets of the CLO and GSBD will rank behind all creditors of the CLO.

Risks Relating to GSBD’s Securities

Investing in GSBD’s securities involves an above average degree of risk.

The investments GSBD makes in accordance with its investment objective may result in a higher amount of risk than alternative investment options and volatility or loss of principal. GSBD’s investments in portfolio companies may be highly speculative and aggressive, and therefore an investment in GSBD’s securities may not be suitable for someone with lower risk tolerance.

The market price of GSBD’s securities may fluctuate significantly.

The market price and liquidity of the market for GSBD’s securities may be significantly affected by numerous factors, some of which are beyond GSBD’s control and may not be directly related to its operating performance. These factors include:

 

   

significant volatility in the market price and trading volume of securities of BDCs or other companies in GSBD’s sector, which are not necessarily related to the operating performance of these companies;

 

   

price and volume fluctuations in the overall stock market from time to time;

 

   

the inclusion or exclusion of GSBD’s securities from certain indices;

 

   

changes in regulatory policies or tax guidelines, particularly with respect to RICs or BDCs;

 

   

any loss of RIC or BDC status;

 

   

changes in earnings or perceived changes or variations in operating results;

 

   

changes or perceived changes in the value of GSBD’s portfolio of investments;

 

   

changes in accounting guidelines governing valuation of GSBD’s investments;

 

   

any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts;

 

   

the inability of GSAM to employ additional experienced investment professionals or the departure of any of GSAM’s key personnel;

 

   

short-selling pressure with respect to shares of GSBD’s common stock or BDCs generally;

 

   

future sales of GSBD’s securities convertible into or exchangeable or exercisable for GSBD Common Stock or the conversion of such securities;

 

   

uncertainty surrounding the strength of the U.S. economic recovery;

 

   

concerns regarding European sovereign debt;

 

   

operating performance of companies comparable to GSBD;

 

   

general economic trends and other external factors; and

 

   

loss of a major funding source.

 

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In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. If GSBD’s stock price fluctuates significantly, GSBD may be the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management’s attention and resources from GSBD’s business.

Shares of closed-end investment companies, including BDCs, frequently trade at a discount to their NAV per share.

GSBD cannot predict the prices at which GSBD Common Stock will trade. Shares of closed-end investment companies, including BDCs, frequently trade at a discount from their NAV and GSBD’s common stock may also be discounted in the market. This characteristic of closed-end investment companies is separate and distinct from the risk that GSBD’s NAV per share of common stock may decline. GSBD cannot predict whether GSBD Common Stock will trade at, above or below NAV. In addition, if GSBD Common Stock trades below its NAV, GSBD will generally not be able to sell additional shares of GSBD Common Stock to the public at its market price without first obtaining the approval of a majority of GSBD stockholders (including a majority of GSBD’s unaffiliated stockholders) and the GSBD Independent Directors for such issuance.

Sales of substantial amounts of GSBD Common Stock in the public market may have a material adverse effect on the market price of GSBD Common Stock.

Sales of substantial amounts of GSBD Common Stock, the availability of such common stock for sale (including as a result of the conversion of GSBD’s 4.50% Convertible Notes due 2022 (the “Convertible Notes”) into common stock) or the perception that such sales could occur could materially adversely affect the prevailing market price for GSBD Common Stock. Both the sale of a substantial amount of GSBD’s securities and the perception that such sales could occur could impair GSBD’s ability to raise additional capital through the sale of equity securities should GSBD desire to do so. Additionally, as an owner of approximately 16.05% of GSBD Common Stock as of March 31, 2020, Group Inc. is a significant stockholder that may decide to sell a substantial amount of its common stock, subject to applicable securities laws, and such a sale would exacerbate the effects described above.

GSBD stockholders may experience dilution upon the conversion of its Convertible Notes.

GSBD’s Convertible Notes are convertible into shares of GSBD Common Stock beginning on October 1, 2021, or, under certain circumstances, earlier. Upon conversion of the Convertible Notes, GSBD has the choice to pay or deliver, as the case may be, at GSBD’s election, cash, shares of GSBD Common Stock or a combination of cash and shares of GSBD Common Stock. The initial conversion price of the Convertible Notes is $24.49, subject to adjustment in certain circumstances. If GSBD elects to deliver shares of common stock upon a conversion at the time GSBD’s NAV per share exceeds the conversion price in effect at such time, GSBD stockholders may incur dilution. In addition, GSBD stockholders will experience dilution in their ownership percentage of common stock upon GSBD’s issuance of common stock in connection with the conversion of the Convertible Notes, and any dividends paid on GSBD Common Stock will also be paid on shares issued in connection with such conversion after such issuance.

GSBD stockholders will experience dilution in their ownership percentage if they opt out of GSBD’s dividend reinvestment plan.

GSBD has adopted a dividend reinvestment plan pursuant to which GSBD reinvests all cash distributions declared by the GSBD Board on behalf of investors who do not elect to receive their distributions in cash. As a result, if the GSBD Board declares a cash distribution, then GSBD stockholders who have not opted out of GSBD’s dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of GSBD Common Stock, rather than receiving the cash distribution.

 

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If, on the payment date for any distribution, the most recently computed NAV per share is equal to or less than the closing market price plus estimated per share fees (which include any applicable brokerage commissions the plan agent is required to pay), the plan agent will invest the distribution amount in newly issued shares on behalf of the participants. The number of newly issued shares to be credited to a participant’s account will be determined by dividing the dollar amount of the distribution by the most recently computed NAV per share provided that, if the NAV is less than or equal to 95% of the then-current market price per share, the dollar amount of the distribution will be divided by 95% of the market price on the payment date. Accordingly, participants in the dividend reinvestment plan may receive a greater number shares of GSBD Common Stock than the number of shares associated with the market price of GSBD Common Stock, resulting in dilution for other stockholders. Stockholders that opt out of GSBD’s dividend reinvestment plan will experience dilution in their ownership percentage of GSBD Common Stock over time.

GSBD stockholders that do not opt out of its dividend reinvestment plan should generally expect to have current tax liabilities without receiving cash to pay such liabilities.

Under GSBD’s dividend reinvestment plan, if GSBD declares a cash distribution, GSBD stockholders who have not elected to “opt out” will have their cash distributions automatically reinvested in additional shares of GSBD Common Stock, rather than receiving the cash distributions. Stockholders who receive distributions in the form of shares of GSBD Common Stock generally are subject to the same U.S. federal, state and local tax consequences as stockholders who elect to receive their distributions in cash; however, since their distributions will be reinvested, those stockholders will not receive cash with which to pay any applicable taxes on such reinvested distributions. As a result, stockholders that have not opted out of GSBD’s dividend reinvestment plan may have to use funds from other sources to pay any tax liabilities imposed upon them based on the value of the common stock received.

GSBD may in the future determine to issue preferred stock, which could adversely affect the market value of GSBD Common Stock.

The issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock could adversely affect the market price for GSBD Common Stock by making an investment in the common stock less attractive. In addition, the dividends on any preferred stock GSBD issues must be cumulative. Payment of dividends and repayment of the liquidation preference of preferred stock must take preference over any distributions or other payments to GSBD’s common stockholders, and holders of preferred stock are not subject to any of GSBD’s expenses or losses and are not entitled to participate in any income or appreciation in excess of their stated preference (other than convertible preferred stock that converts into common stock). In addition, under the 1940 Act, participating preferred stock and preferred stock constitute a “senior security” for purposes of the 150% asset coverage test. See “Risk Relating to GSBD’s Business and Structure—Regulations governing GSBD’s operation as a BDC affect its ability to raise, and the way in which GSBD raises, additional capital. These constraints may hinder GSAM’s ability to take advantage of attractive investment opportunities and to achieve GSBD’s investment objective.”

Certain provisions of GSBD’s certificate of incorporation and bylaws and the DGCL, as well as other aspects of its structure, including the substantial ownership interest of Group Inc., could deter takeover attempts and have an adverse impact on the price of GSBD Common Stock.

GSBD’s certificate of incorporation and bylaws, as well as the DGCL, contain provisions that may have the effect of discouraging a third party from making an acquisition proposal for GSBD. Among other things, GSBD’s certificate of incorporation and bylaws:

 

   

provide that the GSBD Board is classified, which may delay the ability of GSBD stockholders to change the membership of a majority of the GSBD Board;

 

   

do not provide for cumulative voting;

 

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provide that vacancies on the GSBD Board, including newly created directorships, may be filled only by a majority vote of directors then in office;

 

   

provide that GSBD’s directors may be removed only for cause, and only by a supermajority vote of the stockholders entitled to elect such directors;

 

   

provide that stockholders may take action only at an annual or special meeting of stockholders, and may not act by written consent;

 

   

restrict stockholders’ ability to call special meetings;

 

   

require a supermajority vote of stockholders to effect certain amendments to GSBD’s certificate of incorporation and bylaws; and

 

   

require stockholders to provide advance notice of new business proposals and director nominations under specific procedures.

GSBD has provisions comparable to those of Section 203 of the DGCL (other than with respect to Group Inc. and its affiliates and certain of its or their direct or indirect transferees and any group as to which such persons are a party). These provisions generally prohibit GSBD from engaging in mergers, business combinations and certain other types of transactions with “interested stockholders” (generally defined as persons or entities that beneficially own 15% or more of GSBD’s voting stock), other than the exempt parties as described above, for a period of three years following the date the person became an interested stockholder unless, prior to such stockholder becoming an interested stockholder, the GSBD Board has approved the “business combination” that would otherwise be restricted or the transaction that resulted in the interested stockholder becoming an interested stockholder or the subsequent transaction with the interested stockholder has been approved by the GSBD Board and 66 2/3% of GSBD’s outstanding voting stock (other than voting stock owned by the interested stockholder). Such provisions may discourage third parties from trying to acquire control of GSBD and increase the difficulty of consummating such an offer.

These anti-takeover provisions may inhibit a change of control in circumstances that could give the holders of GSBD Common Stock the opportunity to realize a premium over the market price for the common stock. In addition, certain aspects of GSBD’s structure, including the substantial ownership interest of Group Inc., may have the effect of discouraging a third party from making an acquisition proposal for GSBD.

GSBD may not be able to pay distributions on GSBD Common Stock or preferred stock, GSBD’s distributions may not grow over time and a portion of GSBD’s distributions may be a return of capital for U.S. federal income tax purposes.

GSBD intends to pay quarterly distributions to GSBD stockholders out of assets legally available for distribution. GSBD cannot assure that GSBD will achieve investment results that will allow GSBD to make a specified level of cash distributions or year-to-year increases in cash distributions. If GSBD is unable to satisfy the asset coverage test applicable to GSBD as a BDC, or if GSBD violates certain covenants under the GSBD Credit Facility and other debt financing agreements, GSBD’s ability to pay distributions to its stockholders could be limited. All distributions will be paid at the discretion of the GSBD Board and will depend on GSBD’s earnings, financial condition, maintenance of its RIC status, compliance with applicable BDC regulations, compliance with covenants under the GSBD Credit Facility and other debt financing agreements and such other factors as the GSBD Board may deem relevant from time to time.

The distributions GSBD pays to its stockholders in a year may exceed GSBD’s net ordinary income and capital gains for that year and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes that would reduce a stockholder’s adjusted tax basis in its shares of GSBD Common Stock or preferred stock and correspondingly increase such stockholder’s gain, or reduce such stockholder’s loss, on disposition of such shares. Distributions in excess of a stockholder’s adjusted tax basis in its shares of GSBD Common Stock or preferred stock will generally constitute capital gains to such stockholder.

 

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Stockholders who periodically receive the payment of a distribution from a RIC consisting of a return of capital for U.S. federal income tax purposes may be under the impression that they are receiving a distribution of the RIC’s net ordinary income or capital gains when they are not. Accordingly, stockholders should read carefully any written disclosure accompanying a distribution from GSBD and the information about the specific tax characteristics of GSBD’s distributions provided to stockholders after the end of each calendar year, and should not assume that the source of any distribution is GSBD’s net ordinary income or capital gains.

The tax treatment of a non-U.S. stockholder in its jurisdiction of tax residence will depend entirely on the laws of such jurisdiction, and may vary considerably from jurisdiction to jurisdiction.

Depending on (i) the laws of such non-U.S. stockholder’s jurisdiction of tax residence, (ii) how GSBD is treated in such jurisdiction, and (iii) GSBD’s activities, an investment in GSBD could result in such non-U.S. stockholder’s recognizing adverse tax consequences in its jurisdiction of tax residence, including with respect to any generally required or additional tax filings and/or additional disclosure required in such filings in relation to the treatment for tax purposes in the relevant jurisdiction of an interest in GSBD and/or of distributions from GSBD and any uncertainties arising in that respect (GSBD’s not being established under the laws of the relevant jurisdiction), the possibility of taxable income significantly in excess of cash being distributed to a non-U.S. stockholder, and possibly in excess of GSBD’s actual economic income, the possibilities of losing deductions or the ability to utilize tax basis and of sums invested being returned in the form of taxable income or gains, and the possibility of being subject to tax at unfavorable tax rates. A non-U.S. stockholder may also be subject to restrictions on the use of its share of GSBD’s deductions and losses in its jurisdiction of tax residence. Each prospective investor is urged to consult its own tax advisors with respect to the tax and tax filing consequences, if any, in its jurisdiction of tax residence of an investment in GSBD, as well as any other jurisdiction in which such prospective investor is subject to taxation.

GSBD may have difficulty paying its required distributions if GSBD recognizes taxable income before or without receiving cash representing such income.

For U.S. federal income tax purposes, GSBD will include in its taxable income certain amounts that GSBD has not yet received in cash, such as OID or accruals on a contingent payment debt instrument, which may occur if GSBD receives warrants in connection with the origination of a loan, or possibly in other circumstances, or contracted PIK interest, which generally represents contractual interest added to the loan balance and due at the end of the loan term. Such OID, which could be significant relative to GSBD’s overall investment assets, and increases in loan balances as a result of PIK interest will be included in its taxable income before GSBD receives any corresponding cash payments. GSBD also may be required to include in its taxable income certain other amounts that GSBD will not receive in cash. The credit risk associated with the collectability of deferred payments may be increased as and when a portfolio company increases the amount of interest on which it is deferring cash payment through deferred interest features. GSBD’s investments with a deferred interest feature may represent a higher credit risk than loans for which interest must be paid in full in cash on a regular basis. For example, even if the accounting conditions for income accrual are met, the borrower could still default when GSBD’s actual collection is scheduled to occur upon maturity of the obligation.

Because in certain cases GSBD may recognize taxable income before or without receiving cash representing such income, GSBD may have difficulty making distributions to its stockholders that will be sufficient to enable GSBD to meet the annual distribution requirement necessary for GSBD to maintain its status as a RIC. Accordingly, GSBD may need to sell some of its assets at times and/or at prices that GSBD would not consider advantageous, GSBD may need to raise additional equity or debt capital or GSBD may need to forgo new investment opportunities or otherwise take actions that are disadvantageous to its business (or be unable to take actions that are advantageous to its business) to enable GSBD to make distributions to its stockholders that will be sufficient to enable GSBD to meet the annual distribution requirement. If GSBD is unable to obtain cash from other sources to meet the annual distribution requirement, GSBD may fail to qualify for the U.S. federal income tax benefits allowable to RICs and, thus, become subject to a corporate-level U.S. federal income tax (and any applicable U.S. state and local taxes).

 

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GSBD stockholders may receive shares of GSBD Common Stock or preferred stock as distributions, which could result in adverse tax consequences to them.

In order to satisfy the annual distribution requirement applicable to RICs, GSBD will have the ability to declare a large portion of a distribution in shares of GSBD Common Stock or preferred stock instead of in cash. GSBD is not subject to restrictions on the circumstances in which GSBD may declare a portion of a distribution in shares of GSBD’s stock but would generally anticipate doing so only in unusual situations, such as, for example, if GSBD does not have sufficient cash to meet its RIC distribution requirements under the Code. Generally, were GSBD to declare such a distribution, GSBD would allow stockholders to elect payment in cash and/or shares of GSBD’s stock of equivalent value, with a percentage limitation on the portion of the total distribution available to be received in cash. Under published IRS guidance, the entire distribution will generally be treated as a taxable distribution for U.S. federal income tax purposes, and count towards GSBD’s RIC distribution requirements under the Code, if certain conditions are satisfied. Among other things, the aggregate amount of cash available to be distributed to all stockholders is required to be at least 20% of the aggregate declared distribution. If too many stockholders elect to receive cash, the cash available for distribution is required to be allocated among the stockholders electing to receive cash (with the balance of the distribution paid in stock) under a formula provided in the applicable IRS guidance. The number of shares of GSBD’s stock distributed would thus depend on the applicable percentage limitation on cash available for distribution, the stockholders’ individual elections to receive cash or stock, and the value of the shares of GSBD’s stock. Each stockholder generally would be treated as having received a taxable distribution (including for purposes of the withholding tax rules applicable to a non-U.S. stockholder) on the date the distribution is received in an amount equal to the cash that such stockholder would have received if the entire distribution had been paid in cash, even if the stockholder received all or most of the distribution in shares of GSBD Common Stock or preferred stock. GSBD currently does not intend to pay distributions in shares of GSBD Common Stock or preferred stock, but there can be no assurance that GSBD will not do so in the future.

If GSBD is not treated as a “publicly offered regulated investment company,” as defined in the Code, U.S. stockholders that are individuals, trusts or estates will be taxed as though they received a distribution of some of GSBD’s expenses.

GSBD expects to be treated as a “publicly offered regulated investment company” as a result of either (i) shares of GSBD Common Stock being held by at least 500 persons at all times during a taxable year or (ii) shares of GSBD Common Stock being treated as regularly traded on an established securities market. However, GSBD cannot assure you that GSBD will be treated as a publicly offered regulated investment company for all years. If GSBD is not treated as a publicly offered regulated investment company for any calendar year, each U.S. stockholder that is an individual, trust or estate will be treated as having received a dividend from GSBD in the amount of such U.S. stockholder’s allocable share of the management and incentive fees paid to GSAM and certain of GSBD’s other expenses for the calendar year, and these fees and expenses will be treated as miscellaneous itemized deductions of such U.S. stockholder. Miscellaneous itemized deductions of a U.S. stockholder that is an individual, trust or estate are disallowed under the Tax Cuts and Jobs Act for tax years beginning before January 1, 2026, and thereafter generally are (i) deductible by such U.S. stockholders only to the extent that the aggregate of such U.S. stockholder’s miscellaneous itemized deductions exceeds 2% of such U.S. stockholder’s adjusted gross income for U.S. federal income tax purposes, (ii) not deductible for purposes of the alternative minimum tax and (iii) are subject to the overall limitation on itemized deductions under the Code.

Non-U.S. stockholders may be subject to withholding of U.S. federal income tax on dividends GSBD pays.

Distributions of GSBD’s “investment company taxable income” to a non-U.S. stockholder that are not effectively connected with the non-U.S. stockholder’s conduct of a trade or business within the United States will generally be subject to withholding of U.S. federal income tax at a 30% rate (or lower rate provided by an applicable income tax treaty) to the extent paid out of GSBD’s current or accumulated earnings and profits.

 

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Certain properly reported dividends are generally exempt from withholding of U.S. federal income tax when they are paid in respect of GSBD’s (i) “qualified net interest income” (generally, GSBD’s U.S.-source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in which GSBD or the non-U.S. stockholder are at least a 10% shareholder, reduced by expenses that are allocable to such income) or (ii) “qualified short-term capital gains” (generally, the excess of GSBD’s net short-term capital gain over its net long-term capital loss for such taxable year), and certain other requirements are satisfied.

NO ASSURANCE CAN BE GIVEN AS TO WHETHER ANY OF GSBD’S DISTRIBUTIONS WILL BE ELIGIBLE FOR THIS EXEMPTION FROM WITHHOLDING OF U.S. FEDERAL INCOME TAX. IN PARTICULAR, THIS EXEMPTION WILL NOT APPLY TO GSBD’S DISTRIBUTIONS PAID IN RESPECT OF GSBD’S NON-U.S. SOURCE INTEREST INCOME OR GSBD’S DIVIDEND INCOME (OR ANY OTHER TYPE OF INCOME OTHER THAN GENERALLY GSBD’S NON-CONTINGENT U.S. SOURCE INTEREST INCOME RECEIVED FROM UNRELATED OBLIGORS AND GSBD’S QUALIFIED SHORT-TERM CAPITAL GAINS). IN THE CASE OF GSBD COMMON STOCK OR PREFERRED STOCK HELD THROUGH AN INTERMEDIARY, THE INTERMEDIARY MAY WITHHOLD U.S. FEDERAL INCOME TAX EVEN IF GSBD REPORTS THE PAYMENT AS QUALIFIED NET INTEREST INCOME OR QUALIFIED SHORT-TERM CAPITAL GAIN.

Purchases of GSBD Common Stock pursuant to a future 10b5-1 plan or otherwise may result in the price of GSBD Common Stock being higher than the price that otherwise might exist in the open market.

Under the GSBD 10b5-1 Plan, GSBD was authorized to purchase up to $25.0 million of shares of GSBD Common Stock if the stock traded below the most recently announced NAV per share (including any updates, corrections or adjustments publicly announced by GSBD to any previously announced NAV per share), subject to certain limitations. While the GSBD 10b5-1 Plan was temporarily suspended on December 9, 2019 and expired on March 18, 2020, the GSBD Board may approve a new 10b5-1 plan in the future. Whether purchases will be made under a future 10b5-1 plan or otherwise and how much will be purchased at any time is uncertain, dependent on prevailing market prices and trading volumes, all of which GSBD cannot predict. Any such purchases will be conducted in accordance with applicable securities laws. These activities may have the effect of maintaining the market price of GSBD Common Stock or lessening a decline in the market price of the common stock, and as a result, the price of GSBD Common Stock may be higher than the price that otherwise might exist in the open market.

Purchases of GSBD Common Stock by GSBD may result in dilution to GSBD’s NAV per share.

GSBD is authorized to repurchase shares of common stock when the market price per share is below the most recently reported NAV per share (including any updates, corrections or adjustments publicly announced by GSBD to any previously announced NAV per share). Because purchases may be made beginning at any price below GSBD’s most recently reported NAV per share, if GSBD’s NAV per share decreases after the date as of which NAV per share was last reported, such purchases may result in dilution to GSBD’s NAV per share. This dilution would occur because GSBD would repurchase shares at a price above the then-current NAV per share, which would cause a proportionately smaller increase in GSBD stockholders’ interest in GSBD’s earnings and assets and their voting interest in GSBD than the decrease in its assets resulting from such repurchase. As a result of any such dilution, GSBD’s market price per share may decline. The actual dilutive effect will depend on the number of shares of common stock that could be so repurchased, the price and the timing of any repurchases.

To the extent OID and PIK interest constitute a portion of GSBD’s income, GSBD will be exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash representing such income.

GSBD’s investments may include OID instruments and PIK, interest arrangements, which represents contractual interest added to a loan balance and due at the end of such loan’s term. To the extent OID or PIK

 

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interest constitute a portion of GSBD’s income, GSBD is exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash, including the following:

 

   

The higher interest rates of OID and PIK instruments reflect the payment deferral and increased credit risk associated with these instruments, and OID and PIK instruments generally represent a significantly higher credit risk than coupon loans.

 

   

Even if the accounting conditions for income accrual are met, the borrower could still default when GSBD’s actual collection is supposed to occur at the maturity of the obligation.

 

   

OID and PIK instruments may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of any associated collateral. OID and PIK income may also create uncertainty about the source of GSBD’s cash distributions.

 

   

For accounting purposes, any cash distributions to shareholders representing OID and PIK income are not treated as coming from paid in capital, even if the cash to pay them comes from offering proceeds. As a result, despite the fact that a distribution representing OID and PIK income could be paid out of amounts invested by GSBD stockholders, the 1940 Act does not require that stockholders be given notice of this fact by reporting it as a return of capital.

Terms relating to redemption may materially adversely affect stockholders’ return on any debt securities that GSBD may issue.

If GSBD’s noteholders’ debt securities are redeemable at GSBD’s option, GSBD may choose to redeem stockholders’ debt securities at times when prevailing interest rates are lower than the interest rate paid on stockholders’ debt securities. In addition, if GSBD’s noteholders’ debt securities are subject to mandatory redemption, GSBD may be required to redeem such debt securities also at times when prevailing interest rates are lower than the interest rate paid on such debt securities. In this circumstance, a noteholder may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as the debt securities being redeemed.

