Gladstone Capital (NASDAQ:GLAD) reported third-quarter net investment income of $11 million, or $0.49 per share, for the quarter ended June 30, 2026, as higher interest income was offset by lower one-time prepayment fee income and increased borrowing costs.
CEO and President Bob Marcotte said the business development company funded $82 million of investments during the quarter, including $67 million across four new investments and $15 million of advances to existing portfolio companies. Exits and repayments totaled $40 million, resulting in net originations of $42 million.
Quarterly Results and Portfolio Performance
Total interest income increased 4.7% to $24.3 million, reflecting a $28.4 million increase in average earning assets. Gladstone Capital’s weighted-average yield on its interest-bearing portfolio was unchanged at 11.8% during the period.
Total investment income declined by $1.5 million to $24.5 million, however, as dividend and prepayment fee income fell from a large one-time prepayment received in the preceding quarter. Interest expense rose by $700,000 as borrowings increased, including the issuance of a $60 million note due in December 2029.
Net investment income declined by $800,000 from the prior quarter. CFO Nicole Schaltenbrand said the company’s $11 million in net investment income covered 109% of cash distributions per common share.
The company reported a $13.3 million increase in net assets resulting from operations, or $0.59 per share, aided by $3 million of net portfolio appreciation. Marcotte said unrealized gains outnumbered unrealized declines by a 2-to-1 margin.
Gladstone Capital’s portfolio remained heavily weighted toward senior debt. First-lien debt represented 71% of the portfolio at cost, while total debt investments accounted for 91%. New debt investments made during the quarter were all first-lien loans, with average borrower leverage below three times EBITDA and an average spread of about 7% over SOFR.
Balance Sheet, Leverage and Distributions
As of June 30, total assets stood at $970 million, including $953 million of investments at fair value. Net assets increased $3.1 million from the previous quarter to $485.7 million, while net asset value per share rose to $21.50 from $21.36.
Liabilities increased by $32 million to $439 million. In addition to the new 7% note due December 2029, the company’s liabilities included $149.5 million of 5.78% convertible debt, $50 million of 3.75% notes due May 2027, and $45 million of 6.25% perpetual preferred stock.
Gross leverage rose to 100% of net assets at quarter-end. Marcotte said the company expects to continue using its floating-rate bank facility to support near-term investment activity.
Gladstone Capital declared monthly common-stock distributions of $0.15 per share for August and September, equivalent to an annualized distribution rate of $1.80 per share. Schaltenbrand said that, based on a common share price of about $19.35 cited during the call, the annualized distribution rate represented a yield of approximately 9.3%.
Credit Developments and Near-Term Outlook
Non-accrual debt investments increased to 5% of the portfolio at cost, or $46 million. At fair value, non-accrual debt investments were $26.7 million, representing 3.1% of debt investments.
The additions to non-accrual status were Lone Star Circuits, a Texas-based printed circuit board contractor, and eegee’s, an Arizona quick-service sandwich chain. Marcotte said both are Gladstone-controlled investments that have undergone senior management changes and are pursuing revenue initiatives and expense reductions intended to return them to earning-asset status.
Discussing eegee’s specifically, Marcotte cited a difficult consumer environment in heavily Hispanic communities in southern Arizona, as well as less-successful revenue expansion initiatives. He said the company is retooling its strategy and may require additional investment to reposition the business.
Since quarter-end, Gladstone Capital received an anticipated $12 million prepayment from Imperative, eliminating its exposure to the oil and gas sector. Marcotte also said the company expected another, slightly larger prepayment that would reduce payment-in-kind interest income in coming quarters.
Despite those repayments, management said it does not expect reinvestment activity to reduce the portfolio’s weighted-average yield. Marcotte said committed investments exceed recent repayments and include follow-on opportunities at existing portfolio companies that are continuing to scale.
Investment Environment
Management said lower-middle-market deal flow remains active, with Marcotte estimating that $75 million of quarterly originations is “a relatively easy mark” based on the current pipeline. He said repayments and exits have slowed, with quarterly repayments expected to range from $35 million to $50 million, supporting potential modest net asset growth subject to the company’s leverage position.
Marcotte said Gladstone Capital reviews roughly 100 to 125 opportunities per quarter and typically closes four or five investments. The firm is focused on businesses with revenue visibility, moderate leverage and opportunities for operational growth, while avoiding sectors where heightened competition can drive acquisition multiples higher and weaken lending protections.
He said industrial precision manufacturing suppliers, including aerospace and defense-related businesses, continue to show strong and growing backlogs. However, higher commodity costs and tariff-related pressures have made some domestic production shifts more expensive, tempering reshoring activity in certain sectors.
About Gladstone Capital (NASDAQ:GLAD)
Gladstone Capital Corporation is a publicly traded business development company (BDC) that provides debt and equity financing solutions to U.S. lower middle-market companies. Operating under an external management agreement with Gladstone Management L.P., the firm offers senior secured loans, mezzanine debt and equity investments designed to support growth initiatives, acquisitions and recapitalizations. Through its focus on privately held businesses, Gladstone Capital seeks to construct a diversified portfolio across various industry sectors.
Since its formation in 2003, Gladstone Capital has developed a track record of working closely with management teams and business owners to meet their capital needs.
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