The following discussion is designed to provide a better understanding of our unaudited consolidated financial statements for the three and six months endedJune 30, 2022 , including a brief discussion of our business, key factors that impacted our performance and a summary of our operating results. The following discussion should be read in conjunction with the Unaudited Consolidated Financial Statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q, and the Consolidated Financial Statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year endedDecember 31, 2021 . Historical results and percentage relationships among any amounts in the financial statements are not necessarily indicative of trends in operating results for any future periods.
Forward-Looking Statements
Some of the statements in this Quarterly Report constitute forward-looking statements because they relate to future events or our future performance or financial condition. Forward-looking statements may include, among other things, statements as to our future operating results, our business prospects and the prospects of our portfolio companies, the impact of the investments that we expect to make, the ability of our portfolio companies to achieve their objectives, our expected financings and investments, the adequacy of our cash resources and working capital, and the timing of cash flows, if any, from the operations of our portfolio companies. Words such as "expect," "anticipate," "target," "goals," "project," "intend," "plan," "believe," "seek," "estimate," "continue," "forecast," "may," "should," "potential," variations of such words, and similar expressions indicate a forward-looking statement, although not all forward-looking statements include these words. Readers are cautioned that the forward-looking statements contained in this Quarterly Report are only predictions, are not guarantees of future performance, and are subject to risks, events, uncertainties and assumptions that are difficult to predict. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the items discussed herein, in Item 1A entitled "Risk Factors" in Part I of our Annual Report on Form 10-K for the year endedDecember 31, 2021 and in Item 1A entitled "Risk Factors" in Part II of our subsequently filed Quarterly Reports on Form 10-Q. Other factors that could cause our actual results and financial condition to differ materially include, but are not limited to, changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, including with respect to changes from the impact of the COVID-19 pandemic; the length and duration of the COVID-19 outbreak inthe United States as well as worldwide and the magnitude of the economic impact of that outbreak; the effect of the COVID-19 pandemic on our business prospects and the prospects of our portfolio companies, including our and their ability to achieve our respective objectives; the effect of the disruptions caused by the COVID-19 pandemic on our ability to continue to effectively manage our business and on the availability of equity and debt capital and our use of borrowed money to finance a portion of our investments; risks associated with possible disruption due to terrorism in our operations or the economy generally; and future changes in laws or regulations and conditions in our operating areas. These statements are based on our current expectations, estimates, forecasts, information and projections about the industry in which we operate and the beliefs and assumptions of our management as of the date of filing of this Quarterly Report. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless we are required to do so by law. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with theSEC , including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Overview of Our Business We are aMaryland corporation incorporated onOctober 10, 2006 . InAugust 2018 , in connection with the closing of an externalization transaction through whichBarings LLC ("Barings") agreed to become our external investment adviser, we entered into an investment advisory agreement (the "Original Advisory Agreement") and an administration agreement (the "Administration Agreement") with Barings. In connection with the completion of our acquisition ofMVC Capital, Inc. , aDelaware corporation, onDecember 23, 2020 (the "MVC Acquisition"), we entered into an amended and restated investment advisory agreement (the "Amended and Restated Advisory Agreement") with Barings onDecember 23, 2020 , following approval of the Amended and Restated Advisory Agreement by our stockholders at ourDecember 23, 2020 special meeting of stockholders. The terms of the Amended and Restated Advisory Agreement became effective onJanuary 1, 2021 . In connection with the completion of the Sierra Acquisition (as defined below), onFebruary 25, 2022 , we entered into a second amended and restated investment advisory agreement (the "New Barings BDC Advisory Agreement") with the Adviser. Under the terms of the New Barings BDC Advisory Agreement and the Administration Agreement, Barings serves as our investment adviser and administrator and manages our investment portfolio and performs (or oversees, or arranges for, the performance of) the administrative services necessary for our operation. 96 -------------------------------------------------------------------------------- An externally-managed BDC generally does not have any employees, and its investment and management functions are provided by an outside investment adviser and administrator under an advisory agreement and administration agreement. Instead of directly compensating employees, we pay Barings for investment management and administrative services pursuant to the terms of an investment advisory agreement and an administration agreement. Under the terms of the New Barings BDC Advisory Agreement, the fees paid to Barings for managing our affairs are determined based upon an objective and fixed formula, as compared with the subjective and variable nature of the costs associated with employing management and employees in an internally-managed BDC structure, which include bonuses that cannot be directly tied to Company performance because of restrictions on incentive compensation under the Investment Company Act of 1940, as amended (the "1940 Act"). Beginning inAugust 2018 , Barings shifted our investment focus to invest in syndicated senior secured loans, bonds and other fixed income securities. Since that time, Barings has transitioned our portfolio to primarily senior secured private debt investments in well-established middle-market businesses that operate across a wide range of industries. Barings' existingSEC co-investment exemptive relief under the 1940 Act (the "Exemptive Relief") permits us and Barings' affiliated private andSEC -registered funds to co-invest in Barings-originated loans, which allows Barings to efficiently implement its senior secured private debt investment strategy for us. Barings employs fundamental credit analysis, and targets investments in businesses with relatively low levels of cyclicality and operating risk. The holding size of each position will generally be dependent upon a number of factors including total facility size, pricing and structure, and the number of other lenders in the facility. Barings has experience managing levered vehicles, both public and private, and will seek to enhance our returns through the use of leverage with a prudent approach that prioritizes capital preservation. Barings believes this strategy and approach offers attractive risk/return with lower volatility given the potential for fewer defaults and greater resilience through market cycles. A significant portion of our investments are expected to be rated below investment grade by rating agencies or, if unrated would be rated below investment grade if they were rated. Below investment grade securities, which are often referred to as "junk," have predominantly speculative characteristics with respect to the issuer's capacity to pay interest and repay principal. We generate revenues in the form of interest income, primarily from our investments in debt securities, loan origination and other fees and dividend income. Fees generated in connection with our debt investments are recognized over the life of the loan using the effective interest method or, in some cases, recognized as earned. Our senior secured, middle-market, private debt investments generally have terms of between five and seven years. Our senior secured, middle-market, first lien private debt investments generally bear interest between LIBOR (or the applicable currency rate for investments in foreign currencies) plus 450 basis points and LIBOR plus 650 basis points per annum. Our subordinated middle-market, private debt investments generally bear interest between LIBOR (or the applicable currency rate for investments in foreign currencies) plus 700 basis points and LIBOR plus 900 basis points per annum if floating rate, and between 8% and 15% if fixed rate. From time to time, certain of our investments may have a form of interest, referred to as payment-in-kind, or PIK, interest, which is not paid currently but is instead accrued and added to the loan balance and paid at the end of the term. As ofJune 30, 2022 andDecember 31, 2021 , the weighted average yield on the principal amount of our outstanding debt investments other than non-accrual debt investments was approximately 7.6% and 7.2%, respectively. The weighted average yield on the principal amount of all of our outstanding debt investments (including non-accrual debt investments) was approximately 7.2% and 6.9% as ofJune 30, 2022 andDecember 31, 2021 , respectively.
Sierra Income Corporation Acquisition
OnFebruary 25, 2022 , we completed our acquisition of Sierra Income Corporation, aMaryland corporation ("Sierra"), pursuant to the terms and conditions of that certain Agreement and Plan of Merger (the "Sierra Merger Agreement"), dated as ofSeptember 21, 2021 , with Sierra,Mercury Acquisition Sub, Inc. , aMaryland corporation and our direct wholly owned subsidiary ("Sierra Acquisition Sub"), and Barings. To effect the acquisition, Sierra Acquisition Sub merged with and into Sierra, with Sierra surviving the merger as our wholly owned subsidiary (the "FirstSierra Merger "). Immediately thereafter, Sierra merged with and into us, withBarings BDC, Inc. as the surviving company (the "SecondSierra Merger " and, together with the FirstSierra Merger , the "Sierra Merger"). Pursuant to the Sierra Merger Agreement, each share of Sierra common stock, par value$0.001 per share (the "Sierra Common Stock"), issued and outstanding immediately prior to the effective time of the FirstSierra Merger (other than shares of Sierra Common Stock issued and outstanding immediately prior to the effective time of the FirstSierra Merger that were held by a subsidiary of Sierra or held, directly or indirectly, by us or Sierra Acquisition Sub) was converted into the right to receive (i) an amount in cash from Barings, without interest, equal to$0.9783641 , and (ii) 0.44973 shares of the our common stock, plus any cash in lieu of fractional shares. As a result of the Sierra Merger, former Sierra stockholders received approximately 46.0 million shares of our common stock for their shares of Sierra Common Stock. 97 -------------------------------------------------------------------------------- In connection with the Sierra Acquisition, onFebruary 25, 2022 , following the closing of the Sierra Merger, we entered into (1) the New Barings BDC Advisory Agreement, and (2) a credit support agreement (the "Sierra Credit Support Agreement") with Barings, pursuant to which Barings has agreed to provide credit support to us in the amount of up to$100.0 million relating to the net cumulative realized and unrealized losses on the acquired Sierra investment portfolio over a 10-year period. See "Note 2. Agreements andRelated Party Transactions" and "Note. 6 Derivative Instruments" in the Notes to our Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for more information. In addition, in connection with the closing of the Sierra Merger, our board of directors (the "Board") affirmed our commitment to purchase in open-market transactions, pursuant to Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and subject to our compliance with our covenant and regulatory requirements, shares of our common stock in an aggregate amount of up to$30,000,000 at then-current market prices at any time the shares of our common stock trade below 90% of our then most recently disclosed net asset value per share during the 12-month period commencing onApril 1, 2022 .
COVID-19 Developments
The spread of the Coronavirus and the COVID-19 pandemic, and the related effect on theU.S. and global economies, has had adverse consequences for the business operations of some of our portfolio companies but no longer adversely affects our operations and the operations of Barings, including with respect to us. Barings continues to monitor the COVID-19 situation globally and is prepared to adapt office working patterns as required to ensure the safety of its employees and clients who visit Barings office locations. Barings' cybersecurity policies are applied consistently when working remotely or in the office. While we have been carefully monitoring the COVID-19 pandemic and its impact on our business and the business of our portfolio companies, we have continued to fund our existing debt commitments. In addition, we have continued to make and originate, and expect to continue to make and originate, new loans. We will continue to monitor the situation relating to the COVID-19 pandemic and guidance fromU.S. and international authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our plan of operation. As such, given the dynamic nature of this situation, we cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future. However, to the extent our portfolio companies are adversely impacted by the effects of the COVID-19 pandemic, it may have a material adverse impact on our future net investment income, the fair value of our portfolio investments, our financial condition and the results of operations and financial condition of our portfolio companies.