GSBD’s credit ratings may not reflect all risks of an investment in its debt securities.

GSBD’s credit ratings are an assessment by third parties of GSBD’s ability to pay its obligations. Consequently, real or anticipated changes in GSBD’s credit ratings will generally affect the market value of its debt securities. GSBD’s credit ratings, however, may not reflect the potential impact of risks related to market conditions generally or other factors discussed above on the market value of or trading market for the publicly issued debt securities.

Holders of any preferred stock GSBD might issue would have the right to elect members of the GSBD Board and class voting rights on certain matters.

Holders of any preferred stock GSBD might issue, voting separately as a single class, would have the right to elect two members of the GSBD Board at all times and in the event dividends become two full years in arrears would have the right to elect a majority of the directors until such arrearage is completely eliminated. In addition, preferred stockholders have class voting rights on certain matters, including changes in fundamental investment restrictions and conversion to open-end status, and accordingly can veto any such changes. Restrictions imposed on the declarations and payment of dividends or other distributions to the holders of GSBD Common Stock and preferred stock, both by the 1940 Act and by requirements imposed by rating agencies or the terms of GSBD’s credit facilities, might impair GSBD’s ability to maintain its qualification as a RIC for U.S. federal income tax purposes. While GSBD would intend to redeem its preferred stock to the extent necessary to enable GSBD to distribute its income as required to maintain its qualification as a RIC, there can be no assurance that such actions could be effected in time to meet the tax requirements.

 

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There is a risk that investors in GSBD’s equity securities may not receive distributions or that its distributions may not grow over time and that investors in GSBD’s debt securities may not receive all of the interest income to which they are entitled.

GSBD intends to make distributions on a quarterly basis to its stockholders out of assets legally available for distribution. GSBD cannot assure you that GSBD will achieve investment results that will allow GSBD to make a specified level of cash distributions or year-to-year increases in cash distributions. In addition, due to the asset coverage test applicable to GSBD as a BDC, GSBD may in the future be limited in its ability to make distributions. Also, the GSBD Credit Facility may limit its ability to declare dividends if GSBD defaults under certain provisions or fail to satisfy certain other conditions. If GSBD does not distribute a certain percentage of its income annually, GSBD will suffer adverse tax consequences, including possible loss of the tax benefits available to GSBD as a RIC. In addition, in accordance with U.S. generally accepted accounting principles and tax rules, GSBD includes in income certain amounts that GSBD has not yet received in cash, such as contractual PIK interest, which represents contractual interest added to the loan balance that becomes due at the end of the loan term, or the accrual of original issue or market discount. Since GSBD may recognize income before or without receiving cash representing such income, GSBD may have difficulty meeting the requirement to distribute at least 90% of GSBD’s investment company taxable income to obtain tax benefits as a RIC.

GSBD will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income for a calendar year unless GSBD distributes in a timely manner an amount at least equal to the sum of (1) 98% of GSBD’s ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of GSBD’s capital gain net income for the one-year period ending October 31 in that calendar year and (3) any income recognized, but not distributed, in preceding years. GSBD will not be subject to excise taxes on amounts on which GSBD is required to pay corporate income taxes (such as retained net capital gains).

Finally, if more stockholders opt to receive cash distributions rather than participate in GSBD’s dividend reinvestment plan, GSBD may be forced to liquidate some of its investments and raise cash in order to make cash distribution payments.

If you do not fully exercise your subscription rights in any rights offering of GSBD Common Stock, your interest in GSBD may be diluted and, if the subscription price is less than GSBD’s NAV per share, you may experience an immediate dilution of the aggregate NAV of your shares.

In the event GSBD issues subscription rights to acquire shares of GSBD Common Stock, stockholders who do not fully exercise their subscription rights should expect that they will, at the completion of the rights offering, own a smaller proportional interest in GSBD than would be the case if they fully exercised their rights.

In addition, if the subscription price is less than the NAV per share of GSBD Common Stock, a stockholder who does not fully exercise its subscription rights may experience an immediate dilution of the aggregate NAV of its shares as a result of the offering.

GSBD would not be able to state the amount of any such dilution prior to knowing the results of the offering. Such dilution could be substantial

Risks Relating to MMLC

Risks Relating to MMLC’s Business and Structure

Political, social and economic uncertainty, including uncertainty related to the COVID-19 pandemic, creates and exacerbates risks.

Social, political, economic and other conditions and events will occur that create uncertainty and have significant impacts on issuers, industries, governments and other systems, including the financial markets, to

 

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which MMLC and its investments are exposed. In addition, global economies and financial markets are increasingly interconnected, and political, economic and other conditions and events in one country, region, or financial market may adversely impact issuers in a different country, region or financial market. Furthermore, the occurrence of, among other events, natural or man-made disasters, severe weather or geological events, fires, floods, earthquakes, outbreaks of disease (such as COVID-19, avian influenza or H1N1/09), epidemics, pandemics, malicious acts, cyber-attacks, terrorist acts or the occurrence of climate change, also adversely impact its performance from time to time. Such events may result in, and have resulted in, closing borders, securities exchange closures, health screenings, healthcare service delays, quarantines, cancellations, supply chain disruptions, lower consumer demand, market volatility and general uncertainty. Such events have adversely impacted, and may continue to adversely impact, MMLC’s portfolio companies and markets and economies over the short- and long-term, including in ways that cannot necessarily be foreseen. MMLC has been, and may continue to be, negatively impacted if the value of its portfolio company holdings were further harmed by such political or economic conditions or events. Moreover, such negative political and economic conditions and events have disrupted, and could continue to disrupt, the processes necessary for its operations. This has created, and may continue to create, widespread business continuity issues for MMLC and its portfolio companies and heightened cybersecurity, information security and operational risks as a result of, among other things, remote work arrangements.

For example, in December 2019, COVID-19 emerged in China and has since spread rapidly to other countries, including the United States. This outbreak has led, and for an unknown period of time will continue to lead, to disruptions in local, regional, national and global markets and economies affected thereby. The global impact of the outbreak is rapidly evolving, and many countries have reacted by instituting quarantines, prohibitions on travel and the closure of offices, businesses, schools, retail stores and other public venues. With respect to the U.S. credit markets (in particular for middle market loans), this outbreak has resulted in, and until fully resolved is likely to continue to result in, the following, among other things: (i) government imposition of various forms of shelter-in-place orders and the closing of “non-essential” businesses, resulting in significant disruption to the businesses of many middle-market loan borrowers including supply chains, demand and practical aspects of their operations, as well as furloughs or lay-offs of employees (while such measures are hoped to be temporary, their impact may persist or become permanent); (ii) increased draws by borrowers on revolving lines of credit; (iii) increased requests by borrowers for amendments, forbearance agreements and waivers of provisions of their credit agreements in order to avoid default, increased defaults by such borrowers and/or increased difficulty in obtaining refinancing at the maturity dates of their loans; (iv) volatility and disruption of these markets including greater volatility in pricing and spreads and difficulty in valuing loans during periods of increased volatility, and liquidity issues; and (v) rapidly evolving proposals and/or actions by state and federal governments to address problems in functioning of the markets and by businesses and the economy in general which will not necessarily adequately address the problems facing the loan market and middle market businesses. The COVID-19 outbreak is having, and any future outbreaks could have, an adverse impact on the markets and the economy in general, which could have a material adverse impact on, among other things, the ability of lenders to originate loans, the volume and type of loans originated, and the volume and type of amendments and waivers granted to borrowers and remedial actions taken in the event of a borrower default, each of which could negatively impact the amount and quality of loans available for investment by MMLC and returns to MMLC, among other things. As of the date of this joint proxy statement/prospectus, it is impossible to determine the scope of this outbreak, or any future outbreaks, how long any such outbreak, market disruption or uncertainties may last, the effect any governmental actions will have or the full potential impact on MMLC and its portfolio companies. Further, even after the pandemic subsides, the U.S. economy, as well as most other major global economies may continue to experience a recession, and MMLC anticipates its business could be materially and adversely affected by a prolonged recession in the U.S. and other major markets.

Although it is impossible to predict the precise nature and consequences of these events, or of any political or policy decisions and regulatory changes occasioned by emerging events or uncertainty on applicable laws or regulations that impact MMLC, its portfolio companies and its investments, it is clear that these types of events are impacting and will, for at least some time, continue to impact MMLC and its portfolio companies. In many

 

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instances, the impact will be adverse and profound. For example, middle market companies in which MMLC may invest are being significantly impacted by these emerging events and the uncertainty caused by these events. The effects of a public health emergency may materially and adversely impact (i) the value and performance of MMLC and its portfolio companies, (ii) the ability of its borrowers to continue to meet loan covenants or repay loans provided by MMLC on a timely basis or at all, which may require MMLC to restructure its investments or write down the value of its investments, (iii) its ability to comply with the covenants and other terms of its debt obligations and to repay such obligations, on a timely basis or at all, (iv) its ability to comply with certain regulatory requirements, such as asset coverage requirements under the 1940 Act, (v) its ability maintain its distributions at their current level or to pay them at all or (vi) its ability to source, manage and divest investments and achieve its investment objectives, all of which could result in significant losses to MMLC. MMLC will also be negatively affected if the operations and effectiveness of any of its portfolio companies (or any of the key personnel or service providers of the foregoing) is compromised or if necessary or beneficial systems and processes are disrupted.

Disruptions in the capital markets caused by the COVID-19 pandemic have increased the spread between the yields realized on risk-free and higher risk securities, resulting in illiquidity in parts of the capital markets. These and future market disruptions and/or illiquidity can be expected to have an adverse effect on MMLC’s business, financial condition, results of operations and cash flows. Unfavorable economic conditions also would be expected to increase its funding costs, limit its access to the capital markets or result in a decision by lenders not to extend credit to us. These events have limited and could continue to limit its investment originations, limit its ability to grow and have a material negative impact on MMLC’s and its portfolio companies’ operating results and the fair values of its debt and equity investments.

The capital markets are currently in a period of disruption and economic uncertainty. Such market conditions have materially and adversely affected debt and equity capital markets, which have had, and may continue to have, a negative impact on MMLC’s business and operations.

The U.S. capital markets have experienced extreme disruption following the global outbreak of COVID-19. Such disruptions have been evidenced by volatility in global stock markets as a result of, among other things, uncertainty regarding the COVID-19 pandemic and the fluctuating price of commodities such as oil. Despite actions of the U.S. federal government and foreign governments, these events have contributed to worsening general economic conditions that are materially and adversely impacting broader financial and credit markets and reducing the availability of debt and equity capital for the market as a whole. These conditions could continue for a prolonged period of time or worsen in the future.

Significant changes or volatility in the capital markets have negatively affected, and may continue to negatively affect, the valuations of MMLC’s investments. While most of its investments are not publicly traded, applicable accounting standards require MMLC to assume as part of its valuation process that its investments are sold in a principal market to market participants (even if MMLC plans to hold an investment to maturity). Its valuations, and particularly valuations of private investments and private companies, are inherently uncertain, fluctuate over short periods of time and are often based on estimates, comparisons and qualitative evaluations of private information that may not reflect the full impact of the COVID-19 pandemic and measures taken in response thereto. Any public health emergency, including the COVID-19 pandemic or an outbreak of other existing or new epidemic diseases, or the threat thereof, and the resulting financial and economic market uncertainty could have a significant adverse impact on MMLC and the fair value of its investments and its portfolio companies.

Significant changes in the capital markets, such as the disruption in economic activity caused by the COVID-19 pandemic, have limited and could continue to limit MMLC’s investment originations, limit its ability to grow and have a material negative impact on MMLC’s and its portfolio companies’ operating results and the fair values of its debt and equity investments. Additionally, the recent disruption in economic activity caused by the COVID-19 pandemic has had, and may continue to have, a negative effect on the potential for liquidity events involving its investments. The illiquidity of its investments may make it difficult for MMLC to sell such

 

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investments to access capital if required. As a result, MMLC could realize significantly less than the value at which MMLC has recorded its investments if MMLC was required to sell them to increase its liquidity. An inability on MMLC’s part to raise incremental capital, and any required sale of all or a portion of its investments as a result, could have a material adverse effect on its business, financial condition or results of operations.

Further, current market conditions may make it difficult to raise equity capital, extend the maturity of or refinance its existing indebtedness or obtain new indebtedness with similar terms and any failure to do so could have a material adverse effect on its business. The debt capital available to MMLC in the future, if available at all, may bear a higher interest rate and may be available only on terms and conditions less favorable than those of its existing debt and such debt may need to be incurred in a rising interest rate environment. If MMLC is unable to raise new debt or refinance its existing debt, then its equity investors will not benefit from the potential for increased returns on equity resulting from leverage, and MMLC may be unable to make new commitments or to fund existing commitments to its portfolio companies. Any inability to extend the maturity of or refinance its existing debt, or to obtain new debt, could have a material adverse effect on its business, financial condition or results of operations.

MMLC has a limited operating history.

MMLC has limited operating history, and as a result, MMLC has minimal financial information on which to evaluate an investment in MMLC or its prior performance. Stockholders must rely on MMLC to implement its investment policies, to evaluate all of MMLC’s investment opportunities and to structure the terms of MMLC’s investments rather than evaluating MMLC’s investments in advance of purchasing shares of MMLC Common Stock. Because stockholders are not able to thoroughly evaluate MMLC’s investments in advance of purchasing MMLC’s shares, the offering may entail more risk than other types of offerings. This additional risk may hinder the ability of MMLC’s investors to achieve their own personal investment objectives related to portfolio diversification, risk-adjusted investment returns and other objectives. Additionally, the results of any other Accounts that have or have had an investment program which is similar to, or different from, MMLC’s investment program are not indicative of the results that MMLC may achieve. MMLC expects to have a different investment portfolio from other Accounts. Accordingly, MMLC’s results may differ from and are independent of the results obtained by such other Accounts. Moreover, past performance is no assurance of future returns.

MMLC is subject to all of the business risks and uncertainties associated with any newer business, including the risk that MMLC will not achieve its investment objective and that the value of a stockholder’s investment could decline substantially or could become worthless. MMLC anticipates, based on the amount of proceeds raised in the initial or subsequent closings, that it could take some time to invest substantially all of the capital MMLC expects to raise due to market conditions generally and the time necessary to identify, evaluate, structure, negotiate and close suitable investments in middle-market companies.

The potentially limited term of MMLC and the Investment Period may impact its investment strategy.

Unless earlier liquidated by the MMLC Board or extended by the MMLC Board (and, to the extent necessary, a majority-in-interest of the stockholders), the term of the MMLC (the “Term”) will end on the six year anniversary of MMLC’s final closing held on September 29, 2017 (the “Final Closing Date”) unless an Exit Event (as defined below) occurs prior to that time. “Exit Event” means: (i) any listing of MMLC Common Stock on a national securities exchange, including in connection with an initial public offering, (ii) merger with another entity, including an affiliated company, subject to any limitations under the 1940 Act or (iii) the sale of all or substantially all of the assets of MMLC. Due to the potentially finite term of MMLC, MMLC may be required to sell investments at an inopportune time, which could adversely affect MMLC’s performance and/or cause it to seek to invest in loans with a shorter term than would be the case if the Term was longer, which might adversely affect the nature and/or quality of MMLC’s investments.

MMLC’s investment period commenced on December 29, 2016. On August 8, 2019, the MMLC Board extended the investment period for one additional six-month period from September 29, 2019 to March 29, 2020. With the approval of a majority-in-interest of the stockholders, the investment period may be extended for up to

 

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one additional year thereafter (such period, including any extensions, the “Investment Period”). Following the expiration of the Investment Period, MMLC will not be permitted to reinvest proceeds realized from the sale or repayment of any investment. Accordingly, MMLC may be required to distribute such proceeds to stockholders, which would cause MMLC’s fixed expenses to increase as a percentage of assets under management. In addition, any proceeds realized from the sale or repayment of investments could result in an increased concentration of MMLC’s portfolio, which could increase the risks associated with ownership of the shares of MMLC Common Stock. For more, see “—Risks Relating to MMLC’s Portfolio Company Investments—MMLC’s portfolio may be focused in a limited number of portfolio companies, which will subject MMLC to a risk of significant loss if any of these companies default on their obligations under any of their debt instruments or if there is a downturn in a particular industry.”

The capital markets may experience periods of disruption and instability. Such market conditions may materially and adversely affect debt and equity capital markets in the United States, which may have a negative impact on MMLC’s business and operations.

From time to time, capital markets may experience periods of disruption and instability. For example, from 2008 to 2009, the global capital markets were unstable as evidenced by the lack of liquidity in the debt capital markets, significant write-offs in the financial services sector, the repricing of credit risk in the broadly syndicated credit market and the failure of major financial institutions. Despite actions of the U.S. federal government and various foreign governments, these events contributed to worsening general economic conditions that materially and adversely impacted the broader financial and credit markets and reduced the availability of debt and equity capital for the market as a whole and financial services firms in particular. There have been more recent periods of volatility and there can be no assurance that adverse market conditions will not repeat themselves in the future. If similar adverse and volatile market conditions repeat in the future, MMLC and other companies in the financial services sector may have to access, if available, alternative markets for debt and equity capital in order to grow. Equity capital may be particularly difficult to raise during periods of adverse or volatile market conditions because, subject to some limited exceptions, as a BDC, MMLC is generally not able to issue additional shares of MMLC Common Stock at a price less than the NAV per share without first obtaining approval for such issuance from MMLC stockholders and the MMLC Independent Directors. Volatile economic conditions may lead to strategic initiatives such as the recent increase in merger activity in the BDC space.

Moreover, the re-appearance of market conditions similar to those experienced from 2008 through 2009 for any substantial length of time or worsened market conditions, including as a result of U.S. government shutdowns or the perceived creditworthiness of the United States, could make it difficult for MMLC to borrow money or to extend the maturity of or refinance any indebtedness MMLC may have under similar terms and any failure to do so could have a material adverse effect on MMLC’s business. The debt capital that will be available to MMLC in the future, if any, may be at a higher cost and on less favorable terms and conditions than what MMLC currently experiences. If MMLC is unable to raise or refinance debt, then investors in MMLC Common Stock may not benefit from the potential for increased returns on equity resulting from leverage and MMLC may be limited in MMLC’s ability to make new commitments or to fund existing commitments to MMLC’s portfolio companies.

Given the periods of extreme volatility and dislocation in the capital markets from time to time, many BDCs have faced, and may in the future face, a challenging environment in which to raise or access capital. In addition, significant changes in the capital markets, including the extreme volatility and disruption over the past several years, have had, and may in the future have, a negative effect on asset valuation of MMLC’s investments and on the potential for liquidity events involving these investments. While most of MMLC’s investments will not be publicly traded, applicable accounting standards require MMLC to assume as part of MMLC’s valuation process that MMLC’s investments are sold in a principal market to market participants (even if MMLC plans on holding an investment through its maturity). As a result, volatility in the capital markets can adversely affect MMLC’s investment valuations. Further, the illiquidity of MMLC’s investments may make it difficult for MMLC to sell such investments to access capital if required. As a result, MMLC could realize significantly less than the value

 

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at which MMLC has recorded its investments if MMLC were required to sell them for liquidity purposes. In addition, a prolonged period of market illiquidity may cause MMLC to reduce the volume of loans and debt securities MMLC originates and/or funds and adversely affect the value of MMLC’s portfolio investments, which could have a material and adverse effect on MMLC’s business, financial condition, results of operations and cash flows. An inability to raise or access capital could have a material adverse impact on MMLC’s business, financial condition or results of operations.

Global economic, political and market conditions may adversely affect MMLC’s business, financial condition and results of operations, including MMLC’s revenue growth and profitability.

The current worldwide financial market situation, as well as various social and political tensions in the United States and around the world, have contributed and may continue to contribute to increased market volatility, may have long-term effects on the United States and worldwide financial markets, and may cause economic uncertainties or deterioration in the United States and worldwide. MMLC monitors developments and seeks to manage MMLC’s investments in a manner consistent with achieving MMLC’s investment objective, but there can be no assurance that MMLC will be successful in doing so.

In August 2011 and then affirmed in August 2013, Standard & Poor’s Rating Services lowered its long-term sovereign credit rating on the United States from “AAA” to “AA+”. Additionally, in January 2012, Standard & Poor’s Rating Services lowered its long-term sovereign credit rating for several large European countries. These ratings negatively impacted global markets and economic conditions. Although U.S. lawmakers have taken steps to avoid further downgrades, U.S. budget deficit concerns and similar conditions in Europe, China and elsewhere have increased the possibility of additional credit-rating downgrades and worsening global economic and market conditions. There can be no assurance that current or future governmental measures to mitigate these conditions will be effective. These conditions, government actions and future developments may cause interest rates and borrowing costs to rise, which may adversely affect MMLC’s ability to access debt financing on favorable terms and may increase the interest costs of MMLC’s borrowers, hampering their ability to repay MMLC. Continued or future adverse economic conditions could have a material adverse effect on MMLC’s business, financial condition and results of operations.

In October 2014, the Federal Reserve announced that it was concluding its bond-buying program, or quantitative easing, which was designed to stimulate the economy and expand the Federal Reserve’s holdings of long-term securities, suggesting that key economic indicators, such as the unemployment rate, had showed signs of improvement since the inception of the program. It is possible that, without quantitative easing by the Federal Reserve, these developments, along with the United States government’s credit and deficit concerns and other global economic conditions, could cause interest rates and borrowing costs to rise, which may negatively impact MMLC’s ability to access the debt markets on favorable terms. While the Federal Reserve recently decreased its federal funds target rate in response to the COVID-19 pandemic, if key economic indicators, such as the unemployment rate or inflation, do not progress at a rate consistent with the Federal Reserve’s objectives, the target range for the federal funds rate may increase and cause interest rates and borrowing costs to rise, which may negatively impact MMLC’s ability to access the debt markets on favorable terms and may also increase the costs of MMLC’s borrowers, hampering their ability to repay MMLC.

Legislation may be adopted that could significantly affect the regulation of U.S. financial markets. Areas subject to potential change, amendment or repeal include the Dodd-Frank Act and the authority of the Federal Reserve and the Financial Stability Oversight Council. These or other regulatory changes could result in greater competition from banks and other lenders with which MMLC competes for lending and other investment opportunities. The United States may also potentially withdraw from or renegotiate various trade agreements and take other actions that would change current trade policies of the United States. MMLC cannot predict which, if any, of these actions will be taken or, if taken, their effect on the financial stability of the United States. Such actions could have a material adverse effect on MMLC’s business, financial condition and results of operations.

 

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MMLC’s operation as a BDC imposes numerous constraints on MMLC and significantly reduces MMLC’s operating flexibility. In addition, if MMLC fails to maintain its status as a BDC, MMLC might be regulated as a closed-end investment company, which would subject MMLC to additional regulatory restrictions.

The 1940 Act imposes numerous constraints on the operations of BDCs. For example, BDCs generally are required to invest at least 70% of their total assets primarily in securities of qualifying U.S. private companies or thinly traded public companies, cash, cash equivalents, U.S. government securities and other high-quality debt investments that mature in one year or less from the time of investment. These constraints may hinder GSAM’s ability to take advantage of attractive investment opportunities and to achieve MMLC’s investment objective. Furthermore, any failure to comply with the requirements imposed on BDCs by the 1940 Act could cause the SEC to bring an enforcement action against MMLC and/or expose it to claims of private litigants.

MMLC may be precluded from investing in what GSAM believes are attractive investments if such investments are not qualifying assets for purposes of the 1940 Act. If MMLC does not invest a sufficient portion of its assets in qualifying assets, MMLC will be prohibited from making any additional investment that is not a qualifying asset and could be forced to forgo attractive investment opportunities. Similarly, these rules could prevent MMLC from making follow-on investments in existing portfolio companies (which could result in the dilution of MMLC’s position).

If MMLC fails to maintain its status as a BDC, MMLC might be regulated as a closed-end investment company that is required to register under the 1940 Act, which would subject MMLC to additional regulatory restrictions and significantly decrease MMLC’s operating flexibility. In addition, any such failure could cause an event of default under any outstanding indebtedness MMLC might have, which could have a material adverse effect on MMLC’s business, financial condition or results of operations.

MMLC will be subject to corporate-level U.S. federal income tax on all of its income if it is unable to maintain its qualification for tax treatment as a RIC under Subchapter M of the Code, which would have a material adverse effect on MMLC’s financial performance.

