Goldman Sachs BDC Sees Capital Surge Amid Expense Cuts

TL;DR

**Goldman Sachs Private Middle Market Credit II is showing strong capital growth and expense control, making it a solid hold despite lower investment income.**

AI Summary

Goldman Sachs Private Middle Market Credit II LLC reported a net increase in members' capital from operations of $48,735 thousand for the six months ended June 30, 2025, a significant improvement from $15,788 thousand for the same period in 2024. Total investment income decreased to $108,890 thousand for the six months ended June 30, 2025, down from $151,525 thousand in the prior year, primarily due to lower interest income from non-controlled/non-affiliated investments, which fell from $133,663 thousand to $93,174 thousand. Total expenses also saw a notable reduction, dropping to $51,569 thousand from $72,991 thousand, driven by a decrease in interest and other debt expenses from $58,916 thousand to $32,568 thousand. The company's net asset value per unit increased to $80.42 as of June 30, 2025, from $79.27 at December 31, 2024. Investments at fair value decreased from $2,087,081 thousand at December 31, 2024, to $1,784,761 thousand at June 30, 2025, while debt decreased from $1,000,612 thousand to $779,990 thousand. The company reported basic and diluted earnings per unit of $3.52 for the six months ended June 30, 2025, compared to $1.13 in the prior year.

Why It Matters

This 10-Q reveals Goldman Sachs Private Middle Market Credit II LLC's improved profitability, with a substantial increase in net members' capital from operations, which is a positive signal for investors. The reduction in debt and associated interest expenses suggests a more disciplined financial approach, potentially enhancing long-term stability. However, the decline in total investment income indicates challenges in generating top-line growth, possibly due to a more cautious lending environment or reduced portfolio size. In a competitive middle-market credit landscape, efficient expense management and strong capital growth are crucial for attracting and retaining investors, especially against other BDCs vying for similar investment opportunities.

Risk Assessment

Risk Level: medium — The company's total investment income decreased by 28.1% from $151,525 thousand to $108,890 thousand for the six months ended June 30, 2025, indicating potential challenges in revenue generation. While net realized and unrealized losses improved significantly from $(62,833) thousand to $(8,222) thousand, the continued presence of losses, particularly a net realized loss of $(9,212) thousand, suggests ongoing portfolio volatility.

Analyst Insight

Investors should monitor future investment income trends closely to ensure the company can sustain its capital growth. The significant reduction in debt is a positive, but further analysis of portfolio quality and new investment pipeline is warranted to assess long-term revenue stability.

Financial Highlights

debt To Equity

0.70

revenue

$108,890 thousand

operating Margin

N/A

total Assets

$1,987,902 thousand

total Debt

$779,990 thousand

net Income

$48,735 thousand

eps

$3.52

gross Margin

N/A

cash Position

$17,899 thousand

revenue Growth

-28.1%

Revenue Breakdown

Key Numbers

• $48,735 thousand — Net increase in members' capital from operations (Increased from $15,788 thousand in prior year, indicating improved profitability.)
• $108,890 thousand — Total investment income (Decreased from $151,525 thousand in prior year, showing a decline in revenue generation.)
• $51,569 thousand — Total expenses (Decreased from $72,991 thousand in prior year, driven by lower interest expenses.)
• $80.42 — Net asset value per unit (Increased from $79.27 at December 31, 2024, reflecting positive capital growth.)
• $779,990 thousand — Debt (Decreased from $1,000,612 thousand at December 31, 2024, indicating deleveraging.)
• $3.52 — Basic and diluted earnings per unit (Increased from $1.13 in prior year, demonstrating improved earnings performance.)
• $1,784,761 thousand — Total investments, at fair value (Decreased from $2,087,081 thousand at December 31, 2024, reflecting portfolio adjustments.)
• $32,568 thousand — Interest and other debt expenses (Decreased from $58,916 thousand in prior year, contributing to lower overall expenses.)
• $93,174 thousand — Interest income from non-controlled/non-affiliated investments (Decreased from $133,663 thousand in prior year, a primary driver of lower investment income.)
• 13,854,750 — Common units outstanding (Consistent number of units outstanding as of June 30, 2025, and December 31, 2024.)