Relationship with Our Adviser, Barings
Our investment adviser, Barings, a wholly-owned subsidiary ofMassachusetts Mutual Life Insurance Company , is a leading global asset management firm and is registered with theSEC as an investment adviser under the Investment Advisers Act of 1940, as amended. Barings' primary investment capabilities include fixed income, private credit, real estate, equity, and alternative investments. Subject to the overall supervision of the Board,Barings' Global Private Finance Group ("BGPF") manages our day-to-day operations, and provides investment advisory and management services to us. BGPF is part of Barings'$274.4 billion Global Fixed Income Platform that invests in liquid, private and structured credit. BGPF manages private funds and separately managed accounts, along with multiple public vehicles. Among other things, Barings (i) determines the composition of our portfolio, the nature and timing of the changes therein and the manner of implementing such changes; (ii) identifies, evaluates and negotiates the structure of the investments made by us; (iii) executes, closes, services and monitors the investments that we make; (iv) determines the securities and other assets that we will purchase, retain or sell; (v) performs due diligence on prospective portfolio companies and (vi) provides us with such other investment advisory, research and related services as we may, from time to time, reasonably require for the investment of our funds. Under the terms of the Administration Agreement, Barings performs (or oversees, or arranges for, the performance of) the administrative services necessary for our operation, including, but not limited to, office facilities, equipment, clerical, bookkeeping and record keeping services at such office facilities and such other services as Barings, subject to review by the Board, will from time to time determine to be necessary or useful to perform its obligations under the Administration Agreement. Barings also, on our behalf and subject to the Board's oversight, arranges for the services of, and oversees, custodians, depositories, transfer agents, dividend disbursing agents, other stockholder servicing agents, accountants, attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers, banks and such other persons in any such other capacity 98 -------------------------------------------------------------------------------- deemed to be necessary or desirable. Barings is responsible for the financial and other records that we are required to maintain and will prepare all reports and other materials required to be filed with theSEC or any other regulatory authority.
Stockholder Approval of Reduced Asset Coverage Ratio
OnJuly 24, 2018 , our stockholders voted at a special meeting of stockholders (the "2018 Special Meeting") to approve a proposal to authorize us to be subject to a reduced asset coverage ratio of at least 150% under the 1940 Act. As a result of the stockholder approval at the 2018 Special Meeting, effectiveJuly 25, 2018 , our applicable asset coverage ratio under the 1940 Act has been decreased to 150% from 200%. As a result, we are permitted under the 1940 Act to incur indebtedness at a level which is more consistent with a portfolio of senior secured debt. As ofJune 30, 2022 , our asset coverage ratio was 181.4%.
Portfolio Investment Composition
The total value of our investment portfolio was$2,389.1 million as ofJune 30, 2022 , as compared to$1,800.6 million as ofDecember 31, 2021 . As ofJune 30, 2022 , we had investments in 294 portfolio companies with an aggregate cost of$2,439.1 million . As ofDecember 31, 2021 , we had investments in 212 portfolio companies with an aggregate cost of$1,787.8 million . As of bothJune 30, 2022 andDecember 31, 2021 , none of our portfolio investments represented greater than 10% of the total fair value of our investment portfolio. As ofJune 30, 2022 andDecember 31, 2021 , our investment portfolio consisted of the following investments: Percentage of Percentage of Total Total ($ in thousands) Cost Portfolio Fair Value PortfolioJune 30, 2022 : Senior debt and 1st lien notes$ 1,582,312 65 %$ 1,550,204 65 % Subordinated debt and 2nd lien notes 370,972 15 315,809 13 Structured products 82,515 3 70,385 3 Equity shares 206,407 9 268,622 11 Equity warrants 174 - 92 - Investment in joint ventures / PE fund 196,687 8 183,964 8$ 2,439,067 100 %$ 2,389,076 100 % December 31, 2021: Senior debt and 1st lien notes$ 1,217,899 68 %$ 1,221,598 68 % Subordinated debt and 2nd lien notes 253,551 14 240,037 13 Structured products 37,055 2 40,271 2 Equity shares 145,791 8 154,477 9 Equity warrants 1,111 - 1,107 - Investment in joint ventures / PE fund 132,417 8 143,104 8$ 1,787,824 100 %$ 1,800,594 100 %
Investment Activity
During the six months endedJune 30, 2022 , we made 48 new investments totaling$495.2 million , purchased$442.2 million of investments as part of the Sierra Acquisition, made investments in existing portfolio companies totaling$173.5 million and made additional investments in joint venture equity portfolio companies totaling$13.8 million . We had 21 loans repaid totaling$178.3 million , received$22.5 million of portfolio company principal payments and received$35.5 million of return of capital from our joint ventures. In addition, we sold$101.7 million of loans, recognizing a net realized loss on these transactions of$6.1 million , and sold$132.3 million of middle-market portfolio company debt investments to one of our joint ventures and realized a loss on these transactions of$0.2 million . We received proceeds related to the sale of equity investments totaling$1.7 million and recognized a net realized loss on such sales totaling$0.7 million . Lastly, we exchanged a debt investment totaling$13.8 million in one portfolio company for equity totaling$13.9 million and realized a loss on such exchange of$0.8 million . During the six months endedJune 30, 2021 , we made 40 new investments totaling$390.9 million , made investments in existing portfolio companies totaling$112.9 million , made a net new joint venture equity investment totaling$5.5 million and additional investments in joint venture equity portfolio companies totaling$30.0 million . We had 13 loans repaid at par totaling$92.6 million and received$25.6 million of portfolio company principal payments. In addition, we sold$57.0 million of loans, 99 -------------------------------------------------------------------------------- recognizing a net realized gain on these transactions of$2.4 million , and sold$250.4 million of middle-market portfolio company debt investments to one of our joint ventures and realized a gain on these transactions of$1.4 million . Lastly, we received proceeds related to the sale of equity investments totaling$5.9 million and recognized a net realized loss on such sales totaling$0.5 million . Total portfolio investment activity for the six months endedJune 30, 2022 and 2021 was as follows: Six Months Ended Senior Debt Investments in June 30, 2022: and 1st Lien Subordinated Debt Structured Equity Equity Joint Ventures / ($ in thousands) Notes and 2nd Lien Notes Products Shares Warrants PE Fund Total
Fair value, beginning of period
$ 40,271 $ 154,477 $ 1,107 $ 143,104 $ 1,800,594 New investments 539,897 80,753 7,060 55,006 - 13,797 696,513 Investments acquired in Sierra merger 235,770 66,662 46,666 7,065 72 85,963 442,198 Proceeds from sales of investments (227,678) (14,754) (5,389) (1,607) (250) (35,490) (285,168) Loan origination fees received (10,371) (1,121) - - - - (11,492) Principal repayments received (175,265) (22,610) (2,888) - - - (200,763) Payment-in-kind interest 2,125 8,939 - - - - 11,064 Accretion of loan premium/discount 1,146 83 11 - - - 1,240 Accretion of deferred loan origination revenue 4,339 974 - - - - 5,313 Realized gain (loss) (5,551) (1,505) - 153 (760) - (7,663) Unrealized appreciation (depreciation) (35,806) (41,649) (15,346) 53,528 (77) (23,410) (62,760)
Fair value, end of period
$ 70,385 $ 268,622 $ 92 $ 183,964 $ 2,389,076 Six Months Ended Senior Debt Investments in June 30, 2021: and 1st Lien Subordinated Debt Structured Equity Equity Joint Ventures / Short-term ($ in thousands) Notes and 2nd Lien Notes Products Shares Warrants PE Fund Investments Total Fair value, beginning of period$ 1,171,250 $ 138,767
$ 65,558 $ 1,495,795 New investments 420,633 75,316 - 8,260 163 38,200 217,559 760,131 Proceeds from sales of investments (291,705) (8,771) (6,823) (5,972) - (2,675) (272,542) (588,488) Loan origination fees received (9,037) (987) - - - - - (10,024) Principal repayments received (91,580) (24,847) (2,307) - - - - (118,734) Payment-in-kind interest 1,565 7,570 - - - - - 9,135 Accretion of loan premium/discount 1,267 2,528 27 - - - - 3,822 Accretion of deferred loan origination revenue 3,228 285 - - - - - 3,513 Realized gain (loss) 3,176 (24) 652 (436) - - (1) 3,367 Unrealized appreciation (depreciation) 10,068 (2,970) 777 5,499 25 3,192 - 16,591 Fair value, end of period$ 1,218,865 $ 186,867
$ 24,835 $ 52,002 $ 1,488 $ 80,477 $ 10,574 $ 1,575,108 Non-Accrual Assets Generally, when interest and/or principal payments on a loan become past due, or if we otherwise do not expect the borrower to be able to service its debt and other obligations, we will place the loan on non-accrual status and will generally cease recognizing interest income on that loan for financial reporting purposes until all principal and interest have been brought current through payment or due to a restructuring such that the interest income is deemed to be collectible. As ofJune 30, 2022 , we had seven portfolio companies with investments on non-accrual, the fair value of which was$20.0 million , which comprised 0.8% of the total fair value of our portfolio, and the cost of which was$71.1 million , which comprised 2.9% of the total cost of our portfolio. As ofDecember 31, 2021 , we had two portfolio companies with investments on non-accrual, the fair value of which was$36.0 million , which comprised 2.0% of the total fair value of our portfolio, and the cost of which was$50.9 million , which comprised 2.9% of the total cost of our portfolio. 100 --------------------------------------------------------------------------------
A summary of our non-accrual assets as of
1888
In connection with the Sierra Acquisition, we purchased our debt and equity investments in 1888Industrial Services, LLC , or 1888. The 1888 first lien senior secured term loan is on non-accrual status and as a result, underU.S. GAAP, we will not recognize interest income on our first lien senior secured term loan in 1888 for financial reporting purposes. As ofJune 30, 2022 , the cost and fair value of our first lien senior secured term loan in 1888 was$0.4 million and zero, respectively.
In connection with the Sierra Acquisition, we purchased our debt and equity investments inBlack Angus Steakhouse, LLC , or Black Angus. The Black Angus PIK term loan is on non-accrual status and as a result, underU.S. GAAP, we will not recognize interest income on our PIK term loan in Black Angus for financial reporting purposes. As ofJune 30, 2022 , both the cost and fair value of our PIK term loan in Black Angus was$9.6 million .
Charming Charlie LLC
In connection with the Sierra Acquisition, we purchased our debt and equity investments inCharming Charlie, LLC , orCharming Charlie .Charming Charlie is on non-accrual status and as a result, underU.S. GAAP, we will not recognize interest income on our debt investments inCharming Charlie for financial reporting purposes. As ofJune 30, 2022 , both the cost and fair value of our debt investments inCharming Charlie was zero.
In connection with the MVC Acquisition, we purchased our debt investment inCustom Alloy Corporation , or Custom Alloy. During the quarter endedDecember 31, 2021 , we placed our debt investment in Custom Alloy on non-accrual status. As a result, underU.S. GAAP, we will not recognize interest income on our debt investment in Custom Alloy for financial reporting purposes. As ofJune 30, 2022 , the cost of our debt investment in Custom Alloy was$46.4 million and the fair value of such investment was$5.6 million .