Although MMLC has elected to be treated, and expects to qualify annually, as a RIC under Subchapter M of the Code, commencing with MMLC’s taxable year ended December 31, 2017, MMLC cannot assure you that it will be able to maintain RIC status. To maintain RIC status and be relieved of U.S. federal income taxes on income and gains distributed to MMLC stockholders, MMLC must meet the annual distribution, source-of-income and asset diversification requirements described below.

 

   

The annual distribution requirement for a RIC will generally be satisfied if MMLC distributes to its stockholders on an annual basis at least 90% of MMLC’s investment company taxable income (generally, MMLC’s net ordinary income plus the excess of MMLC’s realized net short-term capital gains over realized net long-term capital losses, determined without regard to the dividends paid deduction) for each taxable year. Because MMLC uses debt financing, MMLC is subject to an asset coverage ratio requirement under the 1940 Act, and MMLC is subject to certain covenants contained in MMLC’s credit agreements and other debt financing agreements. This asset coverage ratio requirement and these covenants could, under certain circumstances, restrict MMLC from making distributions to MMLC stockholders that are necessary for MMLC to satisfy the distribution requirement. If MMLC is unable to obtain cash from other sources, and thus is unable to make sufficient distributions to MMLC stockholders, MMLC could fail to maintain its RIC tax treatment and thus become subject to corporate-level U.S. federal income tax (and any applicable U.S. state and local taxes).

 

   

The source-of-income requirement will be satisfied if at least 90% of MMLC’s gross income for each year is derived from dividends, interest, gains from the sale of stock or securities, payments with respect to loans of certain securities, net income derived from an interest in a “qualified publicly traded partnership” or other income derived with respect to MMLC’s business of investing in such stock or securities.

 

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The asset diversification requirement will be satisfied if, at the end of each quarter of MMLC’s taxable year, at least 50% of the value of its assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs and other acceptable securities, and no more than 25% of the value of MMLC’s assets is invested in the securities (other than U.S. government securities or securities of other RICs) of one issuer, of two or more issuers that are controlled, as determined under applicable Code rules, by MMLC and that are engaged in the same or similar or related trades or businesses or of certain “qualified publicly traded partnerships.” Failure to meet these requirements may result in MMLC’s having to dispose of certain investments quickly in order to prevent the loss of MMLC’s RIC status. Because most of MMLC’s investments will be in private companies, and therefore will be relatively illiquid, any such dispositions could be made at disadvantageous prices and could result in substantial losses.

If MMLC fails to maintain its RIC status for any reason, and MMLC does not qualify for certain relief provisions under the Code, MMLC would be subject to corporate-level U.S. federal income tax (and any applicable U.S. state and local taxes). In this event, the resulting taxes and any resulting penalties could substantially reduce MMLC’s net assets, the amount of MMLC’s income available for distribution and the amount of MMLC’s distributions to its stockholders, which would have a material adverse effect on its financial performance.

MMLC is dependent upon management personnel of GSAM for its future success.

MMLC does not have any employees. MMLC depends on the experience, diligence, skill and network of business contacts of the GSAM Credit Alternatives Team, together with other investment professionals that GSAM currently retains, or may subsequently retain, to identify, evaluate, negotiate, structure, close, monitor and manage MMLC’s investments. MMLC’s future success will depend to a significant extent on the continued service and coordination of GSAM’s senior investment professionals. The departure of any of GSAM’s key personnel, including members of the Investment Committee, or of a significant number of the investment professionals of GSAM, could have a material adverse effect on MMLC’s business, financial condition or results of operations. In addition, MMLC cannot assure stockholders that GSAM will remain MMLC’s investment adviser or that MMLC will continue to have access to its Investment Adviser or its investment professionals. See GSAM can resign on 60 days’ notice. MMLC may not be able to find a suitable replacement within that time, resulting in a disruption in MMLC’s operations that could adversely affect its financial condition, business and results of operations.”

GSAM, its principals, investment professionals and employees and the members of its Investment Committee have certain conflicts of interest.

GSAM, its principals, affiliates, investment professionals and employees, the members of its Investment Committee and MMLC’s officers and directors serve or may serve now or in the future as investment advisers, officers, directors, principals of, or in other capacities with respect to, public or private entities (including other BDCs and other investment funds) that operate in the same or a related line of business as MMLC. For example, MMLC has the same management and Investment Committee teams as the other GS BDCs. Therefore, MMLC expects these individuals may have obligations to investors in such other BDCs, the fulfillment of which might not be in MMLC’s best interests or the best interests of MMLC stockholders, and MMLC expects that investment opportunities will satisfy the investment criteria for both MMLC and such other BDCs. In addition, GSAM and its affiliates also manage other Accounts (including vehicles in which Goldman Sachs and its personnel have an interest), and is expected to manage other Accounts in the future that have investment mandates that are similar, in whole or in part, to MMLC’s and, accordingly, may invest in asset classes similar to those targeted by MMLC. As a result, GSAM and/or its affiliates may face conflicts in allocating investment opportunities between MMLC and such other entities. The fact that MMLC’s investment advisory fees may be lower than those of certain other Accounts advised by GSAM could result in this conflict of interest affecting MMLC adversely relative to such other Accounts.

 

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Subject to applicable law, Goldman Sachs and its Accounts may invest alongside MMLC. In certain circumstances, negotiated co-investments by MMLC and other accounts may be made only pursuant to an order from the SEC permitting MMLC to do so. Together with GSAM, GSBD and GS PMMC, MMLC received an exemptive relief order from the SEC that permits MMLC to participate in negotiated co-investment transactions with the other GS BDCs and certain other funds that may be managed by GSAM, including the GSAM Credit Alternatives Team, in the future, subject to certain conditions, such as that co-investments be made in a manner consistent with MMLC’s investment objectives, positions, policies, strategies and restrictions, as well as regulatory requirements and pursuant to the conditions required by the exemptive relief, and are allocated fairly among participants. Under the terms of the exemptive relief, a “required majority” (as defined in Section 57(o) of the 1940 Act) of the MMLC Independent Directors would need to make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction are reasonable and fair to MMLC and its stockholders and do not involve overreaching of MMLC or its stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of MMLC stockholders and is consistent with criteria approved by the MMLC Board. See “—MMLC’s ability to enter into transactions with its affiliates is restricted.”

There could be significant overlap in MMLC’s investment portfolio and the investment portfolios of the other GS BDCs and/or other funds managed by GSAM that are able to rely on the order. In the absence of an SEC order, when GSAM identifies certain investments, it will be required to determine which accounts should make the investment at the potential exclusion of other Accounts. In such circumstances, GSAM will adhere to its investment allocation policy in order to determine the account to which to allocate the opportunity. The policy currently provides that GSAM allocate opportunities through a rotation system or in such other manner as GSAM determines to be equitable. Accordingly, it is possible that MMLC may not be given the opportunity to participate in investments made by other Accounts.

Goldman Sachs’ financial and other interests may incentivize Goldman Sachs to favor other Accounts.

GSAM receives performance-based compensation in respect of its investment management activities on MMLC’s behalf, which rewards GSAM for positive performance of MMLC’s investment portfolio. As a result, GSAM may make investments for MMLC that present a greater potential for return but also a greater risk of loss or that are more speculative than would be the case in the absence of performance-based compensation. In addition, GSAM may simultaneously manage other accounts (including the other GS BDCs and future BDCs) for which GSAM may be entitled to receive greater fees or other compensation (as a percentage of performance or otherwise) than it receives in respect of MMLC. In addition, subject to applicable law, Goldman Sachs may invest in other accounts (including the other GS BDCs and future BDCs), and such investments may constitute substantial percentages of such other accounts’ outstanding equity interests. Therefore, GSAM may have an incentive to favor such other accounts over MMLC. To address these types of conflicts, GSAM has adopted policies and procedures under which investment opportunities will be allocated in a manner that it believes is consistent with its obligations as an investment adviser. However, the amount, timing, structuring or terms of an investment by MMLC may differ from, and performance may be different than, the investments and performance of other accounts.

MMLC’s financial condition and results of operations depend on GSAM’s ability to manage MMLC’s future growth effectively.

MMLC’s ability to achieve its investment objective depends on GSAM’s ability to identify, invest in and monitor companies that meet MMLC’s investment criteria.

Accomplishing this result on a cost-effective basis is largely a function of the structuring of MMLC’s investment process and the ability of GSAM to provide competent, attentive and efficient services to MMLC. MMLC’s executive officers and the members of the Investment Committee have substantial responsibilities in connection with their roles at GSAM, with respect to the other GS BDCs and other clients of GSAM, as well as

 

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responsibilities under the MMLC Investment Management Agreement. MMLC may also be called upon to provide significant managerial assistance to certain of MMLC’s portfolio companies. These demands on their time, which will increase as the number of investments grow, may distract them or slow the rate of investment. In order to grow, GSAM may need to hire, train, supervise, manage and retain new employees. However, MMLC cannot assure stockholders that they will be able to do so effectively. Any failure to manage MMLC’s future growth effectively could have a material adverse effect on its business, financial condition and results of operations.

MMLC’s ability to grow depends on its access to adequate capital.

If MMLC does not have adequate capital available for investment, its performance could be adversely affected. In addition, MMLC has elected to be treated, and expects to qualify annually, as a RIC under Subchapter M of the Code, commencing with its taxable year ended December 31, 2017. To maintain its status as a RIC, among other requirements, MMLC is required to timely distribute to its stockholders at least 90% of its investment company taxable income (determined without regard to the dividends paid deduction), which is generally its net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses, if any, for each taxable year. Consequently, such distributions will not be available to fund new investments. During the Investment Period, MMLC may issue stock to investors, but its ability to sell additional securities may be adversely affected by a number of factors including its performance prior to such date or general market conditions. While MMLC is permitted to reinvest proceeds realized from the sale or repayment of investments during the Investment Period, subject to the requirements of Subchapter M of the Code and the terms of any indebtedness or preferred stock, after the expiration of the Investment Period, MMLC will not be permitted to do so, subject to certain exceptions. Accordingly, after the Investment Period, MMLC expects to use debt financing to fund its growth, if any. Unfavorable economic or capital market conditions may increase MMLC’s funding costs, limit its access to the capital markets or result in a decision by lenders not to extend credit to MMLC. An inability to successfully access the capital markets could limit its ability to grow its business and fully execute its business strategy and could decrease its earnings, if any.

Regulations governing MMLC’s operation as a BDC affect its ability to, and the way in which it, raises additional capital. These constraints may hinder GSAM’s ability to take advantage of attractive investment opportunities and to achieve its investment objective.

Regulations governing MMLC’s operation as a BDC affect its ability to raise additional capital, and the ways in which MMLC can do so. Raising additional capital may expose MMLC to risks, including the typical risks associated with leverage, and may result in dilution to MMLC’s current stockholders. The 1940 Act limits MMLC’s ability to borrow amounts or issue debt securities or preferred stock, which MMLC refers to collectively as “senior securities,” to amounts such that MMLC’s asset coverage ratio, as defined under the 1940 Act, equals at least 200% immediately after such borrowing or issuance (except in connection with certain trading practices or investments) or 150% if certain requirements are met, as described below. Consequently, if the value of MMLC’s assets declines, MMLC may be required to sell a portion of its investments and, depending on the nature of its leverage, repay a portion of its indebtedness at a time when this may be disadvantageous to MMLC and, as a result, its stockholders. The SBCAA modified the applicable provisions of the 1940 Act to reduce the required asset coverage ratio applicable to BDCs to 150%, subject to certain approval and disclosure requirements and, in the case of the BDCs without common equity listed on a national securities exchange, such as MMLC, an offer to repurchase shares held by the BDC’s stockholders as of the date the requisite approval is obtained. Under the legislation, BDCs are able to increase their leverage capacity if shareholders approve a proposal to do so. If a BDC receives shareholder approval, it would be allowed to increase its leverage capacity on the first day after such approval. Alternatively, the legislation allows the majority of the directors who are not “interested persons,” as defined in the 1940 Act, of the BDC to approve an increase in its leverage capacity, and such approval would become effective after one year. As a result, BDCs may be able to incur additional leverage in the future, and the risks associated with an investment in BDCs may increase.

 

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MMLC borrows money, which may magnify the potential for gain or loss and may increase the risk of investing in MMLC.

As part of MMLC’s business strategy, MMLC may borrow from and issue senior debt securities to banks, insurance companies and other lenders or investors. Holders of these senior securities will have fixed-dollar claims on MMLC’s assets that are superior to the claims of MMLC’s common stockholders. If the value of MMLC’s assets decreases, leveraging would cause NAV to decline more sharply than it otherwise would have if MMLC did not employ leverage. Similarly, any decrease in MMLC’s income would cause net income to decline more sharply than it would have had MMLC not borrowed. Such a decline could negatively affect MMLC’s ability to make distributions to its common stockholders. MMLC’s ability to service any debt that it incurs will depend largely on its financial performance and will be subject to prevailing economic conditions and competitive pressures.

Also, if MMLC has senior debt securities or other credit facilities, any obligations to such creditors may be secured by a pledge of and security interest in some or all of MMLC’s assets, including its portfolio of investments, its cash and/or its right to call undrawn commitments from the stockholders. If MMLC enters into a subscription credit facility, the lenders (or their agent) may have the right on behalf of MMLC directly to call undrawn commitments and enforce remedies against the stockholders. In the case of a liquidation event, lenders and other creditors would receive proceeds to the extent of their security interest before any distributions are made to MMLC stockholders. Any credit agreement or other debt financing agreement into which MMLC may enter may impose, financial and operating covenants that restrict MMLC’s activities, including its investment activities (such as industry concentrations) and distributions, have defaults triggered by, among other things, a change of control or change of investment adviser, remedies on default and similar matters.

MMLC may, to the extent permitted by applicable law including the 1940 Act, become co-liable (as a joint borrower, guarantor or otherwise) for borrowings or other types of leverage of its subsidiaries or other entities in which MMLC has an interest, including joint ventures.

In addition, MMLC may be unable to obtain its desired leverage, which would, in turn, affect a stockholder’s return on investment.

The following table illustrates the effect of leverage on returns from an investment in MMLC Common Stock assuming various annual returns on MMLC’s portfolio, net of expenses. The calculations in the table below are hypothetical, and actual returns may be higher or lower than those appearing in the table below.

 

Assumed Return on MMLC’s Portfolio (Net of Expenses)

     (10.00 )%     (5.00 )%     0.00 %     5.00 %     10.00 %

Corresponding Return to MMLC common stockholder (1)

     (22.95 )%     (13.22 )%     (3.49 )%     6.24 %     15.98 %

 

(1)

Based on (i) $1,790.30 million in total assets including debt issuance costs as of March 31, 2020, (ii) $839.88 million in outstanding indebtedness as of March 31, 2020, (iii) $919.69 million in net assets as of March 31, 2020 and (iv) an annualized average interest rate on MMLC’s indebtedness, as of March 31, 2020, excluding fees (such as fees on undrawn amounts and amortization of financing costs), of 3.82%.

Based on MMLC’s outstanding indebtedness of $839.88 million as of March 31, 2020 and an annualized average interest rate on MMLC’s indebtedness as of March 31, 2020, excluding fees (such as fees on undrawn amounts and amortization of financing costs), of 3.82%, MMLC’s investment portfolio at fair value would have had to produce an annual return of approximately 1.93% to cover annual interest payments on the outstanding debt.

MMLC currently does not intend to enter into any collateral and asset reuse arrangements, but may decide to enter into such an arrangement in the future.

 

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MMLC operates in a highly competitive market for investment opportunities.

A number of entities, including the other GS BDCs, compete with MMLC to make the types of investments that MMLC makes in middle-market companies. MMLC competes with other BDCs, commercial and investment banks, commercial financing companies, CLOs, private funds, including hedge funds, and, to the extent they provide an alternative form of financing, private equity funds. Many of MMLC’s competitors are more experienced, substantially larger and have considerably greater financial, technical and marketing resources than MMLC does. Some competitors may have a lower cost of funds, perpetual fund lives and access to funding sources that are not available to MMLC. In addition, some of MMLC’s competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than MMLC. Furthermore, certain of MMLC’s competitors are not subject to the regulatory restrictions that the 1940 Act imposes on MMLC as a BDC and that the Code imposes on MMLC as a RIC. Additionally, an investment opportunity may be appropriate for one or more of the GS BDCs or any other Accounts and co-investment may not be possible. In these instances GSAM will adhere to its investment allocation policy in order to determine to which entity to allocate the opportunity. Also, as a result of this competition, MMLC may not be able to secure attractive investment opportunities from time to time.

MMLC does not seek to compete primarily based on the interest rates MMLC offers and GSAM believes that some of MMLC’s competitors may make loans with interest rates that are comparable to or lower than the rates MMLC offers. Rather, MMLC competes with its competitors based on its reputation in the market, its existing investment platform, the seasoned investment professionals of GSAM, MMLC’s experience and focus on middle-market companies, MMLC’s disciplined investment philosophy, MMLC’s extensive industry focus and relationships and MMLC’s flexible transaction structuring. For a more detailed discussion of these competitive advantages, see “Business of Goldman Sachs Middle Market Lending Corp.—Competitive Advantages.”

MMLC may lose investment opportunities if it does not match its competitors’ pricing, terms and structure. If MMLC matches its competitors’ pricing, terms and structure, MMLC may experience decreased net interest income and increased risk of credit loss. As a result of operating in such a competitive environment, MMLC may make investments that are on less favorable terms than MMLC may have originally anticipated, which may impact its return on these investments. MMLC cannot assure stockholders that the competitive pressures MMLC faces will not have a material adverse effect on its business, financial condition and results of operations.

GSAM will be paid the management fee even if the value of stockholders’ investments declines and GSAM’s incentive fee may create incentives for it to make certain kinds of investments.

The management fee is payable even in the event the value of stockholders’ investments declines.

In addition, the incentive fee payable by MMLC to GSAM may create an incentive for GSAM to make investments on MMLC’s behalf that are risky or more speculative than would be the case in the absence of such a compensation arrangement and also to incur leverage, which will tend to enhance returns where MMLC’s portfolio has positive returns. GSAM receives the incentive fee based, in part, upon capital gains realized on MMLC’s investments. As a result, GSAM may have an incentive to invest more in companies whose securities are likely to yield capital gains, as compared to income-producing securities. Such a practice could result in MMLC’s investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during cyclical economic downturns.

The incentive fee payable by MMLC to GSAM also may create an incentive for GSAM to invest on MMLC’s behalf in instruments that have a deferred interest feature. Under these investments, MMLC accrues the interest over the life of the investment but does not receive the cash income from the investment until the end of the term. MMLC’s net investment income used to calculate the income portion of MMLC’s incentive fee, however, includes accrued interest. Thus, a portion of this incentive fee is based on income that MMLC has not yet received in cash. This risk could be increased because GSAM is not obligated to reimburse MMLC for any

 

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incentive fees received even if MMLC subsequently incurs losses or never receives in cash the accrued income (including accrued income with respect to original issue discount, PIK interest and zero coupon securities). Furthermore, in the event of a listing, GSAM will be able to earn a higher incentive fee.

The incentive fee based on income takes into account MMLC’s past performance.

The incentive fee based on income will be determined and paid quarterly in arrears at the end of each calendar quarter by reference to MMLC’s aggregate net investment income, as adjusted, from the calendar quarter then ending and the eleven preceding calendar quarters (or if shorter, the number of quarters that have occurred since the initial drawdown date) (in either case, the “MMLC Trailing Twelve Quarters”). The effect of calculating the incentive fee using reference to the MMLC Trailing Twelve Quarters is that, in certain limited circumstances, an incentive fee based on income will be payable to GSAM although MMLC’s net income for such quarter did not exceed the hurdle rate or the incentive fee will be higher than it would have been if calculated based on MMLC’s performance for the applicable quarter without taking into account the MMLC Trailing Twelve Quarters. For example, if MMLC experiences a net loss for any particular quarter, an incentive fee may still be paid to GSAM if such net loss is less than the net loss for the most recent quarter that preceded the MMLC Trailing Twelve Quarters. In such circumstances, GSAM would be entitled to an incentive fee whereas it would not have been entitled to an incentive fee if calculated solely on the basis of MMLC’s performance for the applicable quarter.

MMLC incurs significant costs as a result of being registered under the Exchange Act.

MMLC incurs legal, accounting and other expenses, including costs associated with the periodic reporting requirements, as well as additional corporate governance requirements, including requirements under the Sarbanes-Oxley Act. These requirements may place a strain on MMLC’s systems and resources. The Exchange Act requires that MMLC file annual, quarterly and current reports with respect to MMLC’s business and financial condition. The Sarbanes-Oxley Act requires that MMLC maintain effective disclosure controls and procedures and internal control over financial reporting, which requires significant resources and management oversight. MMLC has implemented procedures, processes, policies and practices for the purpose of addressing the standards and requirements applicable to public companies. These activities may divert management’s attention from other business concerns, which could have a material adverse effect on MMLC’s business, financial condition, results of operations and cash flows. MMLC has incurred, and expects to incur in the future, significant annual expenses related to these steps and directors’ and officers’ liability insurance, director fees, reporting requirements of the SEC, transfer agent fees, additional administrative expenses payable to the Administrator to compensate it for hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses associated with being a public company.

The systems and resources necessary to comply with public company reporting requirements will increase further once MMLC ceases to be an “emerging growth company” under the Jumpstart Our Business Startups Act, as it may be amended from time to time (the “JOBS Act”). As long as MMLC remains an emerging growth company, it intends to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act.

Efforts to comply with Section 404 of the Sarbanes-Oxley Act will involve significant expenditures, and noncompliance with Section 404 of the Sarbanes-Oxley Act may adversely affect MMLC.

Under current SEC rules, MMLC is required to report on its internal control over financial reporting pursuant to Section 404 of the Sarbanes Oxley Act. MMLC is required to review on an annual basis its internal control over financial reporting, and on a quarterly and annual basis to evaluate and disclose changes in its internal control over financial reporting. As a result, MMLC incurs additional expenses that may negatively impact its financial performance and its ability to make distributions. This process also may result in a diversion

 

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of management’s time and attention. MMLC cannot be certain as to the timing of completion of its evaluation, testing and remediation actions or the impact of the same on its operations, and MMLC may not be able to ensure that the process is effective or that its internal control over financial reporting is or will be effective in a timely manner. In the event that MMLC is unable to maintain or achieve compliance with Section 404 of the Sarbanes-Oxley Act and related rules, MMLC may be adversely affected.

MMLC’s independent registered public accounting firm will not be required to formally attest to the effectiveness of its internal control over financial reporting until the date on which MMLC is a “large accelerated filer” or an “accelerated filer” or the date MMLC is no longer classified as an emerging growth company under the JOBS Act. Because MMLC does not currently have comprehensive documentation of its internal control and has not yet tested its internal control in accordance with Section 404, MMLC cannot conclude, as required by Section 404, that MMLC does not have a material weakness in its internal control or a combination of significant deficiencies that could result in the conclusion that MMLC has a material weakness in its internal control. As a public entity, MMLC will be required to complete its initial assessment in a timely manner. If MMLC is not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, its operations, financial reporting or financial results could be adversely affected. Matters impacting MMLC’s internal control may cause MMLC to be unable to report its financial information on a timely basis and thereby subject MMLC to adverse regulatory consequences, including sanctions by the SEC.

Potential conflicts of interest with other businesses of Goldman Sachs could impact MMLC’s investment returns.

There are significant potential conflicts of interest that could negatively impact MMLC’s investment returns. A number of these potential conflicts of interest with affiliates of GSAM and Group Inc. are discussed in more detail elsewhere in this joint proxy statement/prospectus.