Key Players & Entities

• Goldman Sachs Private Middle Market Credit II LLC (company) — Registrant
• SEC (regulator) — U.S. Securities and Exchange Commission
• Goldman Sachs Asset Management, L.P. (company) — Investment Adviser
• Thrasio, LLC (company) — Portfolio company in Broadline Retail
• Elemica Parent, Inc. (company) — Portfolio company in Chemicals
• Heartland Home Services, Inc. (company) — Portfolio company in Diversified Consumer Services
• Everest Clinical Research Corporation (company) — Portfolio company in Professional Services
• Rodeo Buyer Company (company) — Portfolio company in Professional Services
• Clearcourse Partnership Acquireco Finance Limited (company) — Portfolio company in IT Services

FAQ

Risk Factors

• Investment Portfolio Volatility [high — financial]: The fair value of total investments decreased from $2,087,081 thousand at December 31, 2024, to $1,784,761 thousand at June 30, 2025. This significant reduction of $302,320 thousand indicates potential market fluctuations or strategic portfolio adjustments impacting asset values.
• Reduced Investment Income [medium — financial]: Total investment income for the six months ended June 30, 2025, fell to $108,890 thousand from $151,525 thousand in the prior year, a decrease of $42,635 thousand. This decline is largely attributed to lower interest income from non-controlled/non-affiliated investments, which dropped from $133,663 thousand to $93,174 thousand.
• Leverage and Debt Management [medium — financial]: The company reduced its debt from $1,000,612 thousand at December 31, 2024, to $779,990 thousand at June 30, 2025, a decrease of $220,622 thousand. While deleveraging is positive, the substantial debt level still exposes the company to interest rate risk and refinancing needs.
• Interest Expense Reduction [low — financial]: Interest and other debt expenses decreased significantly from $58,916 thousand for the six months ended June 30, 2024, to $32,568 thousand for the same period in 2025. This reduction, while improving profitability, may reflect a smaller debt principal or lower interest rates, both of which could have underlying risks.
• Management and Incentive Fees [medium — operational]: While total expenses decreased, incentive fees payable increased from $63,988 thousand to $72,588 thousand. This rise, coupled with management fees, represents a significant outflow of capital that could impact net returns to members.

Industry Context

The middle market credit sector is characterized by providing debt financing to companies that are too large for traditional bank loans but too small for public debt markets. This segment often offers higher yields due to increased risk. Trends include increased demand for flexible financing solutions, the impact of rising interest rates on portfolio companies' ability to service debt, and ongoing competition among credit funds for deal flow.

Regulatory Implications

As a private credit fund, Goldman Sachs Private Middle Market Credit II LLC is subject to various regulations concerning investment management, disclosure, and investor protection. Changes in accounting standards or regulatory oversight could impact reporting requirements and operational costs. The company's reliance on debt financing also subjects it to financial regulations and covenants.

What Investors Should Do

1. Monitor investment income trends, particularly from non-controlled/non-affiliated investments, to assess the sustainability of current earnings.
2. Analyze the drivers behind the reduction in total investments ($2,087,081k to $1,784,761k) to understand portfolio strategy and potential future performance.
3. Evaluate the impact of reduced debt levels and lower interest expenses on the company's leverage profile and future borrowing capacity.
4. Assess the increase in incentive fees payable in relation to the net increase in members' capital to understand the alignment of manager and investor interests.

Key Dates

• 2025-06-30: End of Second Quarter Reporting Period — The company reported a net increase in members' capital of $48,735 thousand and a net asset value per unit of $80.42.
• 2025-06-30: Consolidated Statements of Financial Condition Date — Total investments stood at $1,784,761 thousand, and total debt was $779,990 thousand.
• 2024-12-31: End of Fiscal Year Reporting Period — Total investments were $2,087,081 thousand, and total debt was $1,000,612 thousand.
• 2024-06-30: End of Second Quarter Prior Year Reporting Period — The company reported a net increase in members' capital of $15,788 thousand and earnings per unit of $1.13.

Glossary

Non-controlled/non-affiliated investments

Investments in entities where the company does not have significant influence or control, and is not affiliated. (This category represents the largest portion of the company's investment portfolio and is the primary driver of investment income and its fluctuations.)

Payment-in-kind income

Interest income that is not paid in cash but is instead added to the principal balance of a loan. (This type of income is recognized but not received in cash, impacting the company's liquidity and cash flow.)

Distributable earnings (loss)

The cumulative earnings or losses of the company that are available for distribution to members. (A negative balance indicates that cumulative losses exceed cumulative profits, impacting the net asset value and potential distributions.)

Net asset value per unit

The total value of a company's assets minus its liabilities, divided by the number of outstanding units. (This is a key metric for investors to assess the per-unit value and performance of their investment in the company.)

Incentive fees payable

Fees owed to the investment manager, typically calculated as a percentage of the profits generated by the fund. (This is a significant expense that directly impacts the net returns to investors and can fluctuate based on fund performance.)

Year-Over-Year Comparison

For the six months ended June 30, 2025, Goldman Sachs Private Middle Market Credit II LLC reported a significantly improved net increase in members' capital of $48,735 thousand, up from $15,788 thousand in the prior year. This was achieved despite a notable decrease in total investment income, which fell from $151,525 thousand to $108,890 thousand, primarily due to lower interest income from non-controlled investments. However, total expenses were also substantially reduced, dropping from $72,991 thousand to $51,569 thousand, largely driven by a decrease in interest and other debt expenses. Consequently, earnings per unit more than tripled, rising from $1.13 to $3.52, and net asset value per unit increased to $80.42 from $79.27 at year-end 2024.