In connection with the Sierra Acquisition, we purchased our debt investment inHolland Acquisition Corp. , or Holland. Holland is on non-accrual status and as a result, underU.S. GAAP, we will not recognize interest income on our debt investments in Holland for financial reporting purposes. As ofJune 30, 2022 , both the cost and fair value of our debt investments in Holland was zero.
In connection with the MVC Acquisition, we purchased our debt investment inLegal Solutions Holdings , or Legal Solutions. During the quarter endedSeptember 30, 2021 , we placed our debt investment in Legal Solutions on non-accrual status. As a result, underU.S. GAAP, we will not recognize interest income on our debt investment in Legal Solutions for financial reporting purposes. As ofJune 30, 2022 , the cost of our debt investment in Legal Solutions was$10.1 million and the fair value of such investment was zero.
In connection with the Sierra Acquisition, we purchased our debt and equity investments inPath Medical LLC , or Path Medical. Path Medical is on non-accrual status and as a result, underU.S. GAAP, we will not recognize interest income on our debt investments in Path Medical for financial reporting purposes. As ofJune 30, 2022 , the cost and fair value of our debt investments in Path Medical was$4.6 million and$4.7 million , respectively. 101 --------------------------------------------------------------------------------
Results of Operations
Comparison of the three and six months ended
Operating results for the three and six months endedJune 30, 2022 and 2021 were as follows: Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, (in thousands) 2022 2021 2022 2021 Total investment income$ 55,592 $
33,153
Total operating expenses 23,818 18,595 48,563 34,833 Net investment income before taxes 31,774 14,558 50,787 28,914 Income taxes, including excise tax provision - - 6 (18) Net investment income after taxes 31,774 14,558 50,781 28,932 Net realized gains (losses) (10,223) 343 (11,665) 2,182 Net unrealized appreciation (depreciation) (44,654) 14,409 (41,188) 20,683 Net realized and unrealized gains (losses) on investments, credit support agreements and foreign currency borrowings (54,877) 14,752 (52,853) 22,865 Provision for taxes (1,890) (2) (1,890) (1) Net increase in net assets resulting from operations$ (24,993) $
29,308
Net increases or decreases in net assets resulting from operations can vary substantially from period to period due to various factors, including recognition of realized gains and losses and unrealized appreciation and depreciation. As a result, quarterly comparisons of net changes in net assets resulting from operations may not be meaningful.
Investment Income Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, ($ in thousands) 2022 2021 2022 2021 Investment income: Total interest income$ 40,784 $
26,819
Total dividend income 7,246 395 14,939 466 Total fee and other income 5,072 2,568 6,268 4,701 Total payment-in-kind interest income 2,474 3,371 5,273 6,545 Interest income from cash 16 - 16 1 Total investment income$ 55,592 $
33,153
The change in total investment income for the three and six months endedJune 30, 2022 , as compared to the three and six months endedJune 30, 2021 , was primarily due to an increase in the average size of our portfolio, increased dividends from portfolio companies and joint venture investments and an increase in acceleration of unamortized OID and unamortized loan origination fee income associated with repayments of loans. The increase in the average size of our portfolio was largely due to the increased middle-market investment opportunities and the investments acquired as part of the Sierra Acquisition. This increase was partially offset by a decrease in payment-in-kind ("PIK") interest income. For the three and six months endedJune 30, 2022 , dividends from portfolio companies and joint venture investments were$7.2 million and$14.9 million , respectively, as compared to$0.4 million and$0.5 million , respectively, for the three and six months endedJune 30, 2021 . The amount of our outstanding debt investments was$2,162.5 million as ofJune 30, 2022 , as compared to$1,463.6 million as ofJune 30, 2021 . This increase is in part due to the acquisition of investment assets in the Sierra Acquisition. The weighted average yield on the principal amount of our outstanding debt investments other than non-accrual debt investments was 7.6% as ofJune 30, 2022 , as compared to 7.4% as ofJune 30, 2021 . For the three and six months endedJune 30, 2022 , acceleration of unamortized OID income and unamortized loan origination fees totaled$2.9 million and$3.1 million , respectively, as compared to$2.2 million and$2.6 million , respectively, for the three and six months endedJune 30, 2021 . For the three and six months endedJune 30, 2022 , PIK interest income was$2.5 million and$5.3 million , respectively, as compared to$3.4 million and$6.5 million , respectively, for the three and six months endedJune 30, 2021 . 102 --------------------------------------------------------------------------------
Operating Expenses Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, ($ in thousands) 2022 2021 2022 2021 Operating expenses: Interest and other financing fees$ 13,168 $ 7,994 $ 24,829 $ 15,279 Base management fees 7,381 4,891 13,253 8,821 Incentive management fees - 3,510 4,754 6,232 General and administrative expenses 3,269 2,200 5,727 4,501 Total operating expenses$ 23,818 $ 18,595 $ 48,563 $ 34,833
Interest and Other Financing Fees
Interest and other financing fees during the three and six months endedJune 30, 2022 were attributable to borrowings under theFebruary 2019 Credit Facility, theAugust 2025 Notes, the November Notes, the February Notes and theNovember 2026 Notes (each as defined below under "Liquidity and Capital Resources"). Interest and other financing fees during the three and six months endedJune 30, 2021 were attributable to borrowings under theFebruary 2019 Credit Facility, theAugust 2025 Notes, the November Notes and the February Notes. The increase in interest and other financing fees for the three and six months endedJune 30, 2022 as compared to the three and six months endedJune 30, 2021 , was primarily attributable to the issuance of theNovember 2026 Notes and increased borrowings under theFebruary 2019 Credit Facility.
Base Management Fees
Under the terms of the New Barings BDC Advisory Agreement, we pay Barings a base management fee (the "Base Management Fee"), quarterly in arrears on a calendar quarter basis. The Base Management Fee is calculated based on the average value of our gross assets, excluding cash and cash equivalents, at the end of the two most recently completed calendar quarters prior to the quarter for which such fees are being calculated. Base Management Fees for any partial month or quarter are appropriately pro-rated. See Note 2 to our Unaudited Consolidated Financial Statements for additional information regarding the terms of the New Barings BDC Advisory Agreement (and, fromJanuary 1, 2021 toFebruary 25, 2022 , the terms of the Amended and Restated Advisory Agreement) and the fee arrangements thereunder. For the three and six months endedJune 30, 2022 , the amount of Base Management Fee incurred was approximately$7.4 million and$13.3 million , respectively. For the three and six months endedJune 30, 2021 , the amount of Base Management Fee incurred was approximately$4.9 million and$8.8 million , respectively. The increase in the Base Management Fee for the three and six months endedJune 30, 2022 versus the corresponding 2021 periods is primarily related to the average value of gross assets increasing from$1,565.2 million as of the end of the two most recently completed calendar quarters prior toJune 30, 2021 to$2,361.8 million as of the end of the two most recently completed calendar quarters prior toJune 30, 2022 . For both the three and six months endedJune 30, 2022 and 2021, the Base Management Fee rate was 1.250%.
Incentive Fee
Under the New Barings BDC Advisory Agreement (and, fromJanuary 1, 2021 toFebruary 25, 2022 , pursuant to the terms of the Amended and Restated Advisory Agreement), we pay Barings an incentive fee. A portion of the incentive fee is based on our income and a portion is based on our capital gains. The income-based fee will be determined and paid quarterly in arrears based on the amount by which (x) the aggregate pre-incentive fee net investment income in respect of the current calendar quarter and the eleven preceding calendar quarters beginning with the calendar quarter that commences on or afterJanuary 1, 2021 , as the case may be (or the appropriate portion thereof in the case of any of our first eleven calendar quarters that commences on or afterJanuary 1, 2021 ) exceeds (y) the hurdle amount as calculated for the same period. See Note 2 to our Unaudited Consolidated Financial Statements for additional information regarding the terms of the New Barings BDC Advisory Agreement and the fee arrangements thereunder. For the three and six months endedJune 30, 2022 , the amount of income-based fee incurred was zero and$4.8 million , respectively, as compared to$3.5 million and$6.2 million , respectively, for the three and six months endedJune 30, 2021 . The Income-Based Fee is subject to a cap (the "IncentiveFee Cap "). During the three months endedJune 30, 2022 , the incentive fee was zero due to the the IncentiveFee Cap . The IncentiveFee Cap in any quarter is an amount equal to (a) 20% of the Cumulative Pre-IncentiveFee Net Return during the relevant Trailing Twelve Quarters less (b) the aggregate Income-Based Fee that were paid to the Adviser in the preceding eleven calendar quarters (or portion thereof) comprising the relevant Trailing Twelve Quarters. See Note 2 to our Unaudited Consolidated Financial Statements for additional information regarding the terms of the IncentiveFee Cap . 103 --------------------------------------------------------------------------------
General and Administrative Expenses
We entered into the Administration Agreement with Barings inAugust 2018 . Under the terms of the Administration Agreement, Barings performs (or oversees, or arranges for, the performance of) the administrative services necessary for our operations. We will reimburse Barings for the costs and expenses incurred by it in performing its obligations and providing personnel and facilities under the Administration Agreement in an amount to be negotiated and mutually agreed to by us and Barings quarterly in arrears; provided that the agreed-upon quarterly expense amount will not exceed the amount of expenses that would otherwise be reimbursable by us under the Administration Agreement for the applicable quarterly period, and Barings will not be entitled to the recoupment of any amounts in excess of the agreed-upon quarterly expense amount. See Note 2 to our Unaudited Consolidated Financial Statements for additional information regarding the Administration Agreement. For the three and six months endedJune 30, 2022 , the amount of administration expense incurred and invoiced by Barings for expenses was approximately$0.9 million and$1.8 million , respectively. For the three and six months endedJune 30, 2021 , the amount of administration expense incurred and invoiced by Barings for expenses was approximately$0.5 million and$1.0 million , respectively. In addition to expenses incurred under the Administration Agreement, general and administrative expenses include Board fees, D&O insurance costs, as well as legal, valuation and accounting expenses.