Group Inc., including its affiliates and personnel, is a BHC and a worldwide, full-service investment banking, broker-dealer, asset management and financial services organization, and a major participant in global financial markets that provides a wide range of financial services to a substantial and diversified client base that includes corporations, financial institutions, governments and high-net-worth individuals. As such, it acts as an investor, investment banker, research provider, investment manager, financier, adviser, market maker, trader, prime broker, derivatives dealer, lender, counterparty, agent and principal. In those and other capacities, Goldman Sachs and its affiliates advise clients in all markets and transactions and purchase, sell, hold and recommend a broad array of investments, including securities, derivatives, loans, commodities, currencies, credit default swaps, indices, baskets and other financial instruments and products for its own accounts or for the accounts of their customers and have other direct and indirect interests in the global fixed income, currency, commodity, equity, bank loans and other markets in which MMLC invests or may invest. Such additional businesses and interests will likely give rise to potential conflicts of interest and may restrict the way MMLC operates its business. For example, (1) MMLC may not be able to conduct transactions relating to investments in portfolio companies because GSAM is not permitted to obtain or use material nonpublic information in effecting purchases and sales in public securities transactions for MMLC or (2) Goldman Sachs, the clients it advises, and its personnel may engage (or consider engaging) in commercial arrangements or transactions with MMLC (subject to any limitations under the law) and/or may compete for commercial arrangements or transactions in the same types of companies, assets, securities or other assets or instruments as MMLC. Transactions by, advice to and activities of such accounts (including potentially Goldman Sachs acting on a proprietary basis), may involve the same or related companies, securities or other assets or instruments as those in which MMLC invests and may negatively affect MMLC (including MMLC’s ability to engage in a transaction or other activities) or the prices or terms at which MMLC’s transactions or other activities may be effected. For example, Goldman Sachs may be engaged to provide advice to an account that is considering entering into a transaction with MMLC, and Goldman Sachs may advise the account not to pursue the transaction with MMLC, or otherwise in connection with a potential transaction provide advice to the account that would be adverse to MMLC. In addition, GS & Co. may, to the extent permitted by applicable law, including the limitations set forth in Section 57(k) of the

 

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1940 Act, receive compensation from MMLC or from the borrowers if MMLC make any investments based on opportunities that such employees or personnel of GS & Co. have referred to MMLC. Such compensation might incentivize GS & Co. or its employees or personnel to refer opportunities or to recommend investments that might otherwise be unsuitable for MMLC. Further, any such compensation paid by MMLC, or paid by the borrower (to which MMLC would otherwise have been entitled) in connection with such investments, may negatively impact MMLC’s returns.

Furthermore, Goldman Sachs is currently, and in the future expects to be, raising capital for new public and private investment vehicles that have, or when formed will have, the primary purpose of middle-market direct lending. These investment vehicles, as well as existing investment vehicles (including the other GS BDCs), will compete with MMLC for investments. Although GSAM and its affiliates will endeavor to allocate investment opportunities among their clients, including MMLC, in a fair and equitable manner and consistent with applicable allocation procedures, it is expected that, in the future, MMLC may not be given the opportunity to participate in investments made by other clients or entities managed by GSAM or its affiliates or that MMLC may participate in such investments to a lesser extent due to participation by such other clients or entities.

In addition, subject to applicable law, Goldman Sachs or another investment account or vehicle managed or controlled by Goldman Sachs may hold securities, loans or other instruments of a portfolio company in a different class or a different part of the capital structure than securities, loans or other instruments of such portfolio company held by MMLC. As a result, Goldman Sachs or another investment account or vehicle may pursue or enforce rights or activities, or refrain from pursuing or enforcing rights or activities, on behalf of its own account, that could have an adverse effect on MMLC. In addition, to the extent Goldman Sachs has invested in a portfolio company for its own account, Goldman Sachs may limit the transactions engaged in by MMLC with respect to such portfolio company or issuer for reputational, legal, regulatory or other reasons.

The MMLC Board may change MMLC’s investment objective, operating policies and strategies without prior notice or stockholder approval.

The MMLC Board has the authority to modify or waive certain of MMLC’s operating policies and strategies without prior notice (except as required by the 1940 Act or other applicable laws) and without stockholder approval. However, absent stockholder approval, MMLC may not change the nature of its business so as to cease to be, or withdraw its election as, a BDC. MMLC cannot predict the effect any changes to its current operating policies and strategies would have on its business, operating results and value of MMLC Common Stock. Nevertheless, the effects may adversely affect MMLC’s business and impact its ability to make distributions.

Changes in laws or regulations governing MMLC’s operations or the operations of its portfolio companies, changes in the interpretation thereof or newly enacted laws or regulations, or any failure by MMLC or its portfolio companies to comply with these laws or regulations, could require changes to certain of MMLC’s or MMLC’s portfolio companies’ business practices, negatively impact MMLC’s or MMLC’s portfolio companies’ operations, cash flows or financial condition, impose additional costs on MMLC or MMLC’s portfolio companies or otherwise adversely affect MMLC’s business or the business of MMLC’s portfolio companies.

MMLC and its portfolio companies are subject to regulation at the local, state, federal and, in some cases, foreign levels. These laws and regulations, as well as their interpretation, are likely to change from time to time, and new laws and regulations may be enacted. Accordingly, any change in these laws or regulations, changes in their interpretation, or newly enacted laws or regulations, or any failure by MMLC or its portfolio companies to comply with these laws or regulations, could require changes to certain of MMLC’s or MMLC’s portfolio companies’ business practices, negatively impact MMLC’s or MMLC’s portfolio companies’ operations, cash flows or financial condition, impose additional costs on MMLC or MMLC’s portfolio companies or otherwise adversely affect MMLC’s business or the business of MMLC’s portfolio companies. In addition to the legal, tax

 

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and regulatory changes that are expected to occur, there may be unanticipated changes and uncertainty regarding any such changes. The legal, tax and regulatory environment for BDCs, investment advisers and the instruments that they utilize (including derivative instruments) is continuously evolving. In addition, there is significant uncertainty regarding certain legislation and the regulations that have been adopted and future regulations that will need to be adopted pursuant to such legislation, and, consequently, the full impact that such legislation will ultimately have on MMLC and the markets in which MMLC trades and invests is not fully known. Such uncertainty and any resulting confusion may itself be detrimental to the efficient functioning of the markets and the success of certain investment strategies.

The Dodd-Frank Act impacts many aspects of the financial services industry. Many of the provisions of the Dodd-Frank Act have been implemented, while others will still require final rulemaking by regulatory authorities. While the full impact of the Dodd-Frank Act on MMLC and its portfolio companies may not be known for an extended period of time, the Dodd-Frank Act, including current rules and regulations and proposed rules implementing its provisions and the interpretation of those rules, along with other legislative and regulatory proposals directed at the financial services industry that are proposed or pending in the U.S. Congress, may negatively impact the operations, cash flows or financial condition of MMLC and its portfolio companies, impose additional costs on MMLC and its portfolio companies, intensify the regulatory supervision of MMLC and its portfolio companies or otherwise adversely affect MMLC’s business or the business of its portfolio companies.

Over the last several years, there also has been an increase in regulatory attention to the extension of credit outside of the traditional banking sector, raising the possibility that some portion of the non-bank financial sector will be subject to new regulation. While it cannot be known at this time whether any regulation will be implemented or what form it will take, increased regulation of non-bank credit extension could negatively impact MMLC’s operations, cash flows or financial condition, impose additional costs on MMLC, intensify the regulatory supervision of MMLC or otherwise adversely affect MMLC’s business.

On March 23, 2018, President Trump signed into law the SBCAA, which modified the applicable provisions of the 1940 Act to reduce the required asset coverage ratio applicable to BDCs from 200% to 150%, subject to certain approval and disclosure requirements (including either stockholder approval or approval of both a majority of the directors who have no financial interest in the matter and a majority of the directors who are not “interested persons,” as defined in the 1940 Act, of the BDC). As a result, BDCs may be able to incur additional leverage in the future, and the risks associated with an investment in BDCs may increase. See “—Regulations governing MMLC’s operation as a BDC affect its ability to, and the way in which it, raises additional capital. These constraints may hinder GSAM’s ability to take advantage of attractive investment opportunities and to achieve MMLC’s investment objective.”

The Tax Cuts and Jobs Act could have a negative effect on MMLC, its subsidiaries, portfolio companies and the holders of its securities.

On December 22, 2017, President Trump signed the Tax Cuts and Jobs Act into law. The Tax Cuts and Jobs Act makes significant changes to the United States income tax rules applicable to both individuals and entities, including corporations. The Tax Cuts and Jobs Act includes provisions that, among other things, reduce the U.S. corporate tax rate, introduce a capital investment deduction, limit the interest deduction, limit the use of net operating losses to offset future taxable income and make extensive changes to the U.S. international tax system. The Tax Cuts and Jobs Act is complex and far-reaching, and MMLC cannot predict the impact its enactment will have on MMLC, its subsidiaries, its portfolio companies and the holders of its securities.

 

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GSAM can resign on 60 days’ notice. MMLC may not be able to find a suitable replacement within that time, resulting in a disruption in MMLC’s operations that could adversely affect MMLC’s financial condition, business and results of operations.

GSAM has the right, under the MMLC Investment Advisory Agreement, to resign at any time upon 60 days’ written notice, regardless of whether MMLC has found a replacement. If GSAM resigns, MMLC may not be able to find a new external investment adviser or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If MMLC is unable to do so quickly, MMLC’s operations are likely to experience a disruption, MMLC’s financial condition, business and results of operations as well as MMLC’s ability to pay distributions are likely to be adversely affected, and the value of MMLC’s common stock may decline.

GSAM’s responsibilities and its liability to MMLC are limited under the MMLC Investment Management Agreement, which may lead GSAM to act in a riskier manner on MMLC’s behalf than it would when acting for its own account.

GSAM will not be liable for any error of judgment or mistake of law or for any loss suffered by MMLC in connection with the matters to which the MMLC Investment Management Agreement relates, except a loss resulting from willful misfeasance, bad faith or gross negligence on GSAM’s part in the performance of its duties or from reckless disregard by GSAM of its obligations and duties under the MMLC Investment Management Agreement. Any person, even though also employed by GSAM, who may be or become an employee of and paid by MMLC will be deemed, when acting within the scope of his or her employment by MMLC, to be acting in such employment solely for MMLC and not as GSAM’s employee or agent. These protections may lead GSAM to act in a riskier manner when acting on MMLC’s behalf than it would when acting for its own account. See “GSAM will be paid the management fee even if the value of stockholders’ investments declines and GSAM’s incentive fee may create incentives for it to make certain kinds of investments.”

There are risks associated with any potential merger with or asset sale to another BDC, including this Merger.

GSAM recommended the Merger to the MMLC Board and may in the future recommend to the MMLC Board that MMLC merge with or sell all or substantially all of its assets to one or more funds including a fund that could be managed by GSAM (including another BDC). MMLC does not expect that GSAM would recommend any such merger or asset sale unless it determines that it would be in MMLC’s best interests, with such determination dependent on factors it deems relevant, which may include historical and projected financial performance of MMLC and any proposed merger partner, portfolio composition, potential synergies from the merger or asset sale, available alternative options and market conditions. In addition, no such merger or asset sale would be consummated absent the meeting of various conditions required by applicable law or contract, at such time, which may include approval of the board of directors and common equity holders of both funds. If GSAM is the investment adviser of both funds, as in this Merger, various conflicts of interest exist with respect to such transaction. Such conflicts of interest may potentially arise from, among other things, differences between the compensation payable to GSAM by MMLC and by the entity resulting from such a merger or asset sale or efficiencies or other benefits to GSAM as a result of managing a single, larger fund instead of two separate funds.

MMLC’s ability to enter into transactions with its affiliates is restricted.

As a BDC, MMLC is prohibited under the 1940 Act from knowingly participating in certain transactions with its affiliates without the prior approval of a majority of the MMLC Independent Directors who have no financial interest in the transaction, or, in some cases, the prior approval of the SEC. For example, any person that owns, directly or indirectly, 5% or more of MMLC’s outstanding voting securities is deemed MMLC’s affiliate for purposes of the 1940 Act, and, if this is the only reason such person is MMLC’s affiliate, MMLC is generally prohibited from buying any asset from or selling any asset (other than MMLC’s capital stock) to such affiliate, absent the prior approval of such directors. The 1940 Act also prohibits “joint transactions” with an

 

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affiliate, which could include joint investments in the same portfolio company, without approval of the MMLC Independent Directors or, in some cases, the prior approval of the SEC. Moreover, except in certain limited circumstances, MMLC is prohibited from buying any asset from or selling any asset to a holder of more than 25% of MMLC’s voting securities, absent prior approval of the SEC. The analysis of whether a particular transaction constitutes a joint transaction requires a review of the relevant facts and circumstances then existing.

In certain circumstances, negotiated co-investments may be made only pursuant to an order from the SEC permitting MMLC to do so. On January 4, 2017, MMLC received an exemptive order from the SEC that permits MMLC to participate in negotiated co-investment transactions with certain affiliates (including the other GS BDCs), each of whose investment adviser is GSAM, in a manner consistent with MMLC’s investment objectives, positions, policies, strategies and restrictions, as well as regulatory requirements and pursuant to the conditions required by the exemptive relief. As a result of such order, there could be significant overlap in MMLC’s investment portfolio and the investment portfolios of the other GS BDCs and/or other Accounts. Additionally, if GSAM advises other vehicles in the future, MMLC may co-invest on a concurrent basis with such other affiliates, subject to compliance with the exemptive relief, applicable regulations and regulatory guidance, as well as applicable allocation procedures.

MMLC may experience fluctuations in its quarterly results.

MMLC could experience fluctuations in its quarterly operating results due to a number of factors, including interest rates payable on debt investments MMLC makes, default rates on such investments, the level of its expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which MMLC encounters competition in certain markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods or the full fiscal year.

MMLC is exposed to risks associated with changes in interest rates.

MMLC’s debt investments may be based on floating rates, such as LIBOR, the Euro Interbank Offered Rate, the Federal Funds Rate or the Prime Rate. General interest rate fluctuations may have a substantial negative impact on MMLC’s investments, the value of its securities and its rate of return on invested capital. Currently, most of MMLC’s floating rate investments are linked to LIBOR and it is unclear how increased regulatory oversight and the future of LIBOR may affect market liquidity and the value of the financial obligations to be held by or issued to MMLC that are linked to LIBOR, or how such changes could affect MMLC’s investments and transactions and financial condition or results of operations. Central banks and regulators in a number of major jurisdictions (for example, United States, United Kingdom, European Union, Switzerland and Japan) have convened working groups to find, and implement the transition to, suitable replacements for IBORs. The U.K. Financial Conduct Authority, which regulates LIBOR, has announced that it will not compel panel banks to contribute to LIBOR after 2021. The E.U. Benchmarks Regulation imposed conditions under which only compliant benchmarks may be used in new contracts after 2021. To identify a successor rate for U.S. dollar LIBOR, the Federal Reserve Board and the Federal Reserve Bank of New York formed the ARRC. The ARRC has identified the SOFR as its preferred alternative rate for LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. In addition, on March 25, 2020, the FCA reaffirmed the central assumption that firms cannot rely on LIBOR being published after the end of 2021. However, the outbreak of COVID-19 may adversely impact the timing of many firms’ transition planning, and MMLC continues to assess the potential impact of the COVID-19 outbreak on MMLC’s transition plans. Although SOFR appears to be the preferred replacement rate for U.S. dollar LIBOR, at this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates, whether the COVID-19 outbreak will have further effect on LIBOR transition timelines or plans, or other reforms to LIBOR that may be enacted in the United States, United Kingdom or elsewhere. The elimination of LIBOR or any other changes or reforms to the determination or supervision of LIBOR or alternative reference rates could have an adverse impact on the market for or value of

 

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any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to MMLC. In addition, if LIBOR ceases to exist, MMLC may need to renegotiate the credit agreements extending beyond 2021 with MMLC’s portfolio companies that utilize LIBOR as a factor in determining the interest rate, in order to replace LIBOR with the new standard that is established, which may have an adverse effect on MMLC’s overall financial condition or results of operations. As such, some or all of these credit agreements may bear a lower interest rate, which would adversely impact MMLC’s financial condition or results of operations. Moreover, if LIBOR ceases to exist, MMLC may need to renegotiate certain terms of the Existing MMLC Credit Facility. If MMLC is unable to do so, amounts drawn under the Existing MMLC Credit Facility may bear interest at a higher rate, which would increase the cost of MMLC’s borrowings and, in turn, affect its results of operations.

Because MMLC has borrowed money, and may issue preferred stock to finance investments, MMLC’s net investment income depends, in part, upon the difference between the rate at which MMLC borrows funds or pays distributions on preferred stock and the rate that MMLC’s investments yield. As a result, MMLC can offer no assurance that a significant change in market interest rates will not have a material adverse effect on MMLC’s net investment income.

A reduction in the interest rates on new investments relative to interest rates on current investments could also have an adverse impact on MMLC’s net interest income. However, an increase in interest rates could decrease the value of any investments MMLC holds which earn fixed interest rates, including subordinated loans, senior and junior secured and unsecured debt securities and loans and high yield bonds, and also could increase MMLC’s interest expense, thereby decreasing MMLC’s net income. Also, an increase in interest rates available to investors could make an investment in MMLC’s common stock less attractive if MMLC is not able to increase its dividend rate, which could reduce the value of its common stock. Further, rising interest rates could also adversely affect MMLC’s performance if such increases cause MMLC’s borrowing costs to rise at a rate in excess of the rate that its investments yield.

In periods of rising interest rates, to the extent MMLC borrows money subject to a floating interest rate, MMLC’s cost of funds would increase, which could reduce MMLC’s net investment income. Further, rising interest rates could also adversely affect MMLC’s performance if such increases cause MMLC’s borrowing costs to rise at a rate in excess of the rate that MMLC’s investments yield. Further, rising interest rates could also adversely affect MMLC’s performance if MMLC holds investments with floating interest rates, subject to specified minimum interest rates (such as a LIBOR floor), while at the same time engaging in borrowings subject to floating interest rates not subject to such minimums. In such a scenario, rising interest rates may increase MMLC’s interest expense, even though MMLC’s interest income from investments is not increasing in a corresponding manner as a result of such minimum interest rates.

If general interest rates rise, there is a risk that the portfolio companies in which MMLC holds floating rate securities will be unable to pay escalating interest amounts, which could result in a default under their loan documents with MMLC. Rising interest rates could also cause portfolio companies to shift cash from other productive uses to the payment of interest, which may have a material adverse effect on their business and operations and could, over time, lead to increased defaults. In addition, rising interest rates may increase pressure on MMLC to provide fixed rate loans to MMLC’s portfolio companies, which could adversely affect MMLC’s net investment income, as increases in MMLC’s cost of borrowed funds would not be accompanied by increased interest income from such fixed-rate investments.

A change in the general level of interest rates can be expected to lead to a change in the interest rate MMLC receive on many of MMLC’s debt investments. Accordingly, a change in the interest rate could make it easier for MMLC to meet or exceed the performance threshold in the MMLC Investment Management Agreement and may result in a substantial increase in the amount of incentive fees payable to GSAM with respect to the portion of the incentive fee based on income.

 

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The continued uncertainty related to the sustainability and pace of economic recovery in the United States and globally could have a negative impact on MMLC’s business.

MMLC’s business is directly influenced by the economic cycle, and could be negatively impacted by a downturn in economic activity in the United States as well as globally. Fiscal and monetary actions taken by U.S. and non-U.S. government and regulatory authorities could have a material adverse impact on MMLC’s business. To the extent uncertainty regarding the U.S. or global economy negatively impacts consumer confidence and consumer credit factors, MMLC’s business, financial condition and results of operations could be adversely affected. Moreover, Federal Reserve policy, including with respect to certain interest rates and the decision to end its quantitative easing policy, along with the general policies of the current presidential administration, may also adversely affect the value, volatility and liquidity of dividend- and interest-paying securities. Market volatility, rising interest rates and/or a return to unfavorable economic conditions could adversely affect MMLC’s business.

MMLC’s activities may be limited as a result of potentially being deemed to be controlled by a bank holding company.

Goldman Sachs is a BHC under the BHCA and is therefore subject to supervision and regulation by the Federal Reserve. In addition, Goldman Sachs is an FHC under the BHCA, which is a status available to BHCs that meet certain criteria. FHCs may engage in a broader range of activities than BHCs that are not FHCs. However, the activities of FHCs and their affiliates remain subject to certain restrictions imposed by the BHCA and related regulations. Because Goldman Sachs may be deemed to “control” MMLC within the meaning of the BHCA, these restrictions could apply to MMLC as well. Accordingly, the BHCA and other applicable banking laws, rules, regulations and guidelines, and their interpretation and administration by the appropriate regulatory agencies, including the Federal Reserve, may restrict MMLC’s investments, transactions and operations and may restrict the transactions and relationships between GSAM, Goldman Sachs and their affiliates, on the one hand, and MMLC on the other hand. For example, the BHCA regulations applicable to Goldman Sachs and MMLC may, among other things, restrict MMLC’s ability to make certain investments or the size of certain investments, impose a maximum holding period on some or all of MMLC’s investments and restrict MMLC’s and GSAM’s ability to participate in the management and operations of the companies in which MMLC invests. In addition, certain BHCA regulations may require aggregation of the positions owned, held or controlled by related entities. Thus, in certain circumstances, positions held by Goldman Sachs and its affiliates (including GSAM) for client and proprietary Accounts may need to be aggregated with positions held by MMLC. In this case, where BHCA regulations impose a cap on the amount of a position that may be held, Goldman Sachs may utilize available capacity to make investments for its proprietary Accounts or for the Accounts of other clients, which may require MMLC to limit and/or liquidate certain investments.

These restrictions may materially adversely affect MMLC by, among other things, affecting GSAM’s ability to pursue certain strategies within MMLC’s investment program or trade in certain securities. In addition, Goldman Sachs may cease in the future to qualify as an FHC, which may subject MMLC to additional restrictions. Moreover, there can be no assurance that the bank regulatory requirements applicable to Goldman Sachs and MMLC, or the interpretation thereof, will not change, or that any such change will not have a material adverse effect on MMLC.

Goldman Sachs may in the future, in its sole discretion and without notice to investors, engage in activities impacting MMLC and/or GSAM in order to comply with the BHCA or other legal requirements applicable to, or reduce or eliminate the impact or applicability of any bank regulations or other restrictions on, Goldman Sachs, MMLC or other funds and accounts managed by GSAM and its affiliates. Goldman Sachs may seek to accomplish this result by causing GSAM to resign as investment adviser, voting for changes to the MMLC Board causing Goldman Sachs personnel to resign from the MMLC Board, reducing the amount of Goldman Sachs’ investment in MMLC (if any), revoking its right to use the Goldman Sachs name or any combination of the foregoing, or by such other means as it determines in its sole discretion. Any replacement investment adviser appointed by MMLC may be unaffiliated with Goldman Sachs.

 

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Recent Commodity Futures Trading Commission rules may have a negative impact on MMLC and GSAM.

The CFTC and the SEC have issued final rules establishing that certain swap transactions are subject to CFTC regulation. Engaging in such swap or other commodity interest transactions such as futures contracts or options on futures contracts may cause MMLC to fall within the definition of “commodity pool” under the Commodity Exchange Act and related CFTC regulations. GSAM has claimed relief from CFTC registration and regulation as a commodity pool operator pursuant to CFTC Rule 4.5 with respect to MMLC’s operations, with the result that MMLC will be limited in its ability to use futures contracts or options on futures contracts or engage in swap transactions. Specifically, CFTC Rule 4.5 imposes strict limitations on using such derivatives other than for hedging purposes, whereby the use of derivatives not used solely for hedging purposes is generally limited to situations where (i) the aggregate initial margin and premiums required to establish such positions does not exceed five percent of the liquidation value of MMLC’s portfolio, after taking into account unrealized profits and unrealized losses on any such contracts it has entered into; or (ii) the aggregate net notional value of such derivatives does not exceed 100% of the liquidation value of MMLC’s portfolio. Moreover, MMLC anticipates entering into transactions involving such derivatives to a very limited extent solely for hedging purposes or otherwise within the limitations of the CFTC Rule 4.5.

MMLC is dependent on information systems, and systems failures, as well as operating failures, could significantly disrupt its business, which may, in turn, negatively affect its liquidity, financial condition or results of operations.

MMLC’s business is dependent on GSAM’s and third parties’ communications and information systems. Any failure or interruption of those systems, including as a result of the termination of the MMLC Investment Management Agreement or an agreement with any third party service providers, could cause delays or other problems in its activities. MMLC’s financial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond MMLC’s control and adversely affect its business. There could be:

 

   

sudden electrical or telecommunications outages;

 

   

natural disasters such as earthquakes, tornadoes and hurricanes;

 

   

disease pandemics;

 

   

events arising from local or larger scale political or social matters, including terrorist acts; and

 

   

cyber attacks.

In addition to MMLC’s dependence on information systems, poor operating performance by its service providers could adversely impact MMLC.

These events, in turn, could have a material adverse effect on MMLC’s operating results and negatively affect the value of MMLC Common Stock and its ability to pay distributions to its stockholders.

Terrorist attacks, acts of war, global health emergencies or natural disasters may impact the businesses in which MMLC invests and harm MMLC’s business, operating results and financial condition.

