BLACKROCK CAPITAL INVESTMENT CORPORATION The information contained in this section should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. Forward-looking statements This report, and other statements that we may make, may contain forward-looking statements with respect to future financial or business performance, strategies or expectations. Forward-looking statements are typically identified by words or phrases such as "trend," "opportunity," "pipeline," "believe," "comfortable," "expect," "anticipate," "current," "intention," "estimate," "position," "assume," "potential," "outlook," "continue," "remain," "maintain," "sustain," "seek," "achieve" and similar expressions, or future or conditional verbs such as "will," "would," "should," "could," "may" or similar expressions. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and we assume no duty to and do not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance. In addition to factors previously identified elsewhere in the reportsBlackRock Capital Investment Corporation has filed with theSecurities and Exchange Commission (the "SEC"), the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance: • our future operating results; • our business prospects and the prospects of our portfolio companies; • the impact of investments that we expect to make; • our contractual arrangements and relationships with third parties;
• the dependence of our future success on the general economy and its
impact on the industries in which we invest;
• the financial condition of and ability of our current and prospective
portfolio companies to achieve their objectives;
• our expected financings and investments;
• the adequacy of our cash resources and working capital, including our
ability to obtain continued financing on favorable terms;
• the timing of cash flows, if any, from the operations of our portfolio
companies;
• the impact of increased competition;
• the impact of COVID-19 on our portfolio companies and the markets in
which they operate, interest rates and the economy in general;
• the ability of the Advisor to locate suitable investments for us and to
monitor and administer our investments;
• changes in law and policy accompanying the new administration and
uncertainty pending any such changes;
• increased geopolitical unrest, terrorist attacks or acts of war, which
may adversely affect the general economy, domestic and local financial
and capital markets, or the specific industries of our portfolio
companies;
• changes and volatility in political, economic or industry conditions, the
interest rate environment, foreign exchange rates or financial and
capital markets;
• the unfavorable resolution of legal proceedings; and
• the impact of changes to tax legislation and, generally, our tax position.
Overview We were incorporated inDelaware onApril 13, 2005 and commenced operations with private funding onJuly 25, 2005 , and completed our initial public offering onJuly 2, 2007 . Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in middle-market companies in the form of senior debt securities and loans, and our investment portfolio may include junior secured and unsecured debt securities and loans, each of which may include an equity component. We are externally managed and have elected to be regulated as a BDC under the 1940 Act. As a BDC, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in "qualifying assets," including securities of private or thinly traded publicU.S. companies, cash, cash equivalents,U.S. Government securities and high-quality debt investments that mature in one year or less.
Certain items previously reported may have been reclassified to conform to the current year presentation.
43
--------------------------------------------------------------------------------Investments
Our level of investment activity can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle-market companies, the level of merger and acquisition activity, the general economic environment and the competitive environment for the types of investments we make.
As a BDC, we generally do not acquire any assets other than "qualifying assets" specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in "eligible portfolio companies." Under the relevantSEC rules, the term "eligible portfolio company" includes most private companies, companies whose securities are not listed on a national securities exchange, and certain public companies that have listed their securities on a national securities exchange and have a market capitalization of less than$250 million . These rules also permit us to include as qualifying assets certain follow-on investments in companies that were eligible portfolio companies at the time of initial investment but that no longer meet the definition. As ofJune 30, 2022 , approximately 13.8% of the total assets of the Company were not qualifying assets under Section 55(a) of the 1940 Act.
Revenues
We generate revenues primarily in the form of interest on the debt we hold, dividends on our equity interests and capital gains on the sale of warrants and other debt or equity interests that we acquire in portfolio companies. Our investments in fixed income instruments generally have an expected maturity of three to ten years, although we have no lower or upper constraint on maturity, and typically bear interest at a fixed or floating rate. Interest on our debt securities is generally payable monthly, quarterly or semi-annually. In some cases, our debt instruments and preferred stock investments may defer payments of cash interest or dividends or pay interest or dividends in-kind. Any outstanding principal amount of our debt securities and any accrued but unpaid interest will generally become due at the maturity date. In addition, we may generate revenue in the form of prepayment fees, commitment, origination, capital structuring fees, end-of-term or exit fees, for providing significant managerial assistance, and other investment related income.