Net Realized Gains (Losses)
Net realized gains (losses) during the three and six months ended
Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, ($ in thousands) 2022 2021 2022 2021 Net realized gain (losses): Non-Control / Non-Affiliate investments$ (6,701) $ 553$ (6,951) $ 3,444 Affiliate investments - - 101 (77) Control investments (813) - (813) - Net realized gains (losses) on investments (7,514) 553 (7,663) 3,367 Foreign currency transactions (2,709) (210) (4,002) (1,185) Net realized gains (losses)$ (10,223) $
343
During the three months endedJune 30, 2022 , we recognized net realized losses totaling$10.2 million , which consisted primarily of a net loss on our loan portfolio of$6.7 million , a$0.8 million loss on the exchange of a debt investment in one portfolio company for equity, and a net loss on foreign currency transactions of$2.7 million . During the six months endedJune 30, 2022 , we recognized net realized losses totaling$11.7 million , which consisted primarily a net loss on our loan portfolio of$6.9 million , a$0.8 million loss on the exchange of a debt investment in one portfolio company for equity, and a net loss on foreign currency transactions of$4.0 million . During the three months endedJune 30, 2021 , we recognized net realized gains totaling$0.3 million , which consisted primarily of a net gain on our loan portfolio of$0.6 million partially offset by a net loss on foreign currency transactions of$0.2 million . During the six months endedJune 30, 2021 , we recognized net realized gains totaling$2.2 million , which consisted primarily of a net gain on our loan portfolio of$3.4 million partially offset by a net loss on foreign currency transactions of$1.2 million .
Net Unrealized Appreciation (Depreciation)
Net unrealized appreciation (depreciation) during the three and six months ended
Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, ($ in thousands) 2022 2021 2022 2021 Net unrealized appreciation (depreciation): Non-Control / Non-Affiliate investments$ (65,428) $ 4,304 $ (94,016) $ 9,661 Affiliate investments (13,435) 7,087 (440) 9,532 Control investments 17,050 1,368 31,696 (2,602) Net unrealized appreciation (depreciation) on investments (61,813) 12,759 (62,760) 16,591 Credit support agreements (13,361) 2,300 (13,760) 700 Foreign currency transactions 30,520 (650) 35,332 3,392
Net unrealized appreciation (depreciation)
14,409
104 -------------------------------------------------------------------------------- During the three months endedJune 30, 2022 , we recorded net unrealized depreciation totaling$44.7 million , consisting of net unrealized depreciation on our current portfolio of$62.7 million , unrealized depreciation of$5.7 million on the MVC credit support agreement with Barings, unrealized depreciation of$7.7 million on the Sierra credit support agreement with Barings, net of unrealized appreciation reclassification adjustments of$0.9 million related to the net realized gains on the sales / repayments of certain investments and net unrealized appreciation related to foreign currency transactions of$30.5 million . The net unrealized depreciation on our current portfolio of$62.7 million was driven primarily by credit or fundamental performance of investments of$5.8 million , the impact of foreign currency exchange rates on investments of$24.5 million and broad market moves for investments of$32.4 million . During the six months endedJune 30, 2022 , we recorded net unrealized depreciation totaling$41.2 million , consisting of net unrealized depreciation on our current portfolio of$62.6 million , net unrealized depreciation of$6.1 million on the MVC credit support agreement with Barings, net unrealized depreciation of$7.7 million on the Sierra credit support agreement with Barings and unrealized depreciation reclassification adjustments of$0.1 million related to the net realized gains on the sales / repayments of certain investments, net of unrealized appreciation related to foreign currency transactions of$35.3 million . The net unrealized depreciation on our current portfolio of$62.6 million was driven primarily by the impact of foreign currency exchange rates on investments of$29.2 million and broad market moves for investments of$55.4 million , partially offset by credit or fundamental performance of investments of$22.0 million . During the three months endedJune 30, 2021 , we recorded net unrealized appreciation totaling$14.4 million , consisting of net unrealized appreciation on our current portfolio of$12.1 million , unrealized appreciation of$2.3 million on the credit support agreement with Barings and unrealized appreciation reclassification adjustments of$0.7 million related to the net realized gains on the sales / repayments of certain investments, net of unrealized depreciation related to foreign currency transactions of$0.6 million . The net unrealized appreciation on the current portfolio of$12.1 million was driven primarily by broad market moves for investments of$7.8 million and the credit or fundamental performance of investments of$5.1 million , partially offset by the impact of foreign currency exchange rates on investments of$0.8 million . During the six months endedJune 30, 2021 , we recorded net unrealized appreciation totaling$20.7 million , consisting of net unrealized appreciation on our current portfolio of$18.5 million , unrealized appreciation related to foreign currency transactions of$3.4 million and unrealized appreciation of$0.7 million on the credit support agreement with Barings, net of unrealized depreciation reclassification adjustments of$1.9 million related to the net realized gains on the sales / repayments of certain investments. The net unrealized appreciation on the current portfolio of$18.5 million was driven primarily by broad market moves for investments of$21.7 million and the credit or fundamental performance of investments of$2.0 million , partially offset by the impact of foreign currency exchange rates on investments of$5.2 million .
Liquidity and Capital Resources
We believe that our current cash and foreign currencies on hand, our available borrowing capacity under theFebruary 2019 Credit Facility and our anticipated cash flows from operations will be adequate to meet our cash needs for our daily operations for at least the next twelve months. This "Liquidity and Capital Resources" section should be read in conjunction with "COVID-19 Developments" above, as well as with the notes to our Unaudited Consolidated Financial Statements.
Cash Flows
For the six months endedJune 30, 2022 , we experienced a net increase in cash in the amount of$113.5 million . During that period, our operating activities used$12.7 million in cash, consisting primarily of purchases of portfolio investments of$708.7 million , partially offset by net cash acquired from the acquisition of Sierra of$101.9 million and proceeds from sales or repayments of portfolio investments totaling$603.2 million . In addition, our financing activities provided net cash of$126.2 million , consisting of net borrowings under theFebruary 2019 Credit Facility (as defined below under "Financing Transactions") of$184.7 million , partially offset by dividends paid in the amount of$41.5 million and share repurchases of$15.1 million . As ofJune 30, 2022 , we had$197.8 million of cash and foreign currencies on hand. For the six months endedJune 30, 2021 , we experienced a net decrease in cash in the amount of$61.8 million . During that period, our operating activities used$139.0 million in cash, consisting primarily of purchases of portfolio investments of$538.0 million and purchases of short-term investments of$217.6 million , partially offset by proceeds from sales of portfolio investments totaling$322.4 million and sales of short-term investments of$272.5 million . In addition, our financing activities provided$77.2 million of cash, consisting of net proceeds of$149.8 million from the issuance of the February Notes (as defined below under "Financing Transactions"), partially offset by net repayments under theFebruary 2019 Credit Facility of$47.1 million and dividends paid in the amount of$25.5 million . As ofJune 30, 2021 , we had$30.7 million of cash and foreign currencies on hand. 105 --------------------------------------------------------------------------------
Financing TransactionsFebruary 2019 Credit Facility OnFebruary 21, 2019 , we entered into a senior secured credit facility withING Capital LLC ("ING"), as administrative agent, and the lenders party thereto (as amended, restated and otherwise modified from time to time, the "February 2019 Credit Facility"). The initial commitments under theFebruary 2019 Credit Facility total$800.0 million . Effective onNovember 4, 2021 , we increased aggregate commitments under theFebruary 2019 Credit Facility to$875.0 million from$800.0 million pursuant to the accordion feature under theFebruary 2019 Credit Facility, which allows for an increase in the total commitments to an aggregate of$1.2 billion subject to certain conditions and the satisfaction of specified financial covenants. Effective onFebruary 25, 2022 , we increased aggregate commitments under theFebruary 2019 Credit Facility to$965.0 million from$875.0 million pursuant to the accordion feature under theFebruary 2019 Credit Facility, and the allowance for an increase in the total commitments increased to$1.5 billion from$1.2 billion subject to certain conditions and the satisfaction of specified financial covenants. Effective onApril 1, 2022 , we increased aggregate commitments under theFebruary 2019 Credit Facility to$1.1 billion from$965.0 million pursuant to the accordion feature under theFebruary 2019 Credit Facility, which allows for an increase in the total commitments to an aggregate of$1.5 billion subject to certain conditions and the satisfaction of specified financial covenants. We can borrow foreign currencies directly under theFebruary 2019 Credit Facility. TheFebruary 2019 Credit Facility, which is structured as a revolving credit facility, is secured primarily by a material portion of our assets and guaranteed by certain of our subsidiaries. Following the termination onJune 30, 2020 ofBarings BDC Senior Funding I, LLC's ("BSF") credit facility entered into inAugust 2018 withBank of America, N.A . (the "August 2018 Credit Facility"), BSF became a subsidiary guarantor and its assets secure theFebruary 2019 Credit Facility. The revolving period of theFebruary 2019 Credit Facility ends onFebruary 21, 2024 , followed by a one-year repayment period with a maturity date ofFebruary 21, 2025 . Borrowings denominated inU.S. Dollars under theFebruary 2019 Credit Facility bear interest, subject to our election, on a per annum basis equal to (i) the alternate base rate plus 1.25% (or 1.00% for so long as we maintain an investment grade credit rating) or (ii) the term Secured Overnight Financing Rate ("SOFR") plus 2.25% (or 2.00% for so long as we maintain an investment grade credit rating) plus a credit spread adjustment of 0.10% for borrowings with an interest period of one month, 0.15% for borrowings with an interest period of three months or 0.25% for borrowings with an interest period of six months. The alternate base rate is equal to the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.5%, (iii) the Overnight Bank Funding Rate plus 0.5%, (iv) one-month term SOFR plus 1.0% plus a credit spread adjustment of 0.10% and (v) 1.0%. For borrowings denominated in certain foreign currencies other than Australian dollars, the applicable currency rate for the foreign currency as defined in the credit agreement plus 2.00% (or 2.25% if we no longer maintain an investment grade credit rating) or for borrowings denominated in Australian dollars, the applicable Australian dollars Screen Rate, plus 2.20% (or 2.45% if we no longer maintain an investment grade credit rating). In addition, we pay a commitment fee of (i) 0.5% per annum on undrawn amounts if the unused portion of theFebruary 2019 Credit Facility is greater than two-thirds of total commitments or (ii) 0.375% per annum on undrawn amounts if the unused portion of theFebruary 2019 Credit Facility is equal to or less than two-thirds of total commitments. In connection with entering into theFebruary 2019 Credit Facility, we incurred financing fees of approximately$6.4 million , which will be amortized over the life of theFebruary 2019 Credit Facility. As ofJune 30, 2022 , we were in compliance with all covenants under theFebruary 2019 Credit Facility and hadU.S. dollar borrowings of$537.5 million outstanding under theFebruary 2019 Credit Facility with an interest rate of 3.198% (one month SOFR of 1.098%), borrowings denominated in Swedish kronas of 12.8kr million ($1.2 million U.S. dollars) with an interest rate of 2.250% (one month STIBOR of 0.250%), borrowings denominated in British pounds sterling of £77.6 million ($94.2 million U.S. dollars) with an interest rate of 2.972% (one month SONIA of 0.972%), borrowings denominated in Australian dollars ofA$53.1 million ($36.5 million U.S. dollars) with an interest rate of 2.780% (one month AUD Screen Rate of 0.780%) and borrowings denominated in Euros of €138.6 million ($144.9 million U.S. dollars) with an interest rate of 2.000% (one month EURIBOR of 0.000%). The borrowings denominated in foreign currencies were translated intoU.S. dollars based on the spot rate at the relevant balance sheet date. The impact resulting from changes in foreign exchange rates on theFebruary 2019 Credit Facility borrowings is included in "Net unrealized appreciation (depreciation) - foreign currency transactions" in our Unaudited Consolidated Statements of Operations. The fair values of the borrowings outstanding under theFebruary 2019 Credit Facility are based on a market yield approach and current interest rates, which are Level 3 inputs to the market yield model. As ofJune 30, 2022 , the total fair value of the borrowings outstanding under theFebruary 2019 Credit Facility was$814.4 million . See Note 5 to our Unaudited Consolidated Financial Statements for additional information regarding theFebruary 2019 Credit Facility. 106 --------------------------------------------------------------------------------
OnAugust 3, 2020 , we entered into a Note Purchase Agreement (the "August 2020 NPA") withMassachusetts Mutual Life Insurance Company governing the issuance of (1)$50.0 million in aggregate principal amount of Series A senior unsecured notes dueAugust 2025 (the "Series A Notes due 2025") with a fixed interest rate of 4.66% per year, and (2) up to$50.0 million in aggregate principal amount of additional senior unsecured notes dueAugust 2025 with a fixed interest rate per year to be determined (the "Additional Notes" and, collectively with the Series A Notes due 2025, the "August 2025 Notes"), in each case, to qualified institutional investors in a private placement. An aggregate principal amount of$25.0 million of the Series A Notes due 2025 was issued onSeptember 24, 2020 and an aggregate principal amount of$25.0 million of the Series A Notes due 2025 was issued onSeptember 29, 2020 , both of which will mature onAugust 4, 2025 unless redeemed, purchased or prepaid prior to such date by us in accordance with their terms. Interest on theAugust 2025 Notes is due semiannually in March and September, beginning inMarch 2021 . In addition, we are obligated to offer to repay theAugust 2025 Notes at par (plus accrued and unpaid interest to, but not including, the date of prepayment) if certain change in control events occur. Subject to the terms of theAugust 2020 NPA, we may redeem theAugust 2025 Notes in whole or in part at any time or from time to time at our option at par plus accrued interest to the prepayment date and, if redeemed on or beforeNovember 3, 2024 , a make-whole premium. TheAugust 2025 Notes are guaranteed by certain of our subsidiaries, and are our general unsecured obligations that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by us.