Terrorist acts, acts of war, global health emergencies or natural disasters may disrupt MMLC’s operations, as well as the operations of the businesses in which MMLC invests. Such acts have created, and continue to create, economic and political uncertainties and have contributed to global economic instability. Future terrorist activities, military or security operations, global health emergencies or natural disasters could further weaken the domestic/global economies and create additional uncertainties, which may negatively impact the businesses in which MMLC invests directly or indirectly and, in turn, could have a material adverse impact on MMLC’s business, operating results and financial condition. Losses from terrorist attacks, global health emergencies and natural disasters are generally uninsurable.

 

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Cybersecurity risks and cyber incidents may adversely affect MMLC’s business by causing a disruption to its operations, a compromise or corruption of its confidential information and/or damage to its business relationships, all of which could negatively impact its business, financial condition and operating results.

A cyber incident is considered to be any adverse event that threatens the confidentiality, integrity or availability of MMLC’s information resources. These incidents may be an intentional attack or an unintentional event and could involve a third party or MMLC’s own personnel gaining unauthorized access to its information systems for purposes of obtaining ransom payments, misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. The result of these incidents may include disrupted operations, misstated or unreliable financial data, liability for loss or misappropriation of data, stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to MMLC’s reputation or business relationships. As MMLC’s reliance on technology has increased, so have the risks posed to its information systems, both internal and those provided by Goldman Sachs and third party service providers. Goldman Sachs and these third party service providers have implemented processes, procedures and internal controls to help mitigate cybersecurity risks and cyber intrusions, but these measures, as well as MMLC’s increased awareness of the nature and extent of a risk of a cyber incident, do not guarantee that a cyber incident will not occur and/or that MMLC’s financial results, operations or confidential information will not be negatively impacted by such an incident.

MMLC’s ability to enter into transactions involving derivatives and financial commitment transactions may be limited.

In November 2019, the SEC published a proposed rulemaking regarding the ability of a BDC (or a registered investment company) to use derivatives and other transactions that create future payment or delivery obligations (except reverse repurchase agreements and similar financing transactions). If adopted as proposed, BDCs that use derivatives would be subject to a VaR leverage limit, certain other derivatives risk management program and testing requirements and requirements related to board reporting. These new requirements would apply unless the BDC qualified as a “limited derivatives user,” as defined in the SEC’s proposal. A BDC that enters into reverse repurchase agreements or similar financing transactions would need to aggregate the amount of indebtedness associated with the reverse repurchase agreements or similar financing transactions with the aggregate amount of any other senior securities representing indebtedness when calculating the BDC’s asset coverage ratio. Under the proposed rule, a BDC may enter into an unfunded commitment agreement that is not a derivatives transaction, such as an agreement to provide financing to a portfolio company, if the BDC has a reasonable belief, at the time it enters into such an agreement, that it will have sufficient cash and cash equivalents to meet its obligations with respect to all of its unfunded commitment agreements, in each case as it becomes due. If the BDC cannot meet this test, it is required to treat unfunded commitments as a derivatives transaction subject to the requirements of the rule. Collectively, these proposed requirements, if adopted, may limit MMLC’s ability to use derivatives and/or enter into certain other financial contracts.

The United Kingdom referendum decision to leave the European Union may create significant risks and uncertainty for global markets and MMLC’s investments.

The decision made in the United Kingdom referendum in June 2016 to leave the European Union (commonly known as “Brexit”) has led to volatility in global financial markets, and in particular in the markets of the United Kingdom and across Europe, and may also lead to weakening in political, regulatory, consumer, corporate and financial confidence in the United Kingdom and Europe. On January 31, 2020, the United Kingdom withdrew from the European Union subject to a withdrawal agreement that permits the United Kingdom to effectively remain in the European Union from an economic perspective during a transition phase that expires at the end of 2020. During this transition phase, the United Kingdom and the European Union will seek to negotiate and finalize a new, more permanent trade deal. Consequently, due to this political uncertainty, it is not possible to anticipate whether the United Kingdom and the European Union will be able to agree on and implement a new trade agreement or what the nature of such trade arrangement will be. In the event

 

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that no agreement is reached, the relationship between the United Kingdom and the European Union would be based on the World Trade Organization rules. While certain measures are being proposed and/or will be introduced, at the European Union level or at the member state level, which are designed to minimize disruption in the financial markets, it is not currently possible to determine whether such measures would achieve their intended effects. Notwithstanding the foregoing, the extent and process by the United Kingdom to exit the European Union, and the longer term economic, legal, political, regulatory and social framework to be put in place between the United Kingdom and the European Union remain unclear and may lead to ongoing political and economic uncertainty and periods of exacerbated volatility in both the United Kingdom and in wider European markets for some time. The mid-to-long-term uncertainty may have a negative effect on the performance of any investments in issuers that are economically tied to the United Kingdom or Europe. Additionally, the decision made in the United Kingdom referendum may lead to a call for similar referenda in other European jurisdictions which may cause increased economic volatility and uncertainty in the European and global markets. This volatility and uncertainty may have an adverse effect on the economy generally and on the ability of MMLC and its portfolio companies to execute their respective strategies and to receive attractive returns.

Certain investors are limited in their ability to make significant investments in MMLC.

Private funds that are excluded from the definition of “investment company” either pursuant to Section 3(c)(1) or 3(c)(7) of the 1940 Act are restricted from acquiring directly or through a controlled entity more than 3% of MMLC’s total outstanding voting stock (measured at the time of the acquisition). Investment companies registered under the 1940 Act are also subject to this restriction as well as other limitations under the 1940 Act that would restrict the amount that they are able to invest in MMLC’s securities. As a result, certain investors may be precluded from acquiring additional shares, at a time that they might desire to do so.

Stockholders may be subject to filing requirements under the Exchange Act as a result of their investment in MMLC.

Ownership information for any person or group that beneficially owns more than 5% of MMLC Common Stock will have to be disclosed in a Schedule 13G or other filings with the SEC. Beneficial ownership for these purposes is determined in accordance with the rules of the SEC, and includes having voting or investment power over the securities. Although MMLC will provide in its quarterly statements the amount of outstanding stock, the responsibility for determining the filing obligation and preparing the filing remains with the investor. In addition beneficial owners of 10% or more of MMLC Common Stock will be subject to reporting obligations under Section 16(a) of the Exchange Act.

Stockholders may be subject to the short-swing profits rules under the Exchange Act as a result of their investment in MMLC.

Persons with the right to appoint a director or who beneficially own more than 10% of MMLC Common Stock may be subject to Section 16(b) of the Exchange Act, which recaptures for MMLC’s benefit profits from the purchase and sale of stock registered under the Exchange Act within a six-month period.

If MMLC consummates a listing, the management fee and incentive fee will increase.

Subsequent to a listing of MMLC Common Stock, the management fee under the MMLC Investment Management Agreement would be calculated as a percentage of the average value of MMLC’s gross assets including borrowed funds (excluding cash or cash equivalents) at the end of the prior two completed calendar quarters, which will result in a higher management fee for a given level of assets when compared to the current management fee calculated based on NAV and will create an incentive for GSAM to incur leverage. In addition, subsequent to a listing, the incentive fee on income will increase from 15% to 20% of MMLC’s ordinary income and the incentive fee on capital gains will increase from 15% to 20% of its aggregate realized capital gains net of

 

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its aggregate realized capital losses and its aggregate unrealized capital depreciation (in each case calculated from the date of such listing).

Risks Relating to MMLC’s Portfolio Company Investments

MMLC’s investments are very risky and highly speculative.

MMLC will invest primarily through direct originations of secured debt, including first lien, unitranche, and last-out portions of such loans; second lien debt; unsecured debt, including mezzanine debt; and select equity investments. The securities in which MMLC invests typically are not rated by any rating agency, and if they were rated, they would be below investment grade (rated lower than “Baa3” by Moody’s Investors Service and lower than “BBB-” by Fitch Ratings or S&P). These securities, which may be referred to as “junk bonds,” “high yield bonds” or “leveraged loans,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. Therefore, MMLC’s investments may result in an above average amount of risk and volatility or loss of principal. MMLC also may invest in other assets, including U.S. government securities and structured securities. These investments entail additional risks that could adversely affect MMLC’s investment returns.

Secured Debt. When MMLC makes a secured debt investment, MMLC generally takes a security interest in the available assets of the portfolio company, including the equity interests of any subsidiaries, which MMLC expects to help mitigate the risk that MMLC will not be repaid. However, there is a risk that the collateral securing MMLC’s debt investment may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the business and market conditions, including as a result of the inability of the portfolio company to raise additional capital. In some circumstances, MMLC’s lien could be subordinated to claims of other creditors, such as trade creditors. In addition, deterioration in a portfolio company’s financial condition and prospects, including its inability to raise additional capital, may be accompanied by deterioration in the value of the collateral for the debt investment. Consequently, the fact that MMLC’s debt is secured does not guarantee that MMLC will receive principal and interest payments according to the debt investment’s terms, or at all, or that MMLC will be able to collect on the loan, in full or at all, should MMLC enforce its remedies.

Unsecured Debt, including Mezzanine Debt. MMLC’s unsecured debt investments, including mezzanine debt investments, generally will be subordinated to senior debt in the event of an insolvency. This may result in an above average amount of risk and loss of principal.

Equity Investments. When MMLC invests in secured debt or unsecured debt, including mezzanine debt, MMLC may acquire equity securities from the company in which MMLC makes the investment. In addition, MMLC may invest in the equity securities of portfolio companies independent of any debt investment. MMLC’s goal is ultimately to dispose of such equity interests and realize gains upon its disposition of such interests. However, the equity interests MMLC holds may not appreciate in value and, in fact, may decline in value. Accordingly, MMLC may not be able to realize gains from its equity interests, and any gains that MMLC does realize on the disposition of any equity interests may not be sufficient to offset any other losses MMLC experiences.

Investing in middle-market companies involves a number of significant risks.

Investing in middle-market companies involves a number of significant risks, including:

 

   

such companies may have limited financial resources and may be unable to meet their obligations under their debt securities that MMLC holds, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of MMLC’s realizing any guarantees MMLC may have obtained in connection with its investment;

 

   

such companies typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns;

 

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such companies are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on MMLC’s portfolio companies and, in turn, on MMLC;

 

   

such companies generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position;

 

   

there is generally little public information about these companies, they and their financial information are not subject to the reporting requirements of the Exchange Act and other regulations that govern public companies and MMLC may be unable to uncover all material information about these companies, which may prevent MMLC from making a fully informed investment decision and cause MMLC to lose money on its investments;

 

   

MMLC’s executive officers, directors and Investment Adviser may, in the ordinary course of business, be named as defendants in litigation arising from MMLC’s investments in the portfolio companies; and

 

   

such companies may have difficulty accessing the capital markets to meet future capital needs, which may limit their ability to grow or to repay their outstanding indebtedness, including any debt securities held by MMLC, upon maturity.

Many of MMLC’s portfolio securities may not have a readily available market price and MMLC will value these securities at fair value as determined in good faith under procedures adopted by the MMLC Board, which valuation is inherently subjective and may not reflect what MMLC may actually realize for the sale of the investment.

The majority of MMLC’s investments are expected to be in debt instruments that do not have readily ascertainable market prices. The fair value of assets that are not publicly traded or whose market prices are not readily available are determined in good faith under procedures adopted by the MMLC Board. The MMLC Board utilizes the services of Independent Valuation Advisors in determining the fair value of a portion of the securities in MMLC’s portfolio as of each quarter end. Investment professionals from GSAM will also prepare portfolio company valuations using sources and/or proprietary models, depending on the availability of information on MMLC’s assets and the type of asset being valued, all in accordance with MMLC’s valuation policy.

Because fair valuations, and particularly fair valuations of private securities and private companies, are inherently uncertain, may fluctuate over short periods of time and are often based to a large extent on estimates, comparisons and qualitative evaluations of private information, it may be more difficult for investors to value accurately MMLC’s investments and could lead to undervaluation or overvaluation of MMLC Common Stock. In addition, the valuation of these types of securities may result in substantial write-downs and earnings volatility.

MMLC’s NAV as of a particular date may be materially greater than or less than the value that would be realized if MMLC’s assets were to be liquidated as of such date. For example, if MMLC were required to sell a certain asset or all or a substantial portion of its assets on a particular date, the actual price that MMLC would realize upon the disposition of such asset or assets could be materially less than the value of such asset or assets as reflected in MMLC’s NAV. Volatile market conditions could also cause reduced liquidity in the market for certain assets, which could result in liquidation values that are materially less than the values of such assets as reflected in MMLC’s NAV.

When MMLC’s NAV is determined other than on a quarter-end (such as in connection with issuances of shares of MMLC Common Stock on dates occurring mid-quarter), such determinations of NAV are typically made by GSAM, acting under delegated authority from, and subject to the supervision of the MMLC Board.

 

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While such NAV determinations are made in accordance with procedures adopted by the MMLC Board, such intra-quarter NAV determinations do not follow the same procedures as quarter-end NAV determinations, such as the input of the MMLC Audit Committee or Independent Valuation Advisors, which may heighten the risks described above. However, MMLC intends to comply at all times with the limitations of Section 23 under the 1940 Act (which generally prohibits MMLC from issuing shares of common stock at a price below the then-current NAV, as determined within 48 hours, excluding Sundays and holidays, of such issuance, subject to certain exceptions).

The lack of liquidity in MMLC’s investments may adversely affect its business.

Various restrictions will render MMLC’s investments relatively illiquid, which may adversely affect its business. As MMLC will generally make investments in private companies, substantially all of these investments are subject to legal and other restrictions on resale or are otherwise less liquid than publicly traded securities. GSAM is not permitted to obtain or use material nonpublic information in effecting purchases and sales in public securities transactions for MMLC, which could create an additional limitation on the liquidity of MMLC’s investments. The illiquidity of MMLC’s investments may make it difficult for MMLC to sell such investments if the need arises. Therefore, if MMLC is required to or desires to liquidate all or a portion of its portfolio quickly, MMLC could realize significantly less than the value at which MMLC has recorded its investments or could be unable to dispose of its investments in a timely manner or at such times as MMLC deems advisable.

MMLC’s portfolio may be focused in a limited number of portfolio companies, which will subject MMLC to a risk of significant loss if any of these companies default on their obligations under any of their debt instruments or if there is a downturn in a particular industry.

MMLC is classified as a non-diversified investment company within the meaning of the 1940 Act, which means that MMLC is not limited by the 1940 Act with respect to the proportion of its assets that MMLC may invest in securities of a single issuer, excluding limitations on investments in certain other financial and investment companies. To the extent that MMLC assumes large positions in the securities of a small number of issuers or industries, its NAV may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer. MMLC may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. In addition, the aggregate returns MMLC realizes may be significantly adversely affected if a small number of investments perform poorly or if MMLC needs to write down the value of any one investment. Additionally, a downturn in any particular industry in which MMLC is invested could significantly affect its aggregate returns. Further, any industry in which MMLC is meaningfully concentrated at any given time could be subject to significant risks that could adversely impact MMLC’s aggregate returns. For example, as of March 31, 2020, Health Care Providers & Services, together with Health Care Technology and Health Care Equipment & Supplies, represented 23.8% of MMLC’s portfolio at fair value. MMLC’s investments in Health Care Providers & Services and Health Care Technology and Health Care Equipment & Supplies are subject to substantial risks, including, but not limited to, the risk that the laws and regulations governing the business of health care companies, and interpretations thereof, may change frequently. Current or future laws and regulations could force MMLC’s portfolio companies engaged in health care, to change their policies related to how they operate, restrict revenue, change costs, change reserve levels and change business practices. In addition, as of March 31, 2020, Software, represented 10.2% of MMLC’s portfolio at fair value. MMLC’s investments in Software are subject to substantial risks, including, but not limited to, intense competition, changing technology, shifting user needs, frequent introductions of new products and services, competitors in different industries and ranging from large established companies to emerging startups, decreasing average selling prices of products and services resulting from rapid technological changes, and various legal and regulatory risks.

 

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MMLC will generally not be in a position to exercise control over its portfolio companies or to prevent decisions by management of its portfolio companies that could decrease the value of its investments.

MMLC will not generally hold controlling equity positions in its portfolio companies. While MMLC is obligated as a BDC to offer to make managerial assistance available to its portfolio companies, there can be no assurance that management personnel of its portfolio companies will accept or rely on such assistance. To the extent that MMLC does not hold a controlling equity interest in a portfolio company, MMLC is subject to the risk that such portfolio company may make business decisions with which MMLC disagrees, and the stockholders and management of such portfolio company may take risks or otherwise act in ways that are adverse to its interests. Due to the lack of liquidity for the debt and equity investments that MMLC typically holds in its portfolio companies, MMLC may not be able to dispose of its investments in the event MMLC disagrees with the actions of a portfolio company, and may therefore suffer a decrease in the value of its investments.

In addition, MMLC may not be in a position to control any portfolio company by investing in its debt securities. As a result, MMLC is subject to the risk that a portfolio company in which MMLC invests may make business decisions with which MMLC disagrees and the management of such company, as representatives of the holders of their common equity, may take risks or otherwise act in ways that do not serve its interests as debt investors.

MMLC may be subject to risks associated with investments in real estate loans.

GSAM, on MMLC’s behalf, may periodically invest in loans related to real estate and real estate-related assets, and such investments will be subject to the risks inherent to investment in real estate-related assets generally. These risks include, but are not limited to, regional, national and international economic conditions, the supply and demand for properties, the financial resources of tenants, buyers and sellers of properties, changes in building, environmental, zoning and other laws and regulations, changes in real property tax rates, changes in interest rates and the availability of financing, which may render the sale or refinancing of properties difficult or impracticable, environmental liabilities, uninsured losses, acts of God, natural disasters, terrorist attacks, acts of war (declared and undeclared), strikes and other factors that are beyond the control of GSAM and MMLC.

MMLC may be subject to risks associated with investments in energy companies.

The energy industry has been in a period of disruption and volatility that has been characterized by fluctuations in oil and gas prices and production levels. This disruption and volatility has led to, and future disruptions and volatility may lead to, decreases in the credit quality and performance of MMLC’s potential debt and equity investments in energy companies, which could, in turn, negatively impact the fair value of MMLC’s investments in energy companies. Any prolonged decline in oil and gas prices or production levels could adversely impact the ability of MMLC’s potential portfolio companies in the energy industry to satisfy financial or operating covenants that may be imposed by MMLC and other lenders or to make payments to MMLC as and when due, which could have a material adverse effect on MMLC’s business, financial condition and results of operations. In addition, energy companies are subject to supply and demand fluctuations in the markets in which they operate, which are impacted by numerous factors, including weather, use of renewable fuel sources, natural disasters, governmental regulation and general economic conditions, in addition to the effects of increasing regulation and general operational risks, any of which could have a material adverse effect on the performance and value of MMLC’s energy-related investments as well as its cash flows from such investments.

MMLC’s failure to make follow-on investments in its portfolio companies could impair the value of its portfolio.

Following an initial investment in a portfolio company, MMLC may make additional investments in that portfolio company as “follow-on” investments, in order to:

 

   

increase or maintain in whole or in part its equity ownership percentage;

 

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exercise warrants, options or convertible securities that were acquired in the original or subsequent financing; or

 

   

attempt to preserve or enhance the value of its investment.

MMLC may elect not to make follow-on investments or may lack sufficient funds to make those investments.

MMLC will have the discretion to make any follow-on investments, subject to the availability of capital resources. The failure to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and MMLC’s initial investment, or may result in a missed opportunity for MMLC to increase its participation in a successful operation. Even if MMLC has sufficient capital to make a desired follow-on investment, MMLC may elect not to make a follow-on investment because MMLC may not want to increase its concentration of risk, because MMLC prefers other opportunities or because MMLC is inhibited by compliance with BDC requirements, compliance with covenants contained in its credit facilities or compliance with the requirements for maintenance of its RIC status.

MMLC’s portfolio companies may prepay loans, which may reduce stated yields in the future if the capital returned cannot be invested in transactions with equal or greater expected yields.

Certain of the loans MMLC makes will be prepayable at any time, with some prepayable at no premium to par. MMLC cannot predict when such loans may be prepaid. Whether a loan is prepaid will depend both on the continued positive performance of the portfolio company and the existence of favorable financing market conditions that permit such portfolio company to replace existing financing with less expensive capital. In periods of rising interest rates, the risk of prepayment of floating rate loans may increase if other financing sources are available. As market conditions change frequently, it is unknown when, and if, this may be possible for each portfolio company. In the case of some of these loans, having the loan prepaid early may reduce the achievable yield for MMLC in the future below the current yield disclosed for its portfolio if the capital returned cannot be invested in transactions with equal or greater expected yields.

Investments in common and preferred equity securities, many of which are illiquid with no readily available market, involve a substantial degree of risk.

Although common stock has historically generated higher average total returns than fixed income securities over the long term, common stock also has experienced significantly more volatility in those returns. MMLC’s equity investments may fail to appreciate and may decline in value or become worthless, and MMLC’s ability to recover its investment will depend on its portfolio companies’ success. Investments in equity securities involve a number of significant risks, including:

 

   

any equity investment MMLC makes in a portfolio company could be subject to further dilution as a result of the issuance of additional equity interests and to serious risks as a junior security that will be subordinate to all indebtedness (including trade creditors) or senior securities in the event that the issuer is unable to meet its obligations or becomes subject to a bankruptcy process;

 

   

to the extent that the portfolio company requires additional capital and is unable to obtain it, MMLC may not recover its investment; and

 

   

in some cases, equity securities in which MMLC invests will not pay current dividends, and its ability to realize a return on its investment, as well as to recover its investment, will be dependent on the success of the portfolio company.

Even if the portfolio company is successful, MMLC’s ability to realize the value of its investment may be dependent on the occurrence of a liquidity event, such as a public offering or the sale of the portfolio company. It is likely to take a significant amount of time before a liquidity event occurs or MMLC can otherwise sell its investment. In addition, the equity securities MMLC receives or invests in may be subject to restrictions on resale during periods in which it could be advantageous to sell them.

 

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There are special risks associated with investing in preferred securities, including:

 

   

preferred securities may include provisions that permit the issuer, at its discretion, to defer distributions for a stated period without any adverse consequences to the issuer. If MMLC owns a preferred security that is deferring its distributions, MMLC may be required to report income for tax purposes before MMLC receives such distributions;

 

   

preferred securities are subordinated to debt in terms of priority to income and liquidation payments, and therefore will be subject to greater credit risk than debt;

 

   

preferred securities may be substantially less liquid than many other securities, such as common stock or U.S. government securities; and

 

   

generally, preferred security holders have no voting rights with respect to the issuing company, subject to limited exceptions.

Additionally, when MMLC invests in debt securities, it may acquire warrants or other equity securities as well. MMLC’s goal is ultimately to dispose of such equity interests and realize gains upon its disposition of such interests. However, the equity interests MMLC receives may not appreciate in value and, in fact, may decline in value. Accordingly, MMLC may not be able to realize gains from its equity interests, and any gains that MMLC does realize on the disposition of any equity interests may not be sufficient to offset any other losses MMLC experiences.

MMLC may invest, to the extent permitted by law, in the equity securities of investment funds that are operating pursuant to certain exceptions to the 1940 Act and, to the extent MMLC so invests, will bear its ratable share of any such company’s expenses, including management and performance fees. MMLC will also remain obligated to pay the management fee and incentive fee to GSAM with respect to the assets invested in the securities and instruments of such companies. With respect to each of these investments, each of MMLC’s common stockholders will bear their pro rata share of the management fee and incentive fee due to GSAM as well as indirectly bearing the management and performance fees and other expenses of any such investment funds or advisers.

By originating loans to companies that are experiencing significant financial or business difficulties, MMLC may be exposed to distressed lending risks.

As part of its lending activities, MMLC may originate loans to companies that are experiencing significant financial or business difficulties, including companies involved in bankruptcy or other reorganization and liquidation proceedings. Although the terms of such financing may result in significant financial returns to MMLC, they involve a substantial degree of risk. The level of analytical sophistication, both financial and legal, necessary for successful financing to companies experiencing significant business and financial difficulties is unusually high. There is no assurance that MMLC will correctly evaluate the value of the assets collateralizing its loans or the prospects for a successful reorganization or similar action. In any reorganization or liquidation proceeding relating to a company that MMLC funds, MMLC may lose all or part of the amounts advanced to the borrower or may be required to accept collateral with a value less than the amount of the loan advanced by MMLC to the borrower.

MMLC may be exposed to special risks associated with bankruptcy cases.