Expenses
Our primary operating expenses include the payment of a Management Fee and, depending on our operating results, Incentive Fees, interest and credit facility fees, expenses reimbursable under the Current Management Agreement, professional fees, administration fees and the allocable portion of overhead under the administration agreement. The Management Fee and Incentive Fee compensate the Advisor for work in identifying, evaluating, negotiating, closing and monitoring our investments. Our Current Management Agreement with the Advisor provides that we will reimburse the Advisor for costs and expenses incurred by the Advisor for office space rental, office equipment and utilities allocable to the Advisor under the Current Management Agreement, as well as any costs and expenses incurred by the Advisor relating to any non-investment advisory, administrative or operating services provided by the Advisor to us. We bear all other costs and expenses of our operations and transactions.
Critical accounting policies and estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting periods presented. Although management believes these estimates and assumptions to be reasonable, actual results could differ from those estimates and such differences could be material. Management considers the significant accounting policies important to understanding the consolidated financial statements. In addition to the discussion below, our significant accounting policies are further described in the notes to the consolidated financial statements. See Note 2 to the consolidated financial statements for a description of significant accounting policies and of recently issued accounting pronouncements. Management considers Investments to be an area deemed a critical accounting policy as a result of the judgments necessary for management to select valuation methodologies and to select significant unobservable inputs to estimate fair value. Additionally, theSEC has adopted Rule 2a-5 (the "Rule") under the 1940 Act. Pursuant to the Rule, the Company's Board of Directors may designate a valuation designee to perform certain fair value functions, including performing fair value determinations. It is anticipated that the Company will be in compliance with the Rule on or before the formalSEC compliance date onSeptember 8, 2022 (see Note 2 to the consolidated financial statements).
Financial and operating highlights
AtJune 30, 2022 : Investment portfolio, at fair value:$557.4 million Net assets:$335.4 million Indebtedness, excluding deferred issuance costs:$238.0 million Net asset value per share:$4.57 44 --------------------------------------------------------------------------------
Portfolio Activity for the Three Months Ended
Operating Results for the Three Months EndedJune 30, 2022 : Net investment income per share:$0.10 Distributions declared per share:$0.10 Basic earnings (loss) per share:$(0.03) Net investment income:$7.1 million Net realized and unrealized gain (loss):$(9.7) million Net increase (decrease) in net assets from operations:$(2.5) million Net investment income per share, as adjusted1:$0.08 Basic earnings (loss) per share, as adjusted1:$(0.05) Net investment income, as adjusted1:$6.0 million Net increase (decrease) in net assets from operations, as adjusted1:$(3.6) million As Adjusted1: The Company reports its financial results in accordance with GAAP; however, management believes evaluating the Company's ongoing operating results may be enhanced if investors have additional non-GAAP financial measures. See "Supplemental Non-GAAP information" for further information on non-GAAP financial measures and for as adjusted items, which are adjusted to remove the impact of the accrued hypothetical liquidation basis incentive fee expense reversal based on capital gains that was recorded, as required by GAAP, and to include only the incremental incentive fee based on income. Under the Current Management Agreement, incentive fee expense based on income is calculated for each calendar quarter and may be paid on a quarterly basis if certain thresholds are met. Adjusted amounts reflect the fact that no Incentive Fee on capital gains was realized and payable to the Advisor during the three months endedJune 30, 2022 .