On
TheAugust 2020 NPA contains certain representations and warranties, and various covenants and reporting requirements customary for senior unsecured notes issued in a private placement, including, without limitation, affirmative and negative covenants such as information reporting, maintenance of our status as a BDC within the meaning of the 1940 Act, certain restrictions with respect to transactions with affiliates, fundamental changes, changes of line of business, permitted liens, investments and restricted payments, minimum shareholders' equity, maximum net debt to equity ratio and minimum asset coverage ratio. TheAugust 2020 NPA also contains customary events of default with customary cure and notice periods, including, without limitation, nonpayment, incorrect representation in any material respect, breach of covenant, cross-default under our other indebtedness or that of our subsidiary guarantors, certain judgements and orders, and certain events of bankruptcy. Upon the occurrence of an event of default, the holders of at least 66-2/3% in principal amount of theAugust 2025 Notes at the time outstanding may declare allAugust 2025 Notes then outstanding to be immediately due and payable. As ofJune 30, 2022 , we were in compliance with all covenants under theAugust 2020 NPA. TheAugust 2025 Notes were offered in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"). TheAugust 2025 Notes have not and will not be registered under the Securities Act or any state securities laws and, unless so registered, may not be offered or sold inthe United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, as applicable. As ofJune 30, 2022 , the fair value of the outstandingAugust 2025 Notes was$47.5 million . The fair value determination of theAugust 2025 Notes was based on a market yield approach and current interest rates, which are Level 3 inputs to the market yield model. November Notes OnNovember 4, 2020 , we entered into a Note Purchase Agreement (the "November 2020 NPA") governing the issuance of (1)$62.5 million in aggregate principal amount of Series B senior unsecured notes dueNovember 2025 (the "Series B Notes") with a fixed interest rate of 4.25% per year and (2)$112.5 million in aggregate principal amount of Series C senior unsecured notes dueNovember 2027 (the "Series C Notes," and, collectively with the Series B Notes, the "November Notes") with a fixed interest rate of 4.75% per year, in each case, to qualified institutional investors in a private placement. Each stated interest rate is subject to a step up of (x) 0.75% per year, to the extent the applicable November Notes do not satisfy certain investment grade conditions and/or (y) 1.50% per year, to the extent the ratio of our secured debt to total assets exceeds specified thresholds, measured as of each fiscal quarter end. The November Notes were delivered and paid for onNovember 5, 2020 . The Series B Notes will mature onNovember 4, 2025 , and the Series C Notes will mature onNovember 4, 2027 unless redeemed, purchased or prepaid prior to such date by us in accordance with their terms. Interest on the November Notes is due semiannually in May and November, beginning inMay 2021 . In addition, we are obligated to offer to repay the November Notes at par (plus accrued and unpaid interest to, but not including, the date of prepayment) if certain change in control events occur. Subject to the terms of theNovember 2020 NPA, we may redeem the Series B Notes and the Series C Notes in whole or in part at any time or from time to time at our option at par plus accrued interest to the prepayment date and, if redeemed on or 107 -------------------------------------------------------------------------------- beforeMay 4, 2025 , with respect to the Series B Notes, or on or beforeMay 4, 2027 , with respect to the Series C Notes, a make-whole premium. The November Notes are guaranteed by certain of our subsidiaries, and are our general unsecured obligations that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by us. TheNovember 2020 NPA contains certain representations and warranties, and various covenants and reporting requirements customary for senior unsecured notes issued in a private placement, including, without limitation, affirmative and negative covenants such as information reporting, maintenance of our status as a BDC within the meaning of the 1940 Act, certain restrictions with respect to transactions with affiliates, fundamental changes, changes of line of business, permitted liens, investments and restricted payments, minimum shareholders' equity, maximum net debt to equity ratio and minimum asset coverage ratio. TheNovember 2020 NPA also contains customary events of default with customary cure and notice periods, including, without limitation, nonpayment, incorrect representation in any material respect, breach of covenant, cross-default under our other indebtedness or that of our subsidiary guarantors, certain judgements and orders, and certain events of bankruptcy. Upon the occurrence of an event of default, the holders of at least 66-2/3% in principal amount of the November Notes at the time outstanding may declare all November Notes then outstanding to be immediately due and payable. As ofJune 30, 2022 , we were in compliance with all covenants under theNovember 2020 NPA. The November Notes were offered in reliance on Section 4(a)(2) of the Securities Act. The November Notes have not and will not be registered under the Securities Act or any state securities laws and, unless so registered, may not be offered or sold inthe United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, as applicable. As ofJune 30, 2022 , the fair value of the outstanding Series B Notes and the Series C Notes was$58.4 million and$101.7 million , respectively. The fair value determinations of the Series B Notes and Series C Notes were based on a market yield approach and current interest rates, which are Level 3 inputs to the market yield model. February Notes OnFebruary 25, 2021 , we entered into a Note Purchase Agreement (the "February 2021 NPA") governing the issuance of (1)$80.0 million in aggregate principal amount of Series D senior unsecured notes dueFebruary 26, 2026 (the "Series D Notes") with a fixed interest rate of 3.41% per year and (2)$70.0 million in aggregate principal amount of Series E senior unsecured notes dueFebruary 26, 2028 (the "Series E Notes" and, collectively with the Series D Notes, the "February Notes") with a fixed interest rate of 4.06% per year, in each case, to qualified institutional investors in a private placement. Each stated interest rate is subject to a step up of (x) 0.75% per year, to the extent the applicable February Notes do not satisfy certain investment grade rating conditions and/or (y) 1.50% per year, to the extent the ratio of our secured debt to total assets exceeds specified thresholds, measured as of each fiscal quarter end. The February Notes were delivered and paid for onFebruary 26, 2021 . The Series D Notes will mature onFebruary 26, 2026 , and the Series E Notes will mature onFebruary 26, 2028 unless redeemed, purchased or prepaid prior to such date by us in accordance with the terms of theFebruary 2021 NPA. Interest on the February Notes is due semiannually in February and August of each year, beginning inAugust 2021 . In addition, we are obligated to offer to repay the February Notes at par (plus accrued and unpaid interest to, but not including, the date of prepayment) if certain change in control events occur. Subject to the terms of theFebruary 2021 NPA, we may redeem the Series D Notes and the Series E Notes in whole or in part at any time or from time to time at our option at par plus accrued interest to the prepayment date and, if redeemed on or beforeAugust 26, 2025 , with respect to the Series D Notes, or on or beforeAugust 26, 2027 , with respect to the Series E Notes, a make-whole premium. The February Notes are guaranteed by certain of our subsidiaries, and are our general unsecured obligations that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by us. TheFebruary 2021 NPA contains certain representations and warranties, and various covenants and reporting requirements customary for senior unsecured notes issued in a private placement, including, without limitation, information reporting, maintenance of our status as a BDC within the meaning of the 1940 Act, and certain restrictions with respect to transactions with affiliates, fundamental changes, changes of line of business, permitted liens, investments and restricted payments. In addition, theFebruary 2021 NPA contains the following financial covenants: (a) maintaining a minimum obligors' net worth, measured as of each fiscal quarter end; (b) not permitting our asset coverage ratio, as of the date of the incurrence of any debt for borrowed money or the making of any cash dividend to shareholders, to be less than the statutory minimum then applicable to us under the 1940 Act; and (c) not permitting our net debt to equity ratio to exceed 2.0x, measured as of each fiscal quarter end. TheFebruary 2021 NPA also contains customary events of default with customary cure and notice periods, including, without limitation, nonpayment, incorrect representation in any material respect, breach of covenant, cross-default under other 108 -------------------------------------------------------------------------------- indebtedness or that of our subsidiary guarantors, certain judgements and orders, and certain events of bankruptcy. Upon the occurrence of certain events of default, the holders of at least 66-2/3% in principal amount of the February Notes at the time outstanding may declare all February Notes then outstanding to be immediately due and payable. As ofJune 30, 2022 , we were in compliance with all covenants under theFebruary 2021 NPA. The February Notes were offered in reliance on Section 4(a)(2) of the Securities Act. The February Notes have not and will not be registered under the Securities Act or any state securities laws and, unless so registered, may not be offered or sold inthe United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, as applicable. As ofJune 30, 2022 , the fair value of the outstanding Series D Notes and the Series E Notes was$71.6 million and$60.2 million , respectively. The fair value determinations of the Series D Notes and Series E Notes were based on a market yield approach and current interest rates, which are Level 3 inputs to the market yield model.