Many of the events within a bankruptcy case are adversarial and often beyond the control of the creditors. While creditors generally are afforded an opportunity to object to significant actions, there can be no assurance that a bankruptcy court would not approve actions that may be contrary to its interests. Furthermore, there are instances where creditors can lose their ranking and priority if they are considered to have taken over management of a borrower.

 

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The reorganization of a company can involve substantial legal, professional and administrative costs to a lender and the borrower; it is subject to unpredictable and lengthy delays; and during the process a company’s competitive position may erode, key management may depart and a company may not be able to invest its capital adequately. In some cases, the debtor company may not be able to reorganize and may be required to liquidate assets. The debt of companies in financial reorganization will, in most cases, not pay current interest, may not accrue interest during reorganization and may be adversely affected by an erosion of the issuer’s fundamental value.

In addition, lenders can be subject to lender liability claims for actions taken by them where they become too involved in the borrower’s business or exercise control over the borrower. For example, MMLC could become subject to a lender’s liability claim if, among other things, the borrower requests significant managerial assistance from MMLC and MMLC provides such assistance as contemplated by the 1940 Act.

Declines in market prices and liquidity in the corporate debt markets can result in significant net unrealized depreciation of MMLC’s portfolio, which in turn would affect MMLC’s results of operations.

As a BDC, MMLC is required to carry its investments at market value or, if no market value is ascertainable, at fair value as determined in good faith under procedures adopted by the MMLC Board. MMLC may take into account the following types of factors, if relevant, in determining the fair value of its investments: the enterprise value of a portfolio company (the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time), the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow (taking into consideration current market interest rates and credit spreads), the markets in which the portfolio company does business, a comparison of the portfolio company’s securities to similar publicly traded securities and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, MMLC uses the pricing indicated by the external event to corroborate its valuation. While most of MMLC’s investments are not publicly traded, applicable accounting standards require MMLC to assume as part of its valuation process that MMLC’s investments are sold in a principal market to market participants (even if MMLC plans on holding an investment through its maturity). As a result, volatility in the capital markets can also adversely affect MMLC’s investment valuations. Decreases in the market values or fair values of MMLC’s investments are recorded as unrealized depreciation. The effect of all of these factors on MMLC’s portfolio can reduce MMLC’s NAV by increasing net unrealized depreciation in its portfolio. Depending on market conditions, MMLC could incur substantial realized losses and may suffer unrealized losses, which could have a material adverse impact on its business, financial condition and results of operations.

Economic recessions or downturns could impair MMLC’s portfolio companies and harm its operating results.

MMLC’s portfolio companies may be susceptible to economic downturns or recessions and may be unable to repay its loans during these periods. Therefore, during these periods, MMLC’s non-performing assets may increase and the value of its portfolio may decrease if MMLC is required to write down the values of its investments. Adverse economic conditions may also decrease the value of collateral securing some of MMLC’s loans and the value of its equity investments. Economic slowdowns or recessions could lead to financial losses in MMLC’s portfolio and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase MMLC’s funding costs, limit its access to the capital markets or result in a decision by lenders not to extend credit to MMLC. These events could prevent MMLC from increasing investments and harm its operating results.

A portfolio company’s failure to satisfy financial or operating covenants imposed by MMLC or other lenders could lead to defaults and, potentially, acceleration of the time when the loans are due and foreclosure on the portfolio company’s assets representing collateral for its obligations. This could trigger cross defaults under other agreements and jeopardize MMLC’s portfolio company’s ability to meet its obligations under the debt that

 

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MMLC holds and the value of any equity securities MMLC owns. MMLC may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company.

MMLC’s portfolio companies may have incurred or issued, or may in the future incur or issue, debt or equity securities that rank equally with, or senior to, its investments in such companies, which could have an adverse effect on MMLC in any liquidation of the portfolio company.

MMLC’s portfolio companies may have, or may be permitted to incur, other debt, or issue other equity securities that rank equally with, or senior to, its investments. By their terms, such instruments may provide that the holders are entitled to receive payment of dividends, interest or principal on or before the dates on which MMLC is entitled to receive payments in respect of its investments. These debt instruments would usually prohibit the portfolio companies from paying interest on or repaying MMLC’s investments in the event and during the continuance of a default under such debt. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of securities ranking senior to MMLC’s investment in that portfolio company typically are entitled to receive payment in full before MMLC receives any distribution in respect of MMLC’s investment. After repaying such holders, the portfolio company may not have any remaining assets to use for repaying its obligation to MMLC. In the case of securities ranking equally with MMLC’s investments, MMLC would have to share on an equal basis any distributions with other security holders in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.

Additionally, certain loans that MMLC makes to portfolio companies may be secured on a second priority basis by the same collateral securing senior secured debt, which will be secured on a first priority basis. The first priority liens on the collateral will secure the portfolio company’s obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the portfolio company under the agreements governing the loans. The holders of obligations secured by the first priority liens on the collateral will generally control the liquidation of and be entitled to receive proceeds from any realization of the collateral to repay their obligations in full before MMLC. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the loan obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens. If such proceeds are not sufficient to repay amounts outstanding under the loan obligations secured by the second priority liens, then MMLC, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the portfolio company’s remaining assets, if any.

The rights MMLC may have with respect to the collateral securing any junior priority loans MMLC makes to its portfolio companies may also be limited pursuant to the terms of one or more intercreditor agreements that MMLC enters into with the holders of senior debt. Under such an intercreditor agreement, at any time that senior obligations are outstanding, MMLC may forfeit certain rights with respect to the collateral to the holders of the senior obligations. These rights may include the right to commence enforcement proceedings against the collateral, the right to control the conduct of such enforcement proceedings, the right to approve amendments to collateral documents, the right to release liens on the collateral and the right to waive past defaults under collateral documents. MMLC may not have the ability to control or direct such actions, even if its rights as junior lenders are adversely affected. In addition, a bankruptcy court may choose not to enforce an intercreditor agreement or other arrangement with creditors. Similar risks to the foregoing may apply where MMLC holds the last out piece of a unitranche loan.

MMLC may also make unsecured loans to portfolio companies, meaning that such loans will not benefit from any interest in collateral of such portfolio companies. Liens on such portfolio companies’ collateral, if any, will secure the portfolio company’s obligations under its outstanding secured debt and may secure certain future debt that is permitted to be incurred by the portfolio company under its secured loan agreements. The holders of obligations secured by such liens will generally control the liquidation of, and be entitled to receive proceeds

 

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from, any realization of such collateral to repay their obligations in full before MMLC. In addition, the value of such collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from sales of such collateral would be sufficient to satisfy MMLC’s unsecured loan obligations after payment in full of all secured loan obligations. If such proceeds were not sufficient to repay the outstanding secured loan obligations, then MMLC’s unsecured claims would rank equally with the unpaid portion of such secured creditors’ claims against the portfolio company’s remaining assets, if any.

MMLC’s portfolio companies may be highly leveraged.

Some of MMLC’s portfolio companies may be highly leveraged, which may have adverse consequences to these portfolio companies and to MMLC as an investor. These portfolio companies may be subject to restrictive financial and operating covenants, and the leverage may impair these portfolio companies’ ability to finance their future operations and capital needs. As a result, these portfolio companies’ flexibility to respond to changing business and economic conditions and to take advantage of business opportunities may be limited. Further, a leveraged company’s income and net assets will tend to increase or decrease at a greater rate than if borrowed money were not used.

MMLC’s investments in non-U.S. companies may involve significant risks in addition to the risks inherent in U.S. investments.

MMLC’s investment strategy contemplates potential investments in securities of non-U.S. companies to the extent permissible under the 1940 Act. Investing in non-U.S. companies may expose MMLC to additional risks not typically associated with investing in U.S. companies. These risks include changes in exchange control regulations, political and social instability, expropriation, imposition of non-U.S. taxes (potentially at confiscatory levels), less liquid markets, less available information than is generally the case in the United States, higher transaction costs, less government supervision of exchanges, brokers and issuers, less developed bankruptcy laws, difficulty in enforcing contractual obligations, lack of uniform accounting and auditing standards and greater price volatility. These risks are likely to be more pronounced for investments in companies located in emerging markets and particularly for middle-market companies in these economies.

Although most of MMLC’s investments are denominated in U.S. dollars, any investments that are denominated in a non-U.S. currency will be subject to the risk that the value of a particular currency will change in relation to the U.S. dollar. Among the factors that may affect currency values are trade balances, the level of short-term interest rates, differences in relative values of similar assets in different currencies, long-term opportunities for investment and capital appreciation and political developments. MMLC may employ hedging techniques to minimize these risks, but MMLC cannot assure you that such strategies will be effective or without risk to MMLC.

MMLC may expose itself to risks if it engages in hedging transactions.

Subject to applicable provisions of the 1940 Act and applicable CFTC regulations, MMLC may enter into hedging transactions in a manner consistent with SEC guidance, which may expose MMLC to risks associated with such transactions. Such hedging may utilize instruments such as forward contracts, currency options and interest rate swaps, caps, collars and floors to seek to hedge against fluctuations in the relative values of MMLC’s portfolio positions from changes in currency exchange rates and market interest rates. Use of these hedging instruments may include counter-party credit risk.

Hedging against a decline in the values of MMLC’s portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline. However, such hedging can establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transactions may also limit the opportunity for gain

 

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if the values of the underlying portfolio positions should increase. Moreover, it may not be possible to hedge against an exchange rate or interest rate fluctuation that is so generally anticipated that MMLC is not able to enter into a hedging transaction at an acceptable price.

The success of any hedging transactions MMLC may enter into will depend on MMLC’s ability to correctly predict movements in currencies and interest rates. Therefore, while MMLC may enter into such transactions to seek to reduce currency exchange rate and interest rate risks, unanticipated changes in currency exchange rates or interest rates may result in poorer overall investment performance than if MMLC had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged may vary. Moreover, for a variety of reasons, MMLC may not seek to (or be able to) establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent MMLC from achieving the intended hedge and expose MMLC to risk of loss. In addition, it may not be possible to hedge fully or perfectly against currency fluctuations affecting the value of securities denominated in non-U.S. currencies because the value of those securities is likely to fluctuate as a result of factors not related to currency fluctuations. See also “—Risks Relating to MMLC’s Business and Structure—MMLC will be exposed to risks associated with changes in interest rates.”

MMLC may form one or more CLOs, which may subject MMLC to certain structured financing risks.

To the extent permissible under risk retention rules adopted pursuant to Section 941 of the Dodd-Frank Act and applicable provisions of the 1940 Act, to finance investments, MMLC may securitize certain of its investments, including through the formation of one or more CLOs, while retaining all or most of the exposure to the performance of these investments. This would involve contributing a pool of assets to a special purpose entity, and selling debt interests in such entity on a non-recourse or limited-recourse basis to purchasers. Any interest in any such CLO held by MMLC may be considered a “non-qualifying asset” for purposes of the 1940 Act.

If MMLC creates a CLO, MMLC will depend on distributions from the CLO’s assets out of its earnings and cash flows to enable MMLC to make distributions to its stockholders. The ability of a CLO to make distributions will be subject to various limitations, including the terms and covenants of the debt it issues. For example, tests (based on interest coverage or other financial ratios or other criteria) may restrict MMLC’s ability, as holder of a CLO’s equity interests, to receive cash flow from these investments. There is no assurance any such performance tests will be satisfied. Also, a CLO may take actions that delay distributions in order to preserve ratings and to keep the cost of present and future financings lower, or the CLO may be obligated to retain cash or other assets to satisfy over-collateralization requirements commonly provided for holders of the CLO’s debt. As a result, there may be a lag, which could be significant, between the repayment or other realization on a loan or other assets in, and the distribution of cash out of, a CLO, or cash flow may be completely restricted for the life of the CLO. If MMLC does not receive cash flow from any such CLO that is necessary to satisfy the annual distribution requirement for maintaining its RIC status, and MMLC is unable to obtain cash from other sources necessary to satisfy this requirement, MMLC could fail to maintain its status as a RIC, which would have a material adverse effect on MMLC’s financial performance.

In addition, a decline in the credit quality of loans in a CLO due to poor operating results of the relevant borrower, declines in the value of loan collateral or increases in defaults, among other things, may force a CLO to sell certain assets at a loss, reducing their earnings and, in turn, cash potentially available for distribution to MMLC for distribution to its stockholders.

To the extent that any losses are incurred by the CLO in respect of any collateral, such losses will be borne first by MMLC as owner of equity interests. Finally, any equity interests that MMLC retains in a CLO will not be secured by the assets of the CLO, and MMLC will rank behind all creditors of the CLO.

 

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MMLC will have broad discretion over the use of proceeds of the funds MMLC raises from investors and will use proceeds in part to satisfy operating expenses.

There can be no assurance that MMLC will be able to locate a sufficient number of suitable investment opportunities to allow MMLC to successfully deploy capital that MMLC raises from investors in a timeframe that will permit investors to earn above-market returns. To the extent MMLC is unable to invest substantially all of the capital MMLC raises within its contemplated timeframe, MMLC’s investment income, and in turn its results of operations, will likely be materially adversely affected. Additionally, there could be a significant lag in time between any drawdown date and MMLC’s funding of investments. See “—Risks Relating to MMLC’s Business and Structure—MMLC has a limited operating history.”

MMLC intends to use substantially all of the proceeds from the offering of MMLC Common Stock, net of expenses, to make investments in accordance with its investment objectives and using the strategies described in this joint proxy statement/prospectus. MMLC anticipates that the remainder will be used for working capital and general corporate purposes, including the payment of operating expenses. However, subject to the restrictions of applicable law and regulations, including the 1940 Act and the Code, MMLC has significant flexibility in applying the proceeds of the funds MMLC raises from investors and may use the net proceeds in ways with which stockholders may not agree, or for purposes other than those contemplated at the time of the capital raising. MMLC may also pay operating expenses, and may pay other expenses such as due diligence expenses of potential new investments, from net proceeds. MMLC’s ability to achieve its investment objective may be limited to the extent that net proceeds of the funds MMLC raises from investors, pending full investment by MMLC in portfolio companies, are used to pay operating expenses.

Risks Relating to MMLC Common Stock

Investing in MMLC Common Stock involves an above average degree of risk.

The investments MMLC makes in accordance with its investment objective may result in a higher amount of risk than alternative investment options and volatility or loss of principal. MMLC’s investments in portfolio companies may be highly speculative and aggressive, and therefore an investment in MMLC Common Stock may not be suitable for someone with lower risk tolerance.

A stockholder’s interest in MMLC will be diluted if MMLC issues additional shares, which could reduce the overall value of an investment in MMLC.

Stockholders do not have preemptive rights to any shares MMLC issues in the future. MMLC may decide, in accordance with the process described below, to issue additional shares at or below the NAV per share. To the extent MMLC issues additional shares, a stockholder’s percentage ownership interest in MMLC may be diluted. In addition, if such shares are issued below NAV, existing stockholders may also experience dilution in the book value and fair value of their shares.

MMLC is generally not able to issue and sell MMLC Common Stock at a price per share below NAV per share. MMLC may, however, sell MMLC Common Stock, or warrants, options or rights to acquire MMLC Common Stock, at a price below the then-current NAV per share of MMLC Common Stock (i) with the consent of a majority of its common stockholders (and a majority of its common stockholders who are not affiliates of MMLC) and (ii) if, among other things, a majority of the MMLC Independent Directors and a majority of its directors who have no financial interest in the transaction determine that a sale is in the best interests of MMLC and its stockholders.

MMLC may in the future determine to issue preferred stock, which could adversely affect the value of MMLC Common Stock.

The issuance of shares of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock could adversely affect the value of MMLC Common

 

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Stock by making an investment in the common stock less attractive. In addition, the dividends on any preferred stock MMLC issues must be cumulative. Payment of dividends and repayment of the liquidation preference of preferred stock must take preference over any distributions or other payments to MMLC’s common stockholders, and holders of preferred stock are not subject to any of MMLC’s expenses or losses and are not entitled to participate in any income or appreciation in excess of their stated preference (other than convertible preferred stock that converts into common stock). In addition, under the 1940 Act, participating preferred stock and preferred stock each constitute a “senior security” for purposes of MMLC’s 200% asset coverage test.

Certain provisions of MMLC’s certificate of incorporation and bylaws and the DGCL, as well as other aspects of MMLC’s structure, could deter takeover attempts and have an adverse impact on the price of MMLC Common Stock.

MMLC’s certificate of incorporation and bylaws, as well as the DGCL, contain provisions that may have the effect of discouraging a third party from making an acquisition proposal for MMLC. Among other things, MMLC’s certificate of incorporation and bylaws:

 

   

provide that the MMLC Board will be classified in the event of a listing, which may delay the ability of MMLC stockholders to change the membership of a majority of the MMLC Board;

 

   

do not provide for cumulative voting;

 

   

provide that vacancies on the MMLC Board, including newly created directorships, may be filled only by a majority vote of directors then in office;

 

   

provide that MMLC’s directors may be removed only for cause, and only by a supermajority vote of the stockholders entitled to elect such directors upon Board classification at the time of a listing;

 

   

provide that stockholders may take action only at an annual or special meeting of stockholders, and may not act by written consent;

 

   

restrict stockholders’ ability to call special meetings; and

 

   

require a supermajority vote of stockholders to effect certain amendments to MMLC’s certificate of incorporation and bylaws.

MMLC has provisions comparable to those of Section 203 of the DGCL (other than with respect to Group Inc. and its affiliates and certain of its or their direct or indirect transferees and any group as to which such persons are a party). These provisions generally prohibit MMLC from engaging in mergers, business combinations and certain other types of transactions with “interested stockholders” (generally defined as persons or entities that beneficially own 15% or more of MMLC’s voting stock), other than the exempt parties as described above, for a period of three years following the date the person became an interested stockholder unless, prior to such stockholder’s becoming an interested stockholder, the MMLC Board has approved the “business combination” that would otherwise be restricted or the transaction that resulted in the interested stockholder becoming an interested stockholder or the subsequent transaction with the interested stockholder has been approved by the MMLC Board and 662/3% of MMLC’s outstanding voting stock (other than voting stock owned by the interested stockholder). Such provisions may discourage third parties from trying to acquire control of MMLC and increase the difficulty of consummating such an offer.

These anti-takeover provisions may inhibit a change of control in circumstances that could give the holders of MMLC Common Stock the opportunity to realize a premium over the value of MMLC Common Stock. In addition, certain aspects of MMLC’s structure may have the effect of discouraging a third party from making an acquisition proposal for MMLC.

 

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MMLC may not be able to pay you distributions on MMLC Common Stock, MMLC’s distributions to you may not grow over time and a portion of MMLC’s distributions to you may be a return of capital for U.S. federal income tax purposes.

All distributions will be paid at the discretion of the MMLC Board and will depend on such factors as the Board determines are relevant from time to time, including MMLC’s earnings, financial condition and compliance with any debt covenants MMLC may be subject to. Accordingly, MMLC may not pay distributions to stockholders.

The distributions MMLC pays to stockholders in a year may exceed its net ordinary income and capital gains for that year and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes that would reduce a holder’s adjusted tax basis in its common stock and correspondingly increase such holder’s gain, or reduce such holder’s loss, on disposition of such common stock. Distributions in excess of a holder’s adjusted tax basis in its common stock will constitute capital gains to such holder. Stockholders who periodically receive the payment of a distribution from a RIC consisting of a return of capital for U.S. federal income tax purposes may be under the impression that they are receiving a distribution of a RIC’s net ordinary income or capital gains when they are not. Accordingly, stockholders should read carefully any written disclosure accompanying a distribution from MMLC and the information about the specific tax characteristics of MMLC’s distributions provided to stockholders after the end of each calendar year, and should not assume that the source of any distribution is MMLC’s net ordinary income or capital gains.

The tax treatment of a non-U.S. stockholder in its jurisdiction of tax residence will depend entirely on the laws of such jurisdiction and may vary considerably from jurisdiction to jurisdiction.

Depending on (i) the laws of such non-U.S. stockholder’s jurisdiction of tax residence, (ii) how MMLC is treated in such jurisdiction and (iii) MMLC’s activities, an investment in MMLC could result in such non-U.S. stockholder recognizing adverse tax consequences in its jurisdiction of tax residence, including with respect to any generally required or additional tax filings and/or additional disclosure required in such filings in relation to the treatment for tax purposes in the relevant jurisdiction of an interest in MMLC and/or of distributions from MMLC and any uncertainties arising in that respect (MMLC’s not being established under the laws of the relevant jurisdiction), the possibility of taxable income significantly in excess of cash distributed to a non-U.S. stockholder, and possibly in excess of MMLC’s actual economic income, the possibilities of losing deductions or the ability to utilize tax basis and of sums invested being returned in the form of taxable income or gains, and the possibility of being subject to tax at unfavorable tax rates. A non-U.S. stockholder may also be subject to restrictions on the use of its share of MMLC’s deductions and losses in its jurisdiction of tax residence. Each prospective investor is urged to consult its own tax advisors with respect to the tax and tax filing consequences, if any, in its jurisdiction of tax residence of an investment in MMLC, as well as any other jurisdiction in which such prospective investor is subject to taxation.

MMLC may have difficulty paying its required distributions if MMLC recognizes taxable income before or without receiving cash representing such income.

For U.S. federal income tax purposes, MMLC will include in its taxable income certain amounts that MMLC has not yet received in cash, such as OID or accruals on a contingent payment debt instrument, which may occur if MMLC receives warrants in connection with the origination of a loan or possibly in other circumstances or contracted PIK interest, which generally represents contractual interest added to the loan balance and due at the end of the loan term. Such OID, which could be significant relative to MMLC’s overall investment assets, and increases in loan balances as a result of PIK interest will be included in MMLC’s taxable income before MMLC receives any corresponding cash payments. MMLC also may be required to include in its taxable income certain other amounts that MMLC will not receive in cash. The credit risk associated with the collectability of deferred payments may be increased as and when a portfolio company increases the amount of interest on which it is deferring cash payment through deferred interest features. MMLC’s investments with a

 

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deferred interest feature may represent a higher credit risk than loans for which interest must be paid in full in cash on a regular basis. For example, even if the accounting conditions for income accrual are met, the borrower could still default when MMLC’s actual collection is scheduled to occur upon maturity of the obligation.

Because in certain cases MMLC may recognize taxable income before or without receiving cash representing such income, MMLC may have difficulty making distributions to its stockholders that will be sufficient to enable MMLC to meet the annual distribution requirement necessary for MMLC to maintain its status as a RIC. Accordingly, MMLC may need to sell some of its assets at times and/or at prices that MMLC would not consider advantageous, MMLC may need to raise additional equity or debt capital, or MMLC may need to forgo new investment opportunities or otherwise take actions that are disadvantageous to its business (or be unable to take actions that are advantageous to its business) to enable MMLC to make distributions to its stockholders that will be sufficient to enable MMLC to meet the annual distribution requirement. If MMLC is unable to obtain cash from other sources to meet the annual distribution requirement, MMLC may fail to qualify for the U.S. federal income tax benefits allowable to RICs and, thus, become subject to a corporate-level U.S. federal income tax (and any applicable U.S. state and local taxes).

MMLC stockholders may receive shares of MMLC Common Stock as distributions, which could result in adverse tax consequences to them.

In order to satisfy the annual distribution requirement applicable to RICs, MMLC will have the ability to declare a large portion of a distribution in shares of MMLC Common Stock instead of in cash. MMLC is not subject to restrictions on the circumstances in which MMLC may declare a portion of a distribution in shares of MMLC Common Stock but would generally anticipate doing so only in unusual situations, such as, for example, if MMLC does not have sufficient cash to meet its RIC distribution requirements under the Code. Generally, were MMLC to declare such a distribution, it would allow stockholders to elect payment in cash and/or shares of MMLC’s stock of equivalent value, with a percentage limitation on the portion of the total distribution available to be received in cash. Under published IRS guidance, the entire distribution will generally be treated as a taxable distribution for U.S. federal income tax purposes and count towards MMLC’s RIC distribution requirements under the Code, if certain conditions are satisfied. Among other things, the aggregate amount of cash available to be distributed to all stockholders is required to be at least 20% of the aggregate declared distribution. If too many stockholders elect to receive cash, the cash available for distribution is required to be allocated among the stockholders electing to receive cash (with the balance of the distribution paid in stock) under a formula provided in the applicable IRS guidance. The number of shares of MMLC’s stock declared would thus depend on the applicable percentage limitation on cash available for distribution, the stockholders’ individual elections to receive cash or stock and the value of the shares of MMLC’s stock. Each stockholder generally would be treated as having received a taxable distribution (including for purposes of the withholding tax rules applicable to a non-U.S. stockholder) on the date the distribution is received in an amount equal to the cash that such stockholder would have received if the entire distribution had been paid in cash, even if the stockholder received all or most of the distribution in shares of MMLC Common Stock. MMLC currently does not intend to pay distributions in shares of its common stock, but there can be no assurance MMLC will not do so in the future.