Portfolio and investment activity
We invested approximately$73.5 million , including PIK, during the three months endedJune 30, 2022 . The new investments consisted of senior secured loans secured by first lien ($62.7 million , or 85.4%) or second lien ($10.7 million , or 14.5%) and equity securities ($0.1 million , or 0.1%). Additionally, we received proceeds from sales, repayments and other exits of approximately$25.1 million during the three months endedJune 30, 2022 . Concentration of our assets in an issuer, industry or sector may present certain risks. To the extent that we assume large positions in the securities of a small number of issuers, our net asset value may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market's assessment of the issuer. AtJune 30, 2022 , our portfolio of$557.4 million (at fair value) consisted of 100 portfolio companies and was invested approximately 93% in senior secured loans, 4% in unsecured or subordinated debt securities, 2% in equity investments, and less than 1% in senior secured notes. Our average investment by portfolio company at amortized cost was approximately$6.3 million atJune 30, 2022 . Our largest portfolio company investment at fair value was approximately$24.9 million and our five largest portfolio company investments at fair value comprised approximately 15% of our portfolio atJune 30, 2022 . AtDecember 31, 2021 , our portfolio of$552.6 million (at fair value) consisted of 86 portfolio companies and was invested 93% in senior secured loans, 5% in unsecured or subordinated debt securities, 2% in equity investments and less than 1% in senior secured notes. Our average investment by portfolio company at amortized cost was approximately$7.1 million atDecember 31, 2021 . Our largest portfolio company investment at fair value was approximately$37.3 million and our five largest portfolio company investments by value comprised approximately 21% of our portfolio atDecember 31, 2021 . In addition, we may, from time to time, invest a substantial portion of our assets in the securities of issuers in any single industry or sector of the economy or in only a few issuers. A downturn in an industry or sector in which we are concentrated could have a larger impact on us than on a company that does not concentrate in that particular industry or sector. Our Advisor monitors industry and sector uncertainties on an ongoing basis, including substantial regulatory challenges in the healthcare sector, volatility and extensive government regulation in the financial services sector, cyclical risks associated with the overall economy and events outside of our control, including public health crises such as COVID-19, or other geopolitical or macroeconomic events (see Item 1A. Risk Factors for further details), which may have resulted in a negative impact to certain industries, including significant reductions in demand for certain goods and services, reductions in business activity and financial transactions, supply chain interruptions and overall economic and financial market instability both globally and inthe United States (see Note 5 to the consolidated financial statements), among various other industry and sector uncertainties due to certain exposures. AtJune 30, 2022 , our top three industry concentrations at fair value consisted ofDiversified Financial Services (12.8%),Internet Software & Services (11.6%), and Software (10.8%). AtDecember 31, 2021 , our top three industry concentrations at fair value consisted ofDiversified Financial Services (13.6%),Internet Software & Services (11.2%) and Road & Rail (10.5%) (see Note 5 to the consolidated financial statements).
The weighted average portfolio yields at fair value and cost as of
June 30, 2022
Fair Value Cost Fair Value Cost
Weighted Average Yield(1)
Total portfolio 9.1 % 8.2 % 8.5 % 7.6 %
Senior secured loans 9.6 % 9.6 % 9.0 % 9.0 %
Other debt securities 2.4 % 1.4 % 1.9 % 1.1 %
Debt and income producing equity
securities 9.3 % 9.0 % 8.7 % 8.4 %
45--------------------------------------------------------------------------------
(1) Computed as (a) the annual stated interest rate or yield earned plus the
net annual amortization of original issue discount, divided by (b) the
amortized cost or at fair value of each category, as applicable. The
calculation excludes exit fees that are receivable upon repayment of
certain loan investments.
For the three and six months ended June 30, 2022 , the total return based on net
asset value was (0.2)% and 1.4%, respectively. For the three and six months
ended June 30, 2022 , the total return based on market price was (10.6)% and
(3.7)%, respectively. For the three and six months ended June 30, 2021 , the
total return based on net asset value was 10.3% and 16.4%, respectively. For the
three and six months ended June 30, 2021 , the total return based on market price
was 20.3% and 53.8%, respectively. Total returns are historical and are
calculated by determining the percentage change in the net asset value or market
price with all distributions reinvested, if any. Distributions are assumed to be
reinvested in accordance with the Company's dividend reinvestment plan and do
not reflect brokerage commissions.
The Advisor generally employs a grading system for our entire portfolio. The
Advisor grades all loans on a scale of 1 to 4. This system is intended to
reflect the performance of the borrower's business, the collateral coverage of
the loans and other factors considered relevant. Generally, the Advisor assigns
only one loan grade to each portfolio company for all loan investments in that
portfolio company; however, the Advisor will assign multiple ratings when
appropriate for different investments in one portfolio company. The following is
a description of the conditions associated with each investment rating:
Grade 1: Investments in portfolio companies whose performance is substantially
within or above the Advisor's original base case expectations and whose risk
factors are neutral to favorable to those at the time of the original investment
or subsequent restructuring.
Grade 2: Investments in portfolio companies whose performance is materially below the Advisor's original base case expectations or risk factors have increased since the time of original investment or subsequent restructuring. No loss of investment return or principal (or invested capital) is expected.