OnNovember 23, 2021 , we entered into an Indenture (the "Base Indenture") and a Supplemental Indenture (the "First Supplemental Indenture" and, together with the Base Indenture, the "Indenture") withU.S. Bank National Association (the "Trustee"). The First Supplemental Indenture relates to our issuance of$350.0 million aggregate principal amount of its 3.300% notes due 2026 (the "November 2026 Notes"). TheNovember 2026 Notes will mature onNovember 23, 2026 and may be redeemed in whole or in part at our option at any time or from time to time at the redemption prices set forth in the Indenture. TheNovember 2026 Notes bear interest at a rate of 3.300% per year payable semi-annually onMay 23 andNovember 23 of each year, commencing onMay 23, 2022 . TheNovember 2026 Notes are our general unsecured obligations that rank senior in right of payment to all of our existing and future indebtedness that is expressly subordinated in right of payment to theNovember 2026 Notes, rank pari passu with all existing and future unsecured unsubordinated indebtedness issued by us, rank effectively junior to any of our secured indebtedness (including unsecured indebtedness that we later secure) to the extent of the value of the assets securing such indebtedness, and rank structurally junior to all existing and future indebtedness (including trade payables) incurred by our subsidiaries, financing vehicles or similar facilities. The Indenture contains certain covenants, including covenants requiring us to comply with the asset coverage requirements of Section 18(a)(1)(A) as modified by Section 61(a)(1) and (2) of the 1940 Act, whether or not it is subject to those requirements, and to provide financial information to the holders of theNovember 2026 Notes and the Trustee if we are no longer subject to the reporting requirements under the Exchange Act. These covenants are subject to important limitations and exceptions that are described in the Indenture. In addition, on the occurrence of a "change of control repurchase event," as defined in the Indenture, we will generally be required to make an offer to purchase the outstandingNovember 2026 Notes at a price equal to 100% of the principal amount of suchNovember 2026 Notes plus accrued and unpaid interest to the repurchase date. TheNovember 2026 Notes were offered to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons outsidethe United States pursuant to Regulation S under the Securities Act. TheNovember 2026 Notes have not been registered under the Securities Act or any state securities laws and may not be offered or sold inthe United States absent registration or an applicable exemption from such registration requirements. As ofJune 30, 2022 , the fair value of the outstandingNovember 2026 Notes was$298.9 million . The fair value determinations of theNovember 2026 Notes were based on a market yield approach and current interest rates, which are Level 3 inputs to the market yield model. 109 --------------------------------------------------------------------------------
Share Repurchases
In connection with the closing of the MVC Acquisition onDecember 23, 2020 , we committed to make open-market purchases of shares of our common stock in an aggregate amount of up to$15.0 million at then-current market prices at any time shares trade below 90% of our then most recently disclosed NAV per share. Any repurchases pursuant to the authorized program will occur during the 12-month period that commenced upon the filing of our quarterly report on Form 10-Q for the quarter endedMarch 31, 2021 , which occurred onMay 6, 2021 , and will be made in accordance with applicable legal, contractual and regulatory requirements. The MVC repurchase program terminated onMay 6, 2022 . During the six months endedJune 30, 2022 , we repurchased a total of 207,677 shares of common stock in the open market under the authorized program at an average price of$10.14 per share, including broker commissions. In connection with the completion of the acquisition of Sierra, we committed to make open-market purchases of shares of our common stock in an aggregate amount of up to$30.0 million at then-current market prices at any time shares trade below 90% of our then most recently disclosed NAV per share. Any repurchases pursuant to the authorized program will occur during the 12-month period commencing onApril 1, 2022 and are expected to be made in accordance with a Rule 10b5-1 purchase plan that qualifies for the safe harbors provided by Rules 10b5-1 and 10b-18 under the Exchange Act, as well as subject to compliance with our covenant and regulatory requirements. During the six months endedJune 30, 2022 , we repurchased a total of 1,309,442 shares of common stock in the open market under the authorized program at an average price of$9.93 per share, including broker commissions.
Distributions to Stockholders
We intend to pay quarterly distributions to our stockholders out of assets legally available for distribution. We have adopted a dividend reinvestment plan ("DRIP") that provides for reinvestment of dividends on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, when we declare a dividend, stockholders who have not opted out of the DRIP will have their dividends automatically reinvested in shares of our common stock, rather than receiving cash dividends. We have elected to be treated as a RIC under the Code, and intend to make the required distributions to our stockholders as specified therein. In order to maintain our tax treatment as a RIC and to obtain RIC tax benefits, we must meet certain minimum distribution, source-of-income and asset diversification requirements. If such requirements are met, then we are generally required to pay income taxes only on the portion of our taxable income and gains we do not distribute (actually or constructively) and certain built-in gains. We have historically met our minimum distribution requirements and continually monitor our distribution requirements with the goal of ensuring compliance with the Code. We can offer no assurance that we will achieve results that will permit the payment of any level of cash distributions and our ability to make distributions will be limited by the asset coverage requirement and related provisions under the 1940 Act and contained in any applicable indenture or financing agreement and related supplements. In addition, in order to satisfy the annual distribution requirement applicable to RICs, we may declare a significant portion of our dividends in shares of our common stock instead of in cash. As long as a portion of such dividend is paid in cash (which portion may be as low as 20% of such dividend (and 10% of the dividend declared throughJune 30, 2022 ) under published guidance from the Internal Revenue Service) and certain requirements are met, the entire distribution will be treated as a dividend forU.S. federal income tax purposes. As a result, a stockholder generally would be subject to tax on 100% of the fair market value of the dividend on the date the dividend is received by the stockholder in the same manner as a cash dividend, even though most of the dividend was paid in shares of our common stock. The minimum distribution requirements applicable to RICs require us to distribute to our stockholders each year at least 90% of our investment company taxable income, or ICTI, as defined by the Code. Depending on the level of ICTI and net capital gain, if any, earned in a tax year, we may choose to carry forward ICTI in excess of current year distributions into the next tax year and pay a 4%U.S. federal excise tax on such excess. Any such carryover ICTI must be distributed before the end of the next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI. ICTI generally differs from net investment income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses. We may be required to recognize ICTI in certain circumstances in which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments issued with warrants), we must include in ICTI each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. We may also have to include in ICTI other amounts that we have not yet received in cash, such as (i) PIK interest income and (ii) interest income from investments that have been classified as non-accrual for financial reporting purposes. Interest income on non-accrual investments is not recognized for financial reporting purposes, but generally is recognized in ICTI. Because any original issue discount or other amounts accrued will be included in our ICTI for the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the minimum distribution requirements, even though we will not have received and may not ever receive any corresponding cash amount. ICTI also 110 --------------------------------------------------------------------------------
excludes net unrealized appreciation or depreciation, as investment gains or losses are not included in taxable income until they are realized.
Recent Developments
Subsequent toJune 30, 2022 , we made approximately$215.4 million of new commitments, of which$171.5 million closed and funded. The$171.5 million of investments consists of$159.9 million of first lien senior secured debt investments,$10.6 million of second lien senior secured and subordinated debt investments and$1.0 million of equity investments. The weighted average yield of the debt investments was 8.2%. In addition, we funded$11.6 million of previously committed delayed draw term loans.
On
Critical Accounting Policies and Use of Estimates
The preparation of our unaudited financial statements in accordance withU.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods covered by such financial statements. We have identified investment valuation and revenue recognition as our most critical accounting estimates. On an ongoing basis, we evaluate our estimates, including those related to the matters described below. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from those estimates under different assumptions or conditions. A discussion of our critical accounting policies follows.
Investment Valuation
The most significant estimate inherent in the preparation of our financial statements is the valuation of investments and the related amounts of unrealized appreciation and depreciation of investments recorded. We have a valuation policy, as well as established and documented processes and methodologies for determining the fair values of portfolio company investments on a recurring (at least quarterly) basis in accordance with the 1940 Act and FASB ASC Topic 820, Fair Value Measurements and Disclosures, or ASC Topic 820. Our current valuation policy and processes were established by Barings and have been approved by the Board. As ofJune 30, 2022 , our investment portfolio, valued at fair value in accordance with the Board-approved valuation policies, represented approximately 191% of our total net assets, as compared to approximately 243% of our total net assets as ofDecember 31, 2021 . Under ASC Topic 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between a willing buyer and a willing seller at the measurement date. For our portfolio securities, fair value is generally the amount that we might reasonably expect to receive upon the current sale of the security. The fair value measurement assumes that the sale occurs in the principal market for the security, or in the absence of a principal market, in the most advantageous market for the security. If no market for the security exists or if we do not have access to the principal market, the security should be valued based on the sale occurring in a hypothetical market.
Under ASC Topic 820, there are three levels of valuation inputs, as follows:
Level 1 Inputs - include quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 Inputs - include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 Inputs - include inputs that are unobservable and significant to the fair value measurement.