Filing Documents

• ck0001772704-20250630.htm (10-Q) — 8400KB
• ck0001772704-ex31_1.htm (EX-31.1) — 26KB
• ck0001772704-ex31_2.htm (EX-31.2) — 26KB
• ck0001772704-ex31_3.htm (EX-31.3) — 26KB
• ck0001772704-ex32_1.htm (EX-32.1) — 9KB
• ck0001772704-ex32_2.htm (EX-32.2) — 8KB
• ck0001772704-ex32_3.htm (EX-32.3) — 8KB
• 0000950170-25-107341.txt ( ) — 28959KB
• ck0001772704-20250630.xsd (EX-101.SCH) — 1569KB
• ck0001772704-20250630_htm.xml (XML) — 8349KB

Financial Statements (Unaudited)

Financial Statements (Unaudited) 4 Consolidated Statements of Financial Condition 4 Consolidated Statements of Operations 5 Consolidated Statements of Changes in Members' Capital 6 Consolidated Statements of Cash Flows 7 Consolidated Schedules of Investments 8 Notes to the Consolidated Financial Statements 24 ITEM 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 42 ITEM 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 54 ITEM 4.

Controls and Procedures

Controls and Procedures 55 PART II. OTHER INFORMATION 56 ITEM 1.

Legal Proceedings

Legal Proceedings 56 ITEM 1A.

Risk Factors

Risk Factors 56 ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 56 ITEM 3. Defaults Upon Senior Securities 56 ITEM 4. Mine Safety Disclosures 56 ITEM 5. Other Information 56 ITEM 6. Exhibits 56

SIGNATURES

SIGNATURES 58 2 Table of Contents CAUTI ONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This report contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by the use of forward-looking terminology such as "may," "will," "should," "expect," "anticipate," "project," "target," "estimate," "intend," "continue" or "believe" or the negatives of, or other variations on, these terms or comparable terminology. You should read statements that contain these words carefully because they discuss our plans, strategies, prospects and expectations concerning our business, operating results, financial condition and other similar matters. We believe that it is important to communicate our future expectations to our investors. Our forward-looking statements include information in this report regarding general domestic and global economic conditions, our future financing plans, our ability to operate as a business development company ("BDC") and the expected performance of, and the yield on, our portfolio companies. There may be events in the future, however, that we are not able to predict accurately or control. The factors listed under "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2024, as well as any cautionary language in this report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. The occurrence of the events described in these risk factors and elsewhere in this report could have a material adverse effect on our business, results of operations and financial position. Any forward-looking statement made by us in this report speaks only as of the date of this report. Factors or events that could cause our actual results to differ from our forward-looking statements may emerge from time to time, and it is not possible for us to predict all of the

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

FINANCIAL STATEMENTS

ITEM 1. FINANCIAL STATEMENTS Goldman Sachs Private Middle Market Credit II LLC Consolidated Statements of Financial Condition (in thousands, except unit and per unit amounts) June 30, 2025 (Unaudited) December 31, 2024 Assets Investments, at fair value Non-controlled/non-affiliated investments (cost of $ 1,742,807 and $ 2,045,971 ) $ 1,708,858 $ 2,006,266 Non-controlled affiliated investments (cost of $ 78,346 and $ 78,439 ) 75,903 80,815 Total investments, at fair value (cost of $ 1,821,153 and $ 2,124,410 ) $ 1,784,761 $ 2,087,081 Investments in affiliated money market fund (cost of $ 169,995 and $ 84,647 ) 169,995 84,647 Cash 17,899 27,340 Interest and dividends receivable 11,049 17,732 Deferred financing costs 3,838 5,353 Other assets 360 564 Total assets $ 1,987,902 $ 2,222,717 Liabilities Debt $ 779,990 $ 1,000,612 Interest and other debt expenses payable 14,181 19,968 Management fees payable 4,168 4,153 Incentive fees payable 72,588 63,988 Distribution payable — 32,132 Accrued expenses and other liabilities 2,719 3,535 Total liabilities $ 873,646 $ 1,124,388 Commitments and contingencies (Note 7) Members' capital Preferred units ( 0 units issued and outstanding) $ — $ — Common units ( 13,854,750 and 13,854,750 units issued and outstanding as of June 30, 2025 and December 31, 2024) 1,313,752 1,313,752 Distributable earnings (loss) ( 199,496 ) ( 215,423 ) Total members' capital $ 1,114,256 $ 1,098,329 Total liabilities and members' capital $ 1,987,902 $ 2,222,717 Net asset value per unit $ 80.42 $ 79.27 The accompanying notes are an integral part of these unaudited consolidated financial statements. 4 Table of Contents Goldman Sachs Private Middle Market Credit II LLC Consolidated Statements of Operations (in thousands, except unit and per unit amounts) (Unau

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