If MMLC is not treated as a “publicly offered regulated investment company,” as defined in the Code, U.S. stockholders that are individuals, trusts or estates will be taxed as though they received a distribution of some of MMLC’s expenses.

MMLC expects to be treated as a “publicly offered regulated investment company” as a result of shares of MMLC Common Stock being held by at least 500 persons at all times during a taxable year. However, MMLC cannot assure a stockholder that MMLC will be treated as a publicly offered regulated investment company for all years. If MMLC is not treated as a publicly offered regulated investment company for any calendar year, each U.S. stockholder that is an individual, trust or estate will be treated as having received a dividend from MMLC in the amount of such U.S. stockholder’s allocable share of the management and incentive fees paid to GSAM and certain of MMLC’s other expenses for the calendar year, and these fees and expenses will be treated as

 

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miscellaneous itemized deductions of such U.S. stockholder. Miscellaneous itemized deductions of a U.S. stockholder that is an individual, trust or estate are disallowed under the Tax Cuts and Jobs Act for tax years beginning before January 1, 2026, and thereafter generally are (i) deductible by such stockholders only to the extent that the aggregate of such U.S. stockholder’s miscellaneous itemized deductions exceeds 2% of such U.S. stockholder’s adjusted gross income for U.S. federal income tax purposes, (ii) are not deductible for purposes of the alternative minimum tax and (iii) are subject to the overall limitation on itemized deductions under the Code.

Non-U.S. stockholders may be subject to withholding of U.S. federal income tax on dividends MMLC pays.

Distributions of MMLC’s “investment company taxable income” to a non-U.S. stockholder that are not effectively connected with the non-U.S. stockholder’s conduct of a trade or business within the United States will generally be subject to withholding of U.S. federal income tax at a 30% rate (or lower rate provided by an applicable income tax treaty) to the extent of MMLC’s current or accumulated earnings and profits.

Certain properly reported dividends are generally exempt from withholding of U.S. federal income tax when they are paid in respect of MMLC’s (i) “qualified net interest income” (generally, MMLC’s U.S.-source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in which MMLC or the non-U.S. stockholder are at least a 10% shareholder, reduced by expenses that are allocable to such income) or (ii) “qualified short-term capital gains” (generally, the excess of MMLC’s net short-term capital gain over its net long-term capital loss for such taxable year), and certain other requirements are satisfied.

NO ASSURANCE CAN BE GIVEN AS TO WHETHER ANY OF MMLC’S DISTRIBUTIONS WILL BE ELIGIBLE FOR THIS EXEMPTION FROM WITHHOLDING OF U.S. FEDERAL INCOME TAX. IN PARTICULAR, THIS EXEMPTION WILL NOT APPLY TO MMLC’S DISTRIBUTIONS PAID IN RESPECT OF MMLC’S NON-U.S. SOURCE INTEREST INCOME OR MMLC’S DIVIDEND INCOME (OR ANY OTHER TYPE OF INCOME OTHER THAN GENERALLY MMLC’S NON-CONTINGENT U.S.-SOURCE INTEREST INCOME RECEIVED FROM UNRELATED OBLIGORS AND MMLC’S QUALIFIED SHORT-TERM CAPITAL GAINS). IN THE CASE OF MMLC COMMON STOCK HELD THROUGH AN INTERMEDIARY, THE INTERMEDIARY MAY WITHHOLD U.S. FEDERAL INCOME TAX EVEN IF MMLC REPORTS THE PAYMENT AS QUALIFIED

NET INTEREST INCOME OR QUALIFIED SHORT-TERM CAPITAL GAIN. BECAUSE MMLC COMMON STOCK WILL BE SUBJECT TO SIGNIFICANT TRANSFER RESTRICTIONS, AND AN INVESTMENT IN MMLC COMMON STOCK WILL GENERALLY BE ILLIQUID, NON-U.S. STOCKHOLDERS WHOSE DISTRIBUTIONS ON MMLC COMMON STOCK ARE SUBJECT TO WITHHOLDING OF U.S. FEDERAL INCOME TAX MAY NOT BE ABLE TO TRANSFER THEIR SHARES OF MMLC COMMON STOCK EASILY OR QUICKLY OR AT ALL.

To the extent OID and PIK interest constitute a portion of MMLC’s income, MMLC will be exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash representing such income.

MMLC’s investments may include OID instruments and PIK, interest arrangements, which represents contractual interest added to a loan balance and due at the end of such loan’s term. To the extent OID or PIK interest constitute a portion of MMLC’s income, MMLC is exposed to typical risks associated with such income being required to be included in taxable and accounting income prior to receipt of cash, including the following:

 

   

The higher interest rates of OID and PIK instruments reflect the payment deferral and increased credit risk associated with these instruments, and OID and PIK instruments generally represent a significantly higher credit risk than coupon loans.

 

   

Even if the accounting conditions for income accrual are met, the borrower could still default when MMLC’s actual collection is supposed to occur at the maturity of the obligation.

 

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OID and PIK instruments may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of any associated collateral. OID and PIK income may also create uncertainty about the source of MMLC’s cash distributions.

 

   

For accounting purposes, any cash distributions to shareholders representing OID and PIK income are not treated as coming from paid-in capital, even if the cash to pay them comes from offering proceeds. As a result, despite the fact that a distribution representing OID and PIK income could be paid out of amounts invested by MMLC stockholders, the 1940 Act does not require that stockholders be given notice of this fact by reporting it as a return of capital.

Investors in offerings after the initial closing could receive fewer shares of common stock than anticipated.

The purchase price per share of MMLC Common Stock in any closing after the initial closing is expected to be determined to ensure that such price is equal to MMLC’s then-current NAV per share. As a result, in the event of an increase in MMLC’s NAV per share, the purchase price for shares purchased in any closing after the initial closing may be higher than the prior monthly NAV per share, and therefore an investor may receive a smaller number of shares than if it had purchased shares in a prior offering. Additionally, in order to more fairly allocate such expenses among all stockholders, investors making capital commitments will be required to bear a pro rata portion of MMLC’s expenses incurred in respect of legal services pertaining to MMLC’s organization and formation and any administration, custody and transfer agent agreements, the performance of any research and consultation services in connection with the initial meeting of Directors, and audit fees relating to the initial registration statement and auditing the initial seed capital financial statements at the time of their first investment in MMLC.

MMLC Common Stock is subject to significant transfer restrictions, and an investment in MMLC Common Stock generally will be illiquid.

Shares of MMLC Common Stock are subject to the restrictions on transfer described herein and as set forth in MMLC’s certificate of incorporation. Purchasers of shares of MMLC Common Stock prior to an IPO and listing (including purchasers in such offering of MMLC Common Stock) will not be permitted to transfer their shares after the consummation of such IPO and listing, including a transfer of solely an economic interest, without MMLC’s prior written consent until a date to be established by MMLC. If a listing does not occur, MMLC’s common stockholders will be prohibited from transferring their shares without MMLC’s prior written consent. An investment in MMLC Common Stock is of further limited liquidity since MMLC Common Stock is not freely transferable under the securities laws. Each investor in MMLC Common Stock must be prepared to bear the economic risk of an investment in MMLC Common Stock for an indefinite period.

MMLC has no obligation to conduct an Exit Event and can offer no assurances as to whether or when MMLC may conduct an Exit Event. Even if MMLC consummates an Exit Event, MMLC can offer no assurances as to the price at which MMLC Common Stock will be valued in an Exit Event, and it could be valued below the price in the offering or the then-current NAV. Additionally, pre-Exit Event stockholders are not expected to be able to sell their common stock in any IPO.

Shares of MMLC Common Stock have not been registered under the Securities Act and, therefore, under the securities laws, cannot be sold unless such shares are subsequently registered under the Securities Act or an exemption from such registration is available. Shares of MMLC Common Stock are illiquid assets for which there is not a secondary market, and there is no guarantee that a secondary market will develop in the future. An investment in MMLC Common Stock is therefore suitable only for certain sophisticated investors that can bear the risks associated with the illiquidity of their common stock.

 

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If MMLC has not consummated an Exit Event by the Wind-down Determination Date, the MMLC Board (to the extent consistent with its fiduciary duties and subject to any necessary stockholder approvals and applicable requirements of the 1940 Act and the Code) will meet to consider MMLC’s potential wind down and/or liquidation and dissolution.

If MMLC has not consummated an Exit Event by the Wind-down Determination Date, the MMLC Board to the extent consistent with its fiduciary duties and subject to any necessary stockholder approvals and applicable requirements of the 1940 Act and the Code will meet to consider MMLC’s potential wind down and/or liquidation and dissolution. To the extent the MMLC Board determines to pursue a liquidation or dissolution, no assurances can be provided as to what price they will be able to obtain from selling or liquidating MMLC’s investments and MMLC could end up being liquidated below MMLC’s then-NAV per share or at a price per share below what stockholders paid.

In the event of any liquidation, dissolution or winding up of MMLC’s affairs, MMLC’s common stockholders would receive any remaining net assets only after payment or provision or payment of MMLC’s debts and other liabilities and subject to the prior rights of any outstanding preferred stock. In addition, MMLC expects that it would incur certain costs associated with a liquidation or dissolution. Accordingly, to the extent the MMLC Board determines to proceed with MMLC’s liquidation or dissolution, it could result in a loss for MMLC’s common stockholders.

Stockholders will have limited opportunities to sell MMLC Common Stock and, to the extent stockholders are able to sell MMLC Common Stock, stockholders may not be able to recover the amount of their investment in MMLC Common Stock.

Beginning with the end of the Investment Period, until an Exit Event, MMLC expects that the MMLC Board will consider repurchase offers to allow stockholders to tender their shares of common stock on a quarterly basis at a price per share MMLC expects to reflect a recent NAV per share. Any such share repurchase offer will be at the discretion of the MMLC Board and subject to applicable law and that such repurchases do not give rise to adverse tax, the U.S. Employee Retirement Income Security Act of 1974, as amended (“ERISA”) or other regulatory consequences to MMLC or MMLC stockholders. Additionally, if MMLC determines to make one or more repurchase offers, such offers are expected to include numerous restrictions that limit stockholders’ ability to sell their shares of common stock pursuant to such offers. MMLC expects to limit the number of shares of common stock repurchased pursuant to any share repurchase offer to 5% of MMLC’s outstanding shares of common stock (with the exact amount to be set by the MMLC Board).

Although MMLC expects that the MMLC Board will consider repurchase offers on a quarterly basis beginning with the end of the Investment Period, the MMLC Board has complete and absolute discretion to determine whether MMLC will engage in any share repurchases and, if so, the terms of such repurchases. Therefore, MMLC may ultimately not engage in any share repurchases or may cease share repurchases at any time, and stockholders may not be able to sell their shares of common stock at all. Stockholders should not assume or rely upon any expectation that MMLC will offer to repurchase any of MMLC Common Stock.

The repurchase price per share of future repurchase offers, if any, may be lower than the price per share that stockholders paid for their shares of MMLC Common Stock. In addition, in the event that a stockholder chooses to participate in a quarterly repurchase offer, the stockholder may be required to provide MMLC with notice of intent to participate prior to knowing what the NAV per share will be on the repurchase date. A stockholder seeking to sell shares of MMLC Common Stock to MMLC as part of MMLC’s quarterly share repurchase offer may be required to do so without knowledge of what the repurchase price per share of MMLC’s common stock will be on the repurchase date.

 

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Beneficial owners of MMLC’s equity securities may be subject to certain regulatory requirements based on their ownership percentages.

A beneficial owner, either directly or indirectly, of more than 25% of MMLC’s voting securities is presumed to control MMLC under the 1940 Act. Certain events beyond an investor’s control may result in an increase in the percentage of such investor’s beneficial ownership of MMLC’s shares, including the repurchase by MMLC of shares from other stockholders. Control of MMLC would also arise under the 1940 Act if a person has the power to exercise a controlling influence over MMLC’s management or policies, unless that power is solely the result of an official position with MMLC. In the event a stockholder is or becomes a person that controls MMLC, it and certain of its affiliated persons will be subject to, among other things, prohibitions or restrictions on engaging in certain transactions with MMLC and certain of MMLC’s affiliated persons. A beneficial owner of a large number of MMLC’s equity securities may also become subject to public reporting obligations if and when MMLC becomes a public reporting company under the Exchange Act.

 

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COMPARATIVE FEES AND EXPENSES

Comparative Fees and Expenses Relating to the Merger

The following tables are intended to assist you in understanding the costs and expenses that an investor in the common stock of GSBD or MMLC bears directly or indirectly and, based on the assumptions set forth below, the pro forma costs and expenses estimated to be incurred by the combined company in the first year following the Merger. GSBD and MMLC caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this document contains a reference to fees or expenses paid or to be paid by “you,” “GSBD” or “MMLC,” stockholders will indirectly bear such fees or expenses as investors in GSBD or MMLC, as applicable.

 

     Actual        
Stockholder transaction expenses    GSBD     MMLC     Pro Forma  

Sales load (as a percentage of offering price)

     None (1)      None (1)      None (1) 

Offering expenses (as a percentage of offering price)

     None (1)      None (1)      None (1) 

Dividend reinvestment plan expenses

     None (2)      None       None (1) 
  

 

 

   

 

 

   

 

 

 

Total stockholder transaction expenses (as a percentage of offering price)

     None       None       None  
  

 

 

   

 

 

   

 

 

 

 

     Actual        
Estimated annual expenses (as a percentage of net assets attributable to
common stock):(3)
   GSBD     MMLC     Pro Forma  

Base management fees(4)

     2.31     1.51     2.19

Incentive fees(5)

     0.00     0.00     0.00

Interest payments on borrowed funds(6)

     4.76     3.00     4.05

Other expenses(7)

     2.03     1.05     1.19
  

 

 

   

 

 

   

 

 

 

Total annual expenses(9)

     9.10     5.56     7.43
  

 

 

   

 

 

   

 

 

 

 

(1)

Purchases of shares of GSBD Common Stock on the secondary market are not subject to sales charges, but may be subject to brokerage commissions or other charges. The table does not include any sales load (underwriting discount or commission) that stockholders may have paid in connection with their purchase of shares of GSBD Common Stock. MMLC did not impose a sales charge to purchases of shares of MMLC Common Stock in its private placement.

(2)

The estimated expenses associated with GSBD’s dividend reinvestment plan are included in “Other expenses.”

(3)

“Net assets attributable to common stock” equals average net assets as of March 31, 2020. For the pro forma columns, the net assets of the combined company on a pro forma basis as of March 31, 2020 were used. See “Unaudited Selected Pro Forma Consolidated Financial Statements” for more information.

(4)

GSBD’s management fee is calculated at an annual rate of 1.00% (0.25% per quarter) thereafter, in each case, of the average value of GSBD’s gross assets (excluding cash or cash equivalents but including assets purchased with borrowed amounts) at the end of each of the two most recently completed calendar quarters. The management fee for any partial quarter will be appropriately prorated based on the actual number of days elapsed relative to the total number of days in such calendar quarter. See “Goldman Sachs BDC, Inc. Management Agreements—GSBD Investment Management Agreement—Management Fee.” The GSBD management fee referenced in the table above is annualized and based on actual amounts incurred by GSBD during the three months ended March 31, 2020.

MMLC’s management fee is calculated at an annual rate equal to 1.50% of MMLC’s average NAV (including un-invested cash and cash equivalents) at the end of the then-current quarter and the prior calendar quarter (and, in the case of MMLC’s first quarter, the NAV as of such quarter-end). The management fee for any partial quarter will be appropriately prorated. Following the occurrence (if any) of a listing, average gross assets (excluding cash or cash equivalents but including assets purchased with borrowed amounts) at the end of the then-current quarter and the prior calendar quarter (and, in the case of

 

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MMLC’s first quarter-end following such event, MMLC’s gross assets as of such quarter-end) will be used instead of average NAV to calculate the management fee. See “Goldman Sachs Middle Market Lending Corp. Management Agreements — MMLC Investment Management Agreement — Management Fee.” The MMLC management fee referenced in the table above is annualized and based on actual amounts incurred by MMLC during the three months ended March 31, 2020.

The pro forma base management fee has been calculated in accordance with the terms of the GSBD Investment Management Agreement. The pro forma base management fee referenced in the table above is annualized and based on pro forma condensed consolidated statement of asset and liabilities for the combined company as of March 31, 2020.

 

(5)

The incentive fee referenced in the table above for each of GSBD and MMLC is based on actual amounts of the income component of the incentive fee incurred during the three months ended March 31, 2020, annualized for a full year, and the amount payable under the GSBD Investment Management Agreement and the MMLC Investment Management Agreement, respectively, for the capital gains component as of March 31, 2020. The pro forma incentive fee referenced in the table above is calculated under the GSBD Investment Management Agreement based on actual results of GSBD and MMLC on a pro forma bases for the three months ended March 31, 2020, annualized for a full year, and calculated under the GSBD Investment Management Agreement.

Incentive Fees under the GSBD Investment Management Agreement: The incentive fee payable to GSAM consists of two components that are determined independent of each other, with the result that one component may be payable even if the other is not.

A portion of the incentive fee is based on GSBD’s income and a portion is based on GSBD’s capital gains, each as described below. GSAM is entitled to receive the incentive fee based on income from GSBD if GSBD Ordinary Income (as defined below) exceeds a quarterly “hurdle rate” of 1.75%. For this purpose, the hurdle is computed by reference to GSBD’s NAV and does not take into account changes in the market price of GSBD Common Stock.

Beginning with the calendar quarter that commenced on January 1, 2015, the incentive fee based on income is determined and paid quarterly in arrears at the end of each calendar quarter by reference to GSBD’s aggregate net investment income, as adjusted as described below, from the GSBD Trailing Twelve Quarters. The incentive fee based on capital gains is determined and paid annually in arrears at the end of each calendar year by reference to an Annual Period (as defined below).

The hurdle amount for the incentive fee based on income is determined on a quarterly basis and is equal to 1.75% multiplied by GSBD’s NAV at the beginning of each applicable calendar quarter comprising the relevant GSBD Trailing Twelve Quarters. The hurdle amount is calculated after making appropriate adjustments for subscriptions (which includes all issuances by GSBD of shares of GSBD Common Stock, including issuances pursuant to GSBD’s dividend reinvestment plan) and distributions that occurred during the relevant GSBD Trailing Twelve Quarters. The incentive fee for any partial period will be appropriately prorated.

Quarterly Incentive Fee Based on Income. For the portion of the incentive fee based on income, GSBD pays GSAM a quarterly incentive fee based on the amount by which (A) aggregate net investment income (“GSBD Ordinary Income”) in respect of the relevant GSBD Trailing Twelve Quarters exceeds (B) the hurdle amount for such GSBD Trailing Twelve Quarters. The amount of the excess of (A) over (B) described in this paragraph for such GSBD Trailing Twelve Quarters is referred to as the “GSBD Excess Income Amount.” For the avoidance of doubt, GSBD Ordinary Income is net of all fees and expenses, including the management fee but excluding any incentive fee. 

The incentive fee based on income for each quarter is determined as follows:

 

   

No incentive fee based on income is payable to GSAM for any calendar quarter for which there is no GSBD Excess Income Amount;

 

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100% of the Ordinary Income, if any, that exceeds the hurdle amount, but is less than or equal to an amount, which GSBD refers to as the “Catch-up Amount,” determined as the sum of 2.1875% multiplied by GSBD’s NAV at the beginning of each applicable calendar quarter comprising the relevant GSBD Trailing Twelve Quarters is included in the calculation of the incentive fee based on income; and

 

   

20% of the GSBD Ordinary Income that exceeds the GSBD Catch-up Amount is included in the calculation of the incentive fee based on income.

The amount of the incentive fee based on income that is paid to GSAM for a particular quarter is equal to the excess of the incentive fee so calculated minus the aggregate incentive fees based on income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant GSBD Trailing Twelve Quarters but not in excess of the GSBD Incentive Fee Cap (as described below).

The incentive fee based on income that is paid to GSAM for a particular quarter is subject to a cap (the “GSBD Incentive Fee Cap”). The GSBD Incentive Fee Cap for any quarter is an amount equal to (a) 20% of the GSBD Cumulative Net Return (as defined below) during the relevant GSBD Trailing Twelve Quarters minus (b) the aggregate incentive fees based on income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant GSBD Trailing Twelve Quarters.

GSBD Cumulative Net Return” means (x) the GSBD Ordinary Income in respect of the relevant GSBD Trailing Twelve Quarters minus (y) any Net Capital Loss (as defined below), if any, in respect of the relevant GSBD Trailing Twelve Quarters. If, in any quarter, the GSBD Incentive Fee Cap is zero or a negative value, GSBD will pay no incentive fee based on income to GSAM for such quarter. If, in any quarter, the GSBD Incentive Fee Cap for such quarter is a positive value but is less than the incentive fee based on income that is payable to GSAM for such quarter (before giving effect to the GSBD Incentive Fee Cap) calculated as described above, GSBD will pay an incentive fee based on income to GSAM equal to the GSBD Incentive Fee Cap for such quarter. If, in any quarter, the GSBD Incentive Fee Cap for such quarter is equal to or greater than the incentive fee based on income that is payable to GSAM for such quarter (before giving effect to the GSBD Incentive Fee Cap) calculated as described above, GSBD will pay an incentive fee based on income to GSAM equal to the incentive fee calculated as described above for such quarter without regard to the GSBD Incentive Fee Cap.

Net Capital Loss” in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, in such period and (ii) aggregate capital gains, whether realized or unrealized, in such period.

Incentive Fees under the MMLC Investment Management Agreement: the incentive fee consists of two components that are determined independently of each other, with the result that one component may be payable even if the other is not. A portion of the incentive fee will be based on MMLC’s income and a portion will be based on MMLC’s capital gains, each as described below.

Quarterly Incentive Fee Based on Income

GSAM is entitled to receive the incentive fee based on income from MMLC if MMLC Ordinary Income (as defined below) exceeds a quarterly “hurdle rate” (as defined below) of 1.75%. For this purpose, the hurdle is computed by reference to MMLC’s NAV and does not take into account changes in the market price of MMLC’s common stock (if any). The incentive fee based on income will be determined and paid quarterly in arrears at the end of each calendar quarter by reference to MMLC’s aggregate net investment income, as adjusted as described below, from the MMLC Trailing Twelve Quarters. However, following the occurrence (if any) of a listing, the MMLC Trailing Twelve Quarters will be “reset” so as to include, as of the end of any quarter, the calendar quarter then ending and the eleven preceding calendar quarters (or if shorter, the number of quarters that have occurred since the listing, rather than the number of quarters that have occurred since the Initial Drawdown Date).

 

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The “hurdle amount” for the incentive fee based on income is determined on a quarterly basis, and is equal to 1.75% multiplied by MMLC’s NAV at the beginning of each applicable calendar quarter comprising the relevant MMLC Trailing Twelve Quarters. The hurdle amount is calculated after making appropriate adjustments for subscriptions (which will include all issuances by MMLC of shares of MMLC’s common stock) and distributions that occurred during the relevant MMLC Trailing Twelve Quarters. The incentive fee for any partial period will be appropriately prorated. For the portion of the incentive fee based on income, MMLC pays GSAM a quarterly Incentive Fee based on the amount by which (A) MMLC Ordinary Income in respect of the relevant MMLC Trailing Twelve Quarters exceeds (B) the hurdle amount for such MMLC Trailing Twelve Quarters. The amount of the excess of (A) over (B) described in this paragraph for such MMLC Trailing Twelve Quarters is referred to as the “MMLC Excess Income Amount.”

The incentive fee based on income for each quarter is determined as follows:

 

   

No incentive fee based on income is payable to GSAM for any calendar quarter for which there is no MMLC Excess Income Amount;

 

   

100% of the Ordinary Income, if any, that exceeds the hurdle amount, but is less than or equal to an amount, which MMLC refers to as the “MMLC Catch-up Amount,” determined as the sum of 2.0588% (or 2.1875% in the event of a listing) multiplied by MMLC’s NAV at the beginning of each applicable calendar quarter included in the relevant MMLC Trailing Twelve Quarters is included in the calculation of the incentive fee based on income; and

 

   

15% (which will be increased to 20% in the event of a listing, from the date of such listing) of MMLC Ordinary Income that exceeds the MMLC Catch-up Amount is included in the calculation of the incentive fee based on income.

