GLAD Quick Update: Convertible Notes Offering
On September 9, 2025, Gladstone Capital ( GLAD 0.00%↑ ) announced a public offering of $130 million of 5.875% convertible notes due 2030 (CUSIP: 376535AG5). In addition, the company granted the underwriter an option to purchase up to an additional $19.5 million. The notes are expected to be delivered on or about September 12, 2025, and will mature on October 1, 2030, unless earlier converted, redeemed, or repurchased. Please see below for additional details, which will be discussed over the coming weeks, and we will add these notes to the BDC Google Sheets.
As mentioned in the weekly updates, GLAD's stock price has been underperforming the other BDCs, likely related to being overpriced. At one point, the stock was over $30.00, driving the lowest dividend yield in the sector at 6.6%.
Since announcing the convertible notes, the stock has declined another 11% and is now trading at more appropriate prices relative to its target prices, as shown earlier. The two most likely reasons for the recent decline in the stock price are the potential for dilution and an 'overhang'. We have seen this before with some of the other BDCs, which have issued convertible notes.
Also, there are multiple "Conversion Rate Adjustments", including issuing additional shares and any additional increases in the amount of distributions:
If any cash dividend or distribution is made to all or substantially all holders of our common stock, other than a regular, monthly cash dividend that does not exceed $0.165 per share (the “initial dividend threshold”), the conversion rate will be adjusted based on the following formula:
Also, some analysts might see this as a sign of financial weakness and not being able to issue traditional notes at lower rates. As shown earlier, these notes were issued at a discount, resulting in a YTM closer to 6.0%, compared to ARCC's recently issued notes near 5.3% and GSBD under 5.7%. Please note that GSBD has recently had plenty of credit issues.
Other issues could be related to "per share" metrics (if adjusted for potential dilution) or the anticipation of hedging activity by noteholders.
Again, I think the primary issues are related to potential dilution and a long-term overhang on the stock price. Additionally, these notes could influence dividend policy, as any additional increases will impact the conversion rate. I'm sure this will be discussed on the next earnings call.
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