A financial instrument is categorized within the ASC Topic 820 valuation hierarchy based upon the lowest level of input to the valuation process that is significant to the fair value measurement. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore, unrealized appreciation and depreciation related to such investments categorized as Level 3 investments within the tables in the notes to our consolidated financial statements may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3). 111 -------------------------------------------------------------------------------- Our investment portfolio includes certain debt and equity instruments of privately held companies for which quoted prices or other observable inputs falling within the categories of Level 1 and Level 2 are generally not available. In such cases, we determine the fair value of our investments in good faith primarily using Level 3 inputs. In certain cases, quoted prices or other observable inputs exist, and if so, we assess the appropriateness of the use of these third-party quotes in determining fair value based on (i) our understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer and (ii) the depth and consistency of broker quotes and the correlation of changes in broker quotes with underlying performance of the portfolio company. There is no single standard for determining fair value in good faith, as fair value depends upon the specific circumstances of each individual investment. The recorded fair values of our Level 3 investments may differ significantly from fair values that would have been used had an active market for the securities existed. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. Investment Valuation Process Barings has established a pricing committee that is, subject to the oversight of the Board, responsible for the approval, implementation and oversight of the processes and methodologies that relate to the pricing and valuation of assets we hold. Barings uses independent third-party providers to price the portfolio, but in the event an acceptable price cannot be obtained from an approved external source, Barings will utilize alternative methods in accordance with internal pricing procedures established by Barings' pricing committee. At least annually, Barings conducts reviews of the primary pricing vendors to validate that the inputs used in the vendors' pricing process are deemed to be market observable. While Barings is not provided access to proprietary models of the vendors, the reviews have included on-site walkthroughs of the pricing process, methodologies and control procedures for each asset class and level for which prices are provided. The review also includes an examination of the underlying inputs and assumptions for a sample of individual securities across asset classes, credit rating levels and various durations, a process Barings continues to perform annually. In addition, the pricing vendors have an established challenge process in place for all security valuations, which facilitates identification and resolution of prices that fall outside expected ranges. Barings believes that the prices received from the pricing vendors are representative of prices that would be received to sell the assets at the measurement date (i.e., exit prices). Our money market fund investments are generally valued using Level 1 inputs and our equity investments listed on an exchange or on theNASDAQ National Market System are valued using Level 1 inputs, using the last quoted sale price of that day. Our syndicated senior secured loans and structured product investments are generally valued using Level 2 inputs, which are generally valued at the bid quotation obtained from dealers in loans by an independent pricing service. Our middle-market, private debt and equity investments are generally valued using Level 3 inputs. Independent Valuation The fair value of loans and equity investments that are not syndicated or for which market quotations are not readily available, including middle-market loans, are generally submitted to independent providers to perform an independent valuation on those loans and equity investments as of the end of each quarter. Such loans and equity investments are initially held at cost, as that is a reasonable approximation of fair value on the acquisition date, and monitored for material changes that could affect the valuation (for example, changes in interest rates or the credit quality of the borrower). At the quarter end following the initial acquisition, such loans and equity investments are generally sent to a valuation provider which will determine the fair value of each investment. The independent valuation providers apply various methods (synthetic rating analysis, discounting cash flows, and re-underwriting analysis) to establish the rate of return a market participant would require (the "discount rate") as of the valuation date, given market conditions, prevailing lending standards and the perceived credit quality of the issuer. Future expected cash flows for each investment are discounted back to present value using these discount rates in the discounted cash flow analysis. A range of values will be provided by the valuation provider and Barings will determine the point within that range that it will use in making valuation recommendations to the Board, and will report to the Board on its rationale for each such determination. Barings uses its internal valuation model as a comparison point to validate the price range provided by the valuation provider and, where applicable, in determining the point within that range that it will use in making valuation recommendations to the Board. If Barings' pricing committee disagrees with the price range provided, it may make a fair value recommendation to the Board that is outside of the range provided by the independent valuation provider, and will notify the Board of any such override and the reasons therefore. In certain instances, we may determine that it is not cost-effective, and as a result is not in the stockholders' best interests, to request an independent valuation firm to perform an independent valuation on certain investments. Such instances include, but are not limited to, situations where the fair value of the investment in the portfolio company is determined to be insignificant relative to the total investment portfolio. Pursuant to 112 -------------------------------------------------------------------------------- these procedures, the Board determines in good faith whether our investments were valued at fair value in accordance with our valuation policies and procedures and the 1940 Act based on, among other things, the input of Barings, our Audit Committee and the independent valuation firm. TheSEC has adopted new Rule 2a-5 under the 1940 Act. This rule establishes requirements for determining fair value in good faith for purposes of the 1940 Act. We will comply with the new rule's valuation requirements on or before theSEC's September 8, 2022 compliance date.
Valuation Techniques
Our valuation techniques are based upon both observable and unobservable pricing inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument. An independent pricing service provider is the preferred source of pricing a loan, however, to the extent the independent pricing service provider price is unavailable or not relevant and reliable, we will utilize alternative approaches such as broker quotes or manual prices. We attempt to maximize the use of observable inputs and minimize the use of unobservable inputs. The availability of observable inputs can vary from investment to investment and is affected by a wide variety of factors, including the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets and other characteristics particular to the security.
Valuation of Investments in Jocassee,
As Jocassee,Thompson Rivers ,Waccamaw River ,Sierra JV and MVC Private Equity Fund LP are investment companies with no readily determinable fair values, we estimate the fair value of our investments in these entities using net asset value of each company and our ownership percentage as a practical expedient. The net asset value is determined in accordance with the specialized accounting guidance for investment companies.
Revenue Recognition
Interest and Dividend Income
Interest income, including amortization of premium and accretion of discount, is recorded on the accrual basis to the extent that such amounts are expected to be collected. Generally, when interest and/or principal payments on a loan become past due, or if we otherwise do not expect the borrower to be able to service its debt and other obligations, we will place the loan on non-accrual status and will generally cease recognizing interest income on that loan for financial reporting purposes until all principal and interest have been brought current through payment or due to a restructuring such that the interest income is deemed to be collectible. The cessation of recognition of such interest will negatively impact the reported fair value of the investment. We write off any previously accrued and uncollected interest when it is determined that interest is no longer considered collectible. Dividend income is recorded on the ex-dividend date. We may have to include interest income in our ICTI, including original issue discount income, from investments that have been classified as non-accrual for financial reporting purposes. Interest income on non-accrual investments is not recognized for financial reporting purposes, but generally is recognized in ICTI. As a result, we may be required to make a distribution to our stockholders in order to satisfy the minimum distribution requirements to maintain our RIC tax treatment, even though we will not have received and may not ever receive any corresponding cash amount. Additionally, any loss recognized by us forU.S. federal income tax purposes on previously accrued interest income will be treated as a capital loss.
Fee Income
Origination, facility, commitment, consent and other advance fees received in connection with the origination of a loan, or Loan Origination Fees, are recorded as deferred income and recognized as investment income over the term of the loan. Upon prepayment of a loan, any unamortized Loan Origination Fees are recorded as investment income. In the general course of our business, we receive certain fees from portfolio companies, which are non-recurring in nature. Such fees include loan prepayment penalties, advisory, loan amendment and other fees, and are recorded as investment income when earned. 113 -------------------------------------------------------------------------------- Fee income for the three and six months endedJune 30, 2022 and 2021 was as follows: Three Months Three Months Six Months Six Months Ended Ended Ended Ended ($ in thousands) June 30, 2022 June
30, 2021
1,164$ 2,816 $ 2,242 Management, valuation and other fees 633 547 47 1,129 Total Recurring Fee Income 2,122 1,711 2,863 3,371 Non-Recurring Fee Income: Prepayment fees 133 - 133 49 Acceleration of unamortized loan origination fees 2,301 868 2,497 1,271 Advisory, loan amendment and other fees 516 (11) 775 10 Total Non-Recurring Fee Income 2,950 857 3,405 1,330 Total Fee Income$ 5,072 $ 2,568 $ 6,268 $ 4,701
Payment-in-Kind (PIK) Interest Income
We currently hold, and expect to hold in the future, some loans in our portfolio that contain PIK interest provisions. PIK interest, computed at the contractual rate specified in each loan agreement, is periodically added to the principal balance of the loan, rather than being paid to us in cash, and is recorded as interest income. Thus, the actual collection of PIK interest may be deferred until the time of debt principal repayment. PIK interest, which is a non-cash source of income at the time of recognition, is included in our taxable income and therefore affects the amount we are required to distribute to our stockholders to maintain our tax treatment as a RIC forU.S. federal income tax purposes, even though we have not yet collected the cash. Generally, when current cash interest and/or principal payments on a loan become past due, or if we otherwise do not expect the borrower to be able to service its debt and other obligations, we will place the loan on non-accrual status and will generally cease recognizing PIK interest income on that loan for financial reporting purposes until all principal and interest have been brought current through payment or due to a restructuring such that the interest income is deemed to be collectible. We write off any previously accrued and uncollected PIK interest when it is determined that the PIK interest is no longer collectible. We may have to include in our ICTI, PIK interest income from investments that have been classified as non-accrual for financial reporting purposes. Interest income on non-accrual investments is not recognized for financial reporting purposes, but generally is recognized in ICTI. As a result, we may be required to make a distribution to our stockholders in order to satisfy the minimum distribution requirements, even though we will not have received and may not ever receive any corresponding cash amount.