The amount of the incentive fee based on income that will be paid to GSAM for a particular quarter will equal the excess of the incentive fee so calculated minus the aggregate Incentive Fees based on income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant MMLC Trailing Twelve Quarters but will not exceed the MMLC Incentive Fee Cap (as described below, and will be subject to the limitations set forth in Section 205(b)(3) of the Advisers Act).

The incentive fee based on income that is paid to GSAM for a particular quarter is subject to an incentive fee cap (the “MMLC Incentive Fee Cap”). The MMLC Incentive Fee Cap for any quarter is an amount equal to (a) 15% (which will be increased to 20% in the event of a listing, from the date of such listing) of the MMLC Cumulative Net Return (as defined below) during the relevant MMLC Trailing Twelve Quarters minus (b) the aggregate incentive fees based on income that were paid in respect of the first eleven calendar quarters (or the portion thereof) included in the relevant MMLC Trailing Twelve Quarters.

MMLC Ordinary Income” means interest income, dividend income and any other income (including any accrued income that MMLC has not yet received in cash and any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that MMLC receives from portfolio companies) accrued during the calendar quarter minus MMLC’s operating expenses accrued during the calendar quarter (including the management fee, administrative expenses and any interest expense and dividends paid on issued and outstanding preferred stock, but excluding the incentive fee).

MMLC Cumulative Net Return” means (x) the MMLC Ordinary Income in respect of the relevant MMLC Trailing Twelve Quarters minus (y) any Net Capital Loss (as defined below), if any, in respect of the relevant MMLC Trailing Twelve Quarters.

If, in any quarter, the MMLC Incentive Fee Cap is zero or a negative value, MMLC will pay no incentive fee based on income to GSAM for such quarter. If, in any quarter, the MMLC Incentive Fee Cap is a positive value but is less than the Incentive Fee incentive fee based on income to GSAM equal to the MMLC Incentive Fee Cap for such quarter. If, in any quarter, the MMLC Incentive Fee Cap for such quarter is equal to or greater than the incentive fee based on income that is payable to GSAM for such quarter (before giving effect to the MMLC Incentive Fee Cap) calculated as described above, MMLC will pay an

 

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incentive fee based on income to GSAM equal to the incentive fee calculated as described above for such quarter without regard to the MMLC Incentive Fee Cap. In certain limited circumstances, an incentive fee based on income will be payable to GSAM although MMLC’s net income for such quarter did not exceed the hurdle rate or the incentive fee will be higher than it would have been if calculated based on MMLC’s performance for the applicable quarter without taking into account the MMLC Trailing Twelve Quarters.

Incentive Fees Following Completion of the Merger: Following completion of the Merger, the combined company will be externally managed by GSAM. The pro forma Merger incentive fees have been calculated in a manner consistent with the terms and conditions of the GSBD Investment Management Agreement.

 

(6)

Interest payments on borrowed funds for GSBD is based on the annualized cost of funds on its outstanding indebtedness for the three months ended March 31, 2020, which consisted of $443.6 million of average indebtedness outstanding under the GSBD Credit Facility, $155.0 million aggregate principal amount of the Convertible Notes and $360.0 million aggregate principal amount of the 2025 Notes. For the three ended March 31, 2020, the annualized cost of funds for GSBD’s total debt outstanding was 3.80%. GSBD may borrow additional funds from time to time to make investments to the extent GSBD determines that the economic situation is conducive to doing so. GSBD may also issue additional debt securities or preferred stock, subject to its compliance with applicable requirements under the 1940 Act. GSBD does not currently anticipate issuing preferred stock in the next 12 months.

Interest payments on borrowed funds for MMLC represents MMLC’s annualized cost of funds on its outstanding indebtedness for the three months ended March 31, 2020, which consisted of $733.1 million of average indebtedness outstanding under the Existing MMLC Credit Facility. For the three months ended March 31, 2020, the annualized cost of funds for MMLC’s total debt outstanding was 3.82%.

Interest payments on borrowed funds for the Pro Forma column assumes amounts estimated above for each of GSBD and MMLC are based on the estimates for GSBD and MMLC described above for the combined company following the Merger.

 

(7)

Includes overhead expenses for each of GSBD and MMLC, including payments under the GSBD Administration Agreement and the MMLC Administration Agreement based on each of GSBD and MMLC’s allocable portion of overhead and other expenses incurred by the Administrator under the applicable administration agreement and any acquired fund fees and expenses that are not required to be disclosed. “Other expenses” are estimated based on the annualized amounts incurred for the three months ended March 31, 2020 for GSBD, MMLC, and the sum of amounts for GSBD and MMLC for the combined company following the Merger, as applicable.

Example

The following example demonstrates the projected dollar amount of total cumulative expenses over various periods with respect to a hypothetical investment in GSBD, MMLC or the combined company’s common stock following the Merger on a pro forma basis. In calculating the following expense amounts, each of GSBD and MMLC has assumed that it would have no additional leverage and that its annual operating expenses would remain at the levels set forth in the tables above. Calculations for the pro forma combined company following the

 

116


Merger assume that the leverage and operating expenses of GSBD and MMLC remain at the levels set forth in the tables above. Transaction expenses related to the Merger are not included in the following examples.

 

     1 year      3 years      5 years      10 years  
You would pay the following expenses on a $1,000 investment:                            

GSBD, assuming a 5% annual return (assumes no return from net realized capital gains or net unrealized capital appreciation)

   $ 89      $ 257      $ 411      $ 744  

MMLC, assuming a 5% annual return (assumes no return from net realized capital gains or net unrealized capital appreciation)

   $ 55      $ 165      $ 274      $ 540  

GSBD, assuming a 5% annual return (assumes return entirely from realized capital gains and thus subject to the capital gain incentive fee)

   $ 99      $ 285      $ 456      $ 823  

MMLC, assuming a 5% annual return (assumes return entirely from realized capital gains and thus subject to the capital gain incentive fee)

   $ 63      $ 188      $ 310      $ 611  

 

Pro forma combined company following the Merger    1 year      3 years      5 years      10 years  
You would pay the following expenses on a $1,000
investment:
                           

Assuming a 5% annual return (assumes no return from net realized capital gains or net unrealized capital appreciation)

   $ 73      $ 215      $ 350      $ 659  

Assuming a 5% annual return (assumes return entirely from realized capital gains and thus subject to the capital gain incentive fee)

   $ 83      $ 244      $ 396      $ 744  

The foregoing tables are to assist you in understanding the various costs and expenses that an investor in GSBD, MMLC or, following the Merger, the combined company’s common stock will bear directly or indirectly. While the example assumes, as required by the SEC, a 5% annual return, performance of GSBD, MMLC and the combined company will vary and may result in a return greater or less than 5%. Under each of the GSBD Investment Management Agreement and the MMLC Investment Management Agreement, no incentive fee would be payable if GSBD, MMLC or the combined company, as applicable, has a 5% annual return. If sufficient returns are achieved on investments, including through the realization of capital gains, to trigger an incentive fee of a material amount, expenses, and returns to investors, would be higher. The example does account for the current loss carryforward and assumes that all dividends and other distributions are reinvested at NAV. The example also does not account for the Incentive Fee Waiver. Under certain circumstances, reinvestment of dividends and other distributions under the relevant dividend reinvestment plan may occur at a price per share that differs from NAV. See “Goldman Sachs BDC, Inc. Dividend Reinvestment Plan” and “Goldman Sachs Middle Market Lending Corp. Dividend Reinvestment Plan” for additional information regarding GSBD’s and MMLC’s dividend reinvestment plans, respectively.

The example and the expenses in the table above should not be considered a representation of GSBD’s, MMLC’s or, following the Merger, the combined company’s future expenses, and actual expenses may be greater or less than those shown.

 

117


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This joint proxy statement/prospectus contains statements that constitute forward-looking statements, which relate to GSBD, MMLC or, following the Merger, the combined company, regarding future events or the future performance or future financial condition of GSBD, MMLC or, following the Merger, the combined company. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about GSBD, MMLC or, following the Merger, the combined company, their industry and their respective beliefs and assumptions. The forward-looking statements contained in this joint proxy statement/prospectus involve risks and uncertainties. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including:

 

   

the ability of the parties to consummate the Merger described in this joint proxy statement/prospectus on the expected timeline, or at all;

 

   

the impact of the COVID-19 pandemic on GSBD’s and MMLC’s businesses and portfolio companies, including GSBD’s, MMLC’s and their portfolio companies’ ability to access capital and liquidity;

 

   

the failure of the GSBD stockholders to approve the GSBD Merger Proposal, the GSBD Charter Amendment Proposal or the Merger Stock Issuance Proposal;

 

   

the failure of MMLC stockholders to approve the MMLC Merger Proposal or the MMLC Charter Amendment Proposal;

 

   

the ability to realize the anticipated benefits of the proposed Merger;

 

   

the effects of disruption on the business of GSBD and MMLC from the proposed Merger;

 

   

the effect that the announcement or consummation of the Merger may have on the trading price of GSBD Common Stock;

 

   

the combined company’s plans, expectations, objectives and intentions, as a result of the Merger;

 

   

any decision by MMLC to pursue continued operations;

 

   

any potential termination of the Merger Agreement or action of GSBD or MMLC stockholders with respect to any proposed transaction;

 

   

the pursuit by MMLC of a liquidation or an alternative transaction upon the termination of the Merger Agreement;

 

   

changes in GSBD’s and/or MMLC’s NAV in the future;

 

   

GSBD’s and MMLC’s future operating results;

 

   

GSBD’s and MMLC’s business prospects and the prospects of their portfolio companies;

 

   

the effect of investments that GSBD and MMLC expect to make and the competition for those investments;

 

   

GSBD’s and MMLC’s contractual arrangements and relationships with third parties;

 

   

actual and potential conflicts of interest with other businesses of Goldman Sachs;

 

   

the dependence of GSBD’s and MMLC’s future success on the general economy and its effect on the industries in which they invest;

 

   

the ability of GSBD’s and MMLC’s portfolio companies to achieve their objectives;

 

   

the use of borrowed money to finance a portion of GSBD’s and MMLC’s investments;

 

   

the adequacy of financing sources and working capital;

 

   

the timing of cash flows, if any, from the operations of GSBD’s and MMLC’s portfolio companies;

 

   

general economic and political trends and other external factors;

 

118


   

changes in interest rates, including the decommissioning of LIBOR;

 

   

the ability of GSAM to locate suitable investments for GSBD and MMLC and to monitor and administer their respective investments;

 

   

the ability of GSAM or its affiliates to attract and retain highly talented professionals;

 

   

GSBD’s and MMLC’s ability to qualify and maintain their respective qualifications as a RIC and as a BDC;

 

   

general price and volume fluctuations in the stock markets;

 

   

the impact on GSBD’s and MMLC’s business of the Dodd-Frank Act and the rules and regulations issued thereunder and any actions toward repeal thereof; and

 

   

the effect of changes to tax legislation and GSBD’s and MMLC’s respective 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 joint proxy statement/prospectus involve risks and uncertainties. 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” and elsewhere in this joint proxy statement/prospectus.

The forward-looking statements included in this joint proxy statement/prospectus are based on information available on the date of this joint proxy statement/prospectus. Actual results could differ materially from those anticipated in any forward-looking statements and future results could differ materially from historical performance. You are advised to consult any additional disclosures that GSBD or MMLC may make directly to you or through reports that each has filed or in the future may 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 joint proxy statement/prospectus contains statistics and other data that have been obtained from or compiled from information made available by third party service providers. GSBD and MMLC have not independently verified such statistics or data.

You should understand that, under Section 27A(b)(2)(B) of the Securities Act and Section 21E(b)(2)(B) of the Exchange Act, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995 do not apply to statements made in connection with any offering of securities pursuant to this joint proxy statement/prospectus, any prospectus supplement or in periodic reports GSBD files under the Exchange Act.

 

119


SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF GOLDMAN SACHS BDC, INC.

The following selected consolidated historical financial data of GSBD as of and for the three months ended March 31, 2020 and 2019 is derived from the unaudited financial statements of GSBD, and the selected consolidated historical financial data of GSBD as of and for the years ended December 31, 2019, 2018, 2017, 2016 and 2015, is derived from the audited consolidated financial statements of GSBD. The financial data should be read in conjunction with GSBD’s consolidated financial statements and related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Goldman Sachs BDC, Inc.” included elsewhere in this joint proxy statement/prospectus.

 

    For the Three
Months Ended
March 31,
2020
    For the Three
Months Ended
March 31,
2019
    For the Year
Ended
December 31,
2019
    For the Year
Ended
December 31,
2018
    For the Year
Ended
December 31,
2017
    For the Year
Ended
December 31,
2016
    For the Year
Ended
December 31,
2015
 

Consolidated statements of operations data (in thousands):

             

Total investment income

  $ 31,972     $ 36,537     $ 147,261     $ 146,731     $ 136,781     $ 125,108     $ 118,436  

Net expenses

    13,366       13,813       65,723       62,313       55,236       47,844       43,338  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income before income taxes

    18,606       22,724       81,538       84,418       81,545       77,264       75,098  

Income tax expenses, including excise tax

    427       439       1,819       1,582       1,552       1,037       518  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income after income taxes

    18,179       22,285       79,719       82,836       79,993       76,227       74,580  

Net realized and unrealized gain (loss)

    (82,058     (20,274     (43,744     (28,436     (30,445     (35,575     (27,952

(Provision) benefit for taxes on realized gain/loss on investments

    —         —         121       (446     —         —         —    

(Provision) benefit for taxes on unrealized appreciation/depreciation on investments

    99       204       52       (276     —         —         —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations after tax

  $ (63,780   $ 2,215     $ 36,148     $ 53,678     $ 49,548     $ 40,652     $ 46,628  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Per share data

             

Net investment income (basic and diluted)

  $ 0.45     $ 0.55     $ 1.98     $ 2.06     $ 2.07     $ 2.10     $ 2.14  

Earnings (loss) (basic and diluted)

  $ (1.58   $ 0.06     $ 0.90     $ 1.34     $ 1.28     $ 1.12     $ 1.34  

Distributions declared

  $ 0.45     $ 0.45     $ 1.80     $ 1.80     $ 1.80     $ 1.80     $ 1.80  

 

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    As of
March 31,
2020
    As of
March 31,
2019
    As of
December 31,
2019
    As of
December 31,
2018
    As of
December 31,
2017
    As of
December 31,
2016
    As of
December 31,
2015
 

Balance Sheet Data at period end (in thousands):

             

Total assets

  $ 1,533,474     $ 1,428,260     $ 1,475,275     $ 1,396,976     $ 1,298,592     $ 1,190,533     $ 1,132,759  

Total investments, at fair value

    1,422,747       1,405,097       1,454,252       1,375,444       1,269,852       1,167,291       1,091,181  

Total liabilities

    938,615       733,514       799,150       687,084       572,762       525,396       444,109  

Total debt, net

    908,071       704,395       769,727       659,101       542,526       498,152       419,000  

Total net assets

    594,859       694,746     $ 676,125     $ 709,892     $ 725,830     $ 665,137     $ 688,650  

Per share data

             

Net Asset Value

  $ 14.72     $ 17.25     $ 16.75     $ 17.65     $ 18.09     $ 18.31     $ 18.97  

 

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SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF GOLDMAN SACHS MIDDLE MARKET LENDING CORP.

The following selected consolidated historical financial data of MMLC as of and for the three months ended March 31, 2020 and 2019 is derived from the unaudited financial statements of MMLC, and the selected consolidated historical financial data of MMLC as of and for the years ended December 31, 2019 and 2018 and for the period from January 11, 2017 (commencement of operations) to December 31, 2017, is derived from the audited consolidated financial statements of MMLC. The financial data should be read in conjunction with MMLC’s consolidated financial statements and related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of Goldman Sachs Middle Market Lending Corp.” included elsewhere in this joint proxy statement/prospectus.

 

    For the Three
Months Ended
March 31,
2020
    For the Three
Months Ended
March 31,
2019
    For the Year
Ended
December 31,
2019
    For the Year
Ended
December 31,
2018
    For the period
from January 11,
2017
(commencement of
operations) to
December 31,
2017
 

Consolidated statements of operations data (in thousands):

         

Total investment income

  $ 39,714     $ 30,507     $ 145,743     $ 84,234     $ 19,845  

Net expenses

    12,886       14,709       62,898       28,315       10,331  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net investment income

    26,828       15,798       82,845       55,919       9,514  

Net realized and unrealized gain (loss)

    (90,683     (8,042     (21,019 )     (4,281     515  

(Provision) benefit for taxes on realized gain/loss on investments

    —         —         100       (372     —    

(Provision) benefit for taxes on unrealized appreciation/depreciation on investments

    107       (103     (794 )     (387     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations after tax

    (63,748     7,653     $ 61,132     $ 50,879     $ 10,029  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Per share data

         

Net investment income (basic and diluted)

  $ 0.52     $ 0.36     $ 1.75     $ 1.87     $ 0.89  

Earnings (loss) (basic and diluted)

  $ (1.23   $ 0.18     $ 1.29     $ 1.70     $ 0.93  

Distributions declared

  $ 0.43     $ 0.43     $ 1.72     $ 1.72     $ 1.29  

 

     As of
March 31,
2020
     As of
March 31,
2019
     As of
December 31,
2019
     As of
December 31,
2018
     For the period
from January 11,
2017
(commencement of
operations) to
December 31,
2017
 

Balance Sheet Data at period end (in thousands):

              

Total assets

   $ 1,790,297      $ 1,267,091      $ 1,706,375      $ 1,131,948      $ 532,129  

Total investments, at fair value

     1,661,918        1,245,593        1,683,160        1,107,185        522,046  

Total liabilities

     870,603        375,166        761,586        311,794        74,001  

Total debt

     839,884        344,188        729,986        286,189        62,000  

Total net assets

     919,694        891,925        944,789        820,154        458,128  

Per share data

              

Net Asset Value

   $ 17.08      $ 18.86      $ 18.69      $ 19.07      $ 18.89  

 

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UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The following unaudited pro forma condensed consolidated financial information and explanatory notes illustrate the effect of the Merger on GSBD’s financial position and results of operations based upon GSBD’s and MMLC’s respective historical financial positions and results of operations under the asset acquisition method of accounting with GSBD treated as the acquirer. The unaudited pro forma condensed consolidated financial information has been derived from and should be read in conjunction with the historical consolidated financial statements and the related notes of both GSBD and MMLC, which are included elsewhere in this joint proxy statement/prospectus. See “Index to Financial Statements.”

The unaudited pro forma condensed consolidated financial information includes the unaudited pro forma condensed consolidated Statement of Assets and Liabilities as of March 31, 2020 assuming the Merger had been completed on March 31, 2020. The unaudited pro forma condensed consolidated Statement of Operations for the three months ended March 31, 2020, and for the year ended December 31, 2019 were prepared assuming the Merger had been completed on January 1, 2019. Additionally, the unaudited pro forma condensed consolidated financial information for the year ended December 31, 2019 includes the following events that occurred in February 2020: (i) GSBD’s issuance of $360.0 million of 2025 Notes, (ii) the amendment of the GSBD Credit Facility, and (iii) MMLC’s capital drawdowns of $61.8 million. Such unaudited pro forma condensed consolidated financial statements are based on the historical financial statements of GSBD and MMLC from publicly available information and certain assumptions and adjustments as discussed in Note 3 “Preliminary Pro Forma Adjustments” of the accompanying notes to the unaudited pro forma condensed consolidated financial statements in this section.

The Merger Agreement provides that each MMLC stockholder will be entitled to receive, for each share of MMLC Common Stock, that number of shares of GSBD Common Stock with a NAV equal to the NAV per share of MMLC Common Stock, in each case calculated as of the same date within 48 hours (excluding Sundays and holidays) prior to the closing of the Merger.

Generally, under asset acquisition accounting, acquiring assets in groups not only requires ascertaining the cost of the asset (or net assets), but also allocating that cost to the individual assets (or individual assets and liabilities) that make up the group. The cost of the group of assets acquired in an asset acquisition is allocated to the individual assets acquired or liabilities assumed based on their relative fair values of net identifiable assets acquired other than certain “non-qualifying” assets (for example cash) and does not give rise to goodwill. GSBD will be the accounting survivor of the Merger. GSBD believes that the acquisition of MMLC should be accounted for as an asset acquisition based on the nature of its pre-acquisition operations and other factors outlined in ASC 805-50—Business Combinations—Related Issues, with the fair value of total consideration paid in conjunction with the Merger allocated to the assets acquired and liabilities assumed based on their relative fair values as of the date of the Merger. See the section entitled “Accounting Treatment of the Merger” for additional information.

The unaudited pro forma condensed consolidated financial information is presented for illustrative purposes only and does not necessarily indicate the results of operations or the combined financial position that would have resulted had the Merger been completed at the beginning of the applicable period presented, nor the impact of expense efficiencies, asset dispositions, share repurchases and other factors. In addition, as explained in more detail in the accompanying notes to the unaudited pro forma condensed consolidated financial information, the allocation of the pro forma purchase price reflected in the unaudited pro forma condensed consolidated financial information involves estimates, is subject to adjustment and may vary significantly from the actual purchase price allocation that will be recorded upon completion of the Merger.

See notes to unaudited pro forma condensed consolidated financial statements.

 

123


Goldman Sachs BDC, Inc.

Pro Forma Condensed Consolidated Statement of Assets and Liabilities

As of March 31, 2020

Unaudited

(In thousands, except share and per share data)

 

     Actual      Actual                 Pro Forma  
     Goldman Sachs
BDC, Inc.
     Goldman Sachs
Middle Market
Lending Corp.
     Pro Forma
Adjustments
         Goldman
Sachs BDC,

Inc.
Combined
 

Assets and Liabilities Data:

             

Investments, at fair value .

   $ 1,422,747      $ 1,661,918      $ —          $ 3,084,665  

Cash and cash equivalents, and foreign currencies .

     86,353        108,205        —            194,558  

Deferred financing costs

     8,950        2,679        1,121     (A)      12,750  

Other assets

     15,424        17,495        6,516     (B)      39,435  
  

 

 

    

 

 

    

 

 

      

 

 

 

Total assets

     1,533,474        1,790,297        7,637          3,331,408  
  

 

 

    

 

 

    

 

 

      

 

 

 

Liabilities & Net Assets

             

Debt (net of debt issuance cost of associated with GSBD) .

     908,071        839,884        —       (A)      1,747,955  

Other liabilities .

     30,544        30,719        87,050     (A)(B)(C)      148,313  
  

 

 

    

 

 

    

 

 

      

 

 

 

Total liabilities .

     938,615        870,603        87,050          1,896,268  
  

 

 

    

 

 

    

 

 

      

 

 

 

Total Net Assets

     594,859        919,694        (79,413        1,435,140  
  

 

 

    

 

 

    

 

 

      

 

 

 

Total liabilities and net assets

   $ 1,533,474      $ 1,790,297      $ 7,637        $ 3,331,408  
  

 

 

    

 

 

    

 

 

      

 

 

 

Number of shares of common stock outstanding.

     40,401,637        53,844,947        3,530,828     (D)      97,777,412  
  

 

 

    

 

 

    

 

 

      

 

 

 

Net asset value per share

   $ 14.72      $ 17.08           $ 14.68  
  

 

 

    

 

 

         

 

 

 

See notes to unaudited pro forma condensed consolidated financial statements.

 

124


Goldman Sachs BDC, Inc.

Pro Forma Condensed Consolidated Statement of Operations

For the Three Months Ended March 31, 2020

Unaudited

(In thousands, except share and per share data)

 

     Actual     Actual                  Pro Forma  
     Goldman Sachs
BDC, Inc.
    Goldman Sachs
Middle Market
Lending Corp.
    Pro Forma
Adjustments
           Goldman
Sachs BDC,

Inc.
Combined
 

Performance Data:

           

Interest and dividend income .

   $ 31,720     $ 39,376     $ —          $ 71,096  

Other income .

     252       338       —            590  
  

 

 

   

 

 

   

 

 

      

 

 

 

Total investment income

     31,972       39,714       —            71,686  

Interest and other debt expenses

     8,894       7,446       (691     (A)        15,649  

Management fees

     3,666       3,501       675       (E)        7,842  

Incentive fees .

     —         —         —         (E)         

Other expenses

     1,893       1,939       (705     (B)(F)        3,127