Unused Commitments
In the normal course of business, we are party to financial instruments with off-balance sheet risk, consisting primarily of unused commitments to extend financing to our portfolio companies. Since commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. As ofJune 30, 2022 andDecember 31, 2021 , we believed that we had adequate financial resources to satisfy our unfunded commitments. The balances of unused commitments to extend financing as ofJune 30, 2022 andDecember 31, 2021 were as follows:Portfolio Company ($ in thousands) Investment Type June 30, 2022 December 31, 2021 1888 Industrial Services, LLC(1)(2) Revolver $ 189 $ - Acclime Holdings HK Limited(1) Delayed Draw Term Loan - 1,179 Acclime Holdings HK Limited(1) Delayed Draw Term Loan - 110 Accurus Aerospace Corporation(1)(2) Revolver 2,305 - Air Comm Corporation, LLC(1) Delayed Draw Term Loan 11 11 Air Comm Corporation, LLC(1) Delayed Draw Term Loan 1,448 1,448 Amtech Software(1) Delayed Draw Term Loan 1,527 2,727 114
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Portfolio Company ($ in thousands) Investment Type June 30, 2022 December 31, 2021 Amtech Software(1) Revolver 682 682 AnalytiChem Holding GmbH(1)(2)(3) Incremental Term Loan 917 6,207 AnalytiChem Holding GmbH(1)(2)(3) Bridge Revolver 359 - Aquavista Watersides 2 LTD(1)(2)(4) Bridge Revolver 451 503 Aquavista Watersides 2 LTD(1)(2)(4) Acquisition Facility 2,821 3,147 Astra Bidco Limited(1)(2)(4) Delayed Draw Term Loan 885 2,571
1,314 3,497 Azalea Buyer, Inc.(1)(2) Delayed Draw Term Loan 961 962 Azalea Buyer, Inc.(1)(2) Revolver 423 481 Bariacum S.A(1)(2)(3) Acquisition Facility 1,986 2,161 Beyond Risk Management, Inc.(1)(2) Delayed Draw Term Loan 2,423 2,573 BigHand UK Bidco Limited(1)(2)(4) Acquisition Facility - 378 Black Angus Steakhouses, LLC(1) Delayed Draw Term Loan 417 - Bounteous, Inc.(1) Delayed Draw Term Loan 2,840 2,840 Brightpay Limited(1)(2)(3) Delayed Draw Term Loan 197 432 Brightpay Limited(1)(2)(3) Delayed Draw Term Loan 132 144 BrightSign LLC(1)(2) Revolver 1,329 1,329 British Engineering Services Holdco Limited(1)(2)(4) Bridge Revolver - 613 CAi Software, LLC(1)(2) Revolver 943 943
116 167 Centralis Finco S.a.r.l.(1)(2)(3) Acquisition Facility 424 461 Ceres Pharma NV(1)(2)(3) Delayed Draw Term Loan 1,976 2,149 CGI Parent, LLC(1) Revolver 1,653 -
Classic Collision (
267 393 Coastal Marina Holdings, LLC(1)(2) PIK Tranche B Term Loan 1,311 1,311 Coastal Marina Holdings, LLC(1)(2) Tranche A Term Loan 3,576 3,576
- 6,018 Comply365, LLC(1)(2) Revolver 1,100 - Coyo Uprising GmbH(1)(2)(3) Delayed Draw Term Loan 821 894 Crash Champions, LLC(1)(2) Delayed Draw Term Loan 378 5,420 CSL Dualcom(1)(2)(4) Acquisition Term Loan 895 998 Dart Buyer, Inc.(1) Delayed Draw Term Loan - 2,431 DecksDirect, LLC(1)(2) Revolver 153 218 DreamStart Bidco SAS(1)(2)(3) Acquisition Facility 567 617 Dune Group(1)(3) Delayed Draw Term Loan 611 665 Dwyer Instruments, Inc.(1)(2) Delayed Draw Term Loan 692 692 Eclipse Business Capital, LLC(1) Revolver 6,545 11,818 EMI Porta Holdco LLC(1) Delayed Draw Term Loan 10,441 12,458 EMI Porta Holdco LLC(1) Revolver 2,005 2,966 EPS NASS Parent, Inc.(1) Delayed Draw Term Loan 257 583 eShipping, LLC(1) Delayed Draw Term Loan 1,650 2,548 eShipping, LLC(1) Revolver 1,486 1,232
Events
440 - F24 (Stairway BidCo GmbH)(1)(2)(3) Delayed Draw Term Loan 274 405 Fineline Technologies, Inc.(1) Delayed Draw Term Loan 180 180 Finexvet(1)(2)(3) Acquisition Facility 230 - 115
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Portfolio Company ($ in thousands) Investment Type June 30, 2022 December 31, 2021 Footco 40 Limited(1)(2)(4) Delayed Draw Term Loan 773 - FragilePak LLC(1) Delayed Draw Term Loan 2,354 2,354 GPZN II GmbH(1)(2)(3) CAF Term Loan 549 -
267 657 Heavy Construction Systems Specialists, LLC(1) Revolver 2,632 2,632
913 1,563 IGL Holdings III Corp.(1) Delayed Draw Term Loan - 1,217 Innovad Group II BV(1)(2)(3) Delayed Draw Term Loan 1,236 1,825 INOS 19-090 GmbH(1)(2)(3) Acquisition Facility 2,331 2,535 ITI Intermodal, Inc.(1) Delayed Draw Term Loan 103 103 ITI Intermodal, Inc.(1) Revolver 124 124 Jaguar Merger Sub Inc.(1)(2) Delayed Draw Term Loan 711 1,961 Jaguar Merger Sub Inc.(1)(2) Revolver 490 490 Jocassee Partners LLC Joint Venture 65,000 20,000 Jon Bidco Limited(1)(2)(7) Capex & Acquisition Facility 1,416 - Jones Fish Hatcheries & Distributors LLC(1) Revolver 418 - Kano Laboratories LLC(1)(2) Delayed Draw Term Loan 2,830 153 Kano Laboratories LLC(1)(2) Delayed Draw Term Loan 153 4,544 Kemmerer Operations LLC(1) Delayed Draw Term Loan 908 - LAF International(1)(2)(3) Acquisition Facility 167 341 Lambir Bidco Limited(1)(2)(3) Bridge Revolver - 941 Lambir Bidco Limited(1)(2)(3) Delayed Draw Term Loan 1,730 1,881
354 - LeadsOnline, LLC(1) Revolver 2,256 - Lifestyle Intermediate II, LLC(1)(2) Revolver 2,333 - LivTech Purchaser, Inc.(1) Delayed Draw Term Loan 34 82 Marmoutier Holding B.V.(1)(2)(3) Delayed Draw Term Loan 372 405 Marmoutier Holding B.V.(1)(2)(3) Revolver 149 162 Marshall Excelsior Co.(1)(2) Revolver 689 - MC Group Ventures Corporation(1) Delayed Draw Term Loan 817 817 Modern Star Holdings Bidco Pty Limited(1)(2)(5) Capex Term Loan 982 1,038 Murphy Midco Limited(1)(2)(4) Delayed Draw Term Loan 598 2,617 Narda Acquisitionco., Inc.(1)(2) Revolver 1,311 1,311 Navia Benefit Solutions, Inc.(1)(2) Delayed Draw Term Loan 1,261 1,261 Nexus Underwriting Management Limited(1)(2)(4) Revolver - 103
447 541 Novotech Aus Bidco Pty Ltd(1)(2) Capex & Acquisition Facility 809 - OA Buyer, Inc.(1)(2) Revolver 1,331 1,331 OAC Holdings I Corp(1) Revolver 294 - OG III B.V.(1)(2)(3) Acquisition CapEx Facility - 686
- 817
2,289 4,357 OSP Hamilton Purchaser, LLC(1) Revolver 131 187 Pacific Health Supplies Bidco Pty Limited(1)(5) CapEx Term Loan - 1,283 PDQ.Com Corporation(1) Delayed Draw Term Loan - 289 PDQ.Com Corporation(1) Delayed Draw Term Loan 7,753 10,948
73 - 116 --------------------------------------------------------------------------------Portfolio Company ($ in thousands) Investment Type June 30, 2022 December 31, 2021
73 -
73 -
73 -
3,709 - Polara Enterprises, L.L.C.(1) Revolver 474 545 Policy Services Company, LLC(1)(2) Delayed Draw Term Loan - 6,944 Premium Invest(1)(2)(3) Acquisition Facility 1,777 1,933 ProfitOptics, LLC(1) Revolver 484 - Protego Bidco B.V.(1)(2)(3) Delayed Draw Term Loan 776 844 PSP Intermediate 4, LLC(1)(2)(3) Delayed Draw Term Loan 712 QPE7 SPV1 BidCo Pty Ltd(1)(2)(5) Acquisition Term Loan - 373 RA Outdoors, LLC(1)(2) Revolver 1,235 - Rep Seko Merger Sub LLC(1)(2) Delayed Draw Term Loan 929 1,455 Reward Gateway (UK) Ltd(1)(2)(4) Acquisition Facility 606 1,061 Riedel Beheer B.V.(1)(2)(3) Revolver - 230 Riedel Beheer B.V.(1)(2)(3) Delayed Draw Term Loan 141 153 Sanoptis S.A.R.L.(1)(3) Acquisition Capex Facility 7,482 - Scaled Agile, Inc.(1) Delayed Draw Term Loan 416 416 Scaled Agile, Inc.(1) Revolver 336 336 Scout Bidco B.V.(1)(3) Revolver 1,009 - Scout Bidco B.V.(1)(2)(3) Delayed Draw Term Loan 2,223 - Security Holdings B.V.(1)(3) Delayed Draw Term Loan 2,091 2,274 Security Holdings B.V.(1)(3) Revolver 1,045 1,137 Sereni Capital NV(1)(2)(3) Revolver 53 - Sereni Capital NV(1)(2)(3) Term Loan 376 - Smartling, Inc.(1) Delayed Draw Term Loan 1,978 2,353 Smartling, Inc.(1) Revolver 1,176 1,176 Smile Brands Group, Inc.(1)(2) Delayed Draw Term Loan 185 655Springbrook Software (SBRK Intermediate, Inc.)(1) Delayed Draw Term Loan - 2,373
4,709 5,251 Superjet Buyer, LLC(1) Revolver 1,825 1,825 Syntax Systems Ltd(1) Revolver 448 569 Syntax Systems Ltd(1) Delayed Draw Term Loan 1,933 1,933 Tank Holding Corp(1) Revolver 509 - Techone B.V.(1)(2)(3) Delayed Draw Term Loan - 1,621 Techone B.V.(1)(2)(3) Revolver 219 432 Tencarva Machinery Company, LLC(1) Delayed Draw Term Loan 886 886 Tencarva Machinery Company, LLC(1) Revolver 1,129 1,129The Caprock Group, Inc. (aka TA/TCG Holdings, LLC)(1) Delayed Draw Term Loan 2,811 2,811The Caprock Group, Inc. (aka TA/TCG Holdings, LLC)(1) Revolver 827 827 The Hilb Group, LLC(1)(2) Delayed Draw Term Loan 2,345 2,773 TPC Group, Inc.(1)(2) Revolver 34,322 - Transit Technologies LLC(1)(2) Delayed Draw Term Loan - 1,857 Truck-Lite Co., LLC(1)(2) Delayed Draw Term Loan - 4,540 Turbo Buyer, Inc.(1) Delayed Draw Term Loan - 2,070 Turbo Buyer, Inc.(1) Delayed Draw Term Loan 2,130 - Union Bidco Limited(1)(4) Acquisition Facility 151 - 117
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Portfolio Company December 31, ($ in thousands) Investment Type June 30, 2022 2021
1,588 -USLS Acquisition, Inc. (f/k/a US Legal Support, Inc.)(1)(2) Delayed Draw Term Loan 3,820 - Victoria Bidco Limited(1)(2)(4) Delayed Draw Term Loan 423 - Waccamaw River, LLC(2) Joint Venture 2,480 11,280 W2O Holdings, Inc.(1) Delayed Draw Term Loan 2,622 3,832 Woodland Foods, Inc.(1) Revolver 1,465 2,070 Xeinadin Bidco Limited(1)(2)(4) CAF Term Loan 5,986 - ZB Holdco LLC(1) Revolver 845 - ZB Holdco LLC(1) Delayed Draw Term Loan 1,352 - Zeppelin Bidco Limited(1)(2)(4) Capex / Acquisition Facility 2,541 - Zeppelin Bidco Limited(1)(2)(4) Revolver 534 - Total unused commitments to extend financing
(1)Our estimate of the fair value of the current investments in these portfolio companies includes an analysis of the fair value of any unfunded commitments. (2)Represents a commitment to extend financing to a portfolio company where one or more of our current investments in the portfolio company are carried at less than cost. (3)Actual commitment amount is denominated in Euros. Commitment was translated intoU.S. dollars based on the spot rate at the relevant balance sheet date. (4)Actual commitment amount is denominated in British pounds sterling. Commitment was translated intoU.S. dollars based on the spot rate at the relevant balance sheet date. (5)Actual commitment amount is denominated in Australian dollars. Commitment was translated intoU.S. dollars based on the spot rate at the relevant balance sheet date. (6)Actual commitment amount is denominated in Canadian dollars. Commitment was translated intoU.S. dollars based on the spot rate at the relevant balance sheet date. (7)Actual commitment amount is denominated inNew Zealand dollars. Commitment was translated intoU.S. dollars based on the spot rate at the relevant balance sheet date. In the normal course of business, we guarantee certain obligations in connection with our portfolio companies (in particular, certain controlled portfolio companies). Under these guarantee arrangements, payments may be required to be made to third parties if such guarantees are called upon or if the portfolio companies were to default on their related obligations, as applicable. As ofJune 30, 2022 andDecember 31, 2021 , we had guaranteed €9.9 million ($10.3 million U.S. dollars and$11.3 million U.S. dollars, respectively) relating to credit facilities amongErste Bank andMVC Automotive Group Gmbh , or MVC Auto. We would be required to make payments toErste Bank if MVC Auto were to default on their related payment obligations. None of the credit facility guarantees are recorded as a liability on our Unaudited and Audited Consolidated Balance Sheets. As such, the credit facility liabilities are considered in the valuation of our investments in MVC Auto. The guarantees denominated in foreign currencies were translated intoU.S. dollars based on the spot rate at the relevant balance sheet date.
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