Grade 3: Investments in portfolio companies whose performance is materially below the Advisor's original base case expectations or risk factors have increased materially since the time of original investment or subsequent restructuring. Some loss of investment return is expected, but no loss of principal (or invested capital) is expected.
Grade 4: Investments in portfolio companies whose performance is materially below the Advisor's original base case expectations or risk factors have increased substantially since the time of original investment or subsequent restructuring. Some loss of principal (or invested capital) is expected.
The Advisor monitors and, when appropriate, changes the investment ratings assigned to each investment in our portfolio. In connection with our valuation process, the Advisor and Board of Directors review these investment ratings on a quarterly basis. Our weighted average investment rating was 1.27 atJune 30, 2022 and 1.21 atDecember 31, 2021 . The following is a distribution of the investment ratings of our portfolio companies, at fair value, atJune 30, 2022 andDecember 31, 2021 : June 30, December 31, 2022 2021 Grade 1$ 443,045,874 $ 474,466,652 Grade 2 89,984,385 49,356,296 Grade 3 - - Grade 4 19,340,520 22,579,310 Not Rated(1) 5,023,500 6,161,736 Total investments$ 557,394,279 $ 552,563,994
(1) Not Rated category at
residual equity investments in
of
investments in
calculating our weighted average investment rating, the Not Rated category
is excluded.
Results of operations
Results comparisons for the three months ended
Investment income
Three Months Ended
June 30, 2022 June 30, 2021
Investment income
Interest and fees on senior secured loans $ 12,004,839 $ 10,184,389
Interest and fees on other debt securities 149,298
136,106
Interest earned on short-term investments, cash equivalents 36,089
356
Dividends and fees on equity securities 78,729 536,908 Total investment income$ 12,268,955 $ 10,857,759 46
-------------------------------------------------------------------------------- Total investment income for the three months endedJune 30, 2022 increased$1.4 million , or 13.0%, as compared to the three months endedJune 30, 2021 . The increase was primarily due to a 16.8% higher average balance in senior secured loans, at amortized cost, during the three months endedJune 30, 2022 , and an increase in fee and other one-time income of$0.4 million period over period as a result of certain exited investments during the quarter. The increase in portfolio size is primarily due to net deployments during 2021 and the first half of 2022, which were substantially all in senior secured debt. These increases are partially offset by a decrease in dividend income of$0.5 million period over period, which is attributable to the exit ofBCIC Senior Loan Partners, LLC ("Senior Loan Partners ") duringDecember 2021 . Expenses Three Months Ended June 30, 2022 June 30, 2021 Operating expenses Interest and other debt expenses$ 2,860,691 $ 2,969,177 Management fees 1,947,167 1,775,684 Incentive fees on income 69,343 - Incentive fees on capital gains (1,073,068 ) - Administrative expenses 299,262 314,886 Professional fees 207,489 254,834 Insurance expense 196,114 201,597 Director fees 153,125 153,125 Investment advisor expenses 25,819 87,500 Other operating expenses 462,797 258,232
Total expenses, before incentive fee waiver 5,148,739 6,015,035
Incentive fee waiver -
-
Total expenses, net of incentive fee waiver
Total expenses, net of incentive fee waiver, decreased$0.9 million , or 14.4%, for the three months endedJune 30, 2022 from the comparable period in 2021, primarily due to the reversal of previously accrued incentive fees on capital gains, as required by GAAP during the three months endedJune 30, 2022 . The Company is required under GAAP to accrue a hypothetical liquidation basis incentive fee on capital gains, based upon net realized capital gains and unrealized capital appreciation and depreciation on investments held at the end of each period. If the resulting calculation amount is negative, the accrual for GAAP in a given period may result in the reduction or reversal of Incentive Fees on capital gains accrued in a prior period (see Note 3 to the consolidated financial statements). The accrual (reversal) of Incentive Fees on capital gains was approximately$(1.1) million and zero during the three months endedJune 30, 2022 and 2021, respectively. As ofJune 30, 2022 andDecember 31, 2021 , the balance of accrued Incentive Fees on capital gains was zero and$1.5 million , respectively. However, as ofDecember 31, 2021 no Incentive Fees on capital gains were realized and payable to the Advisor as of such date.
For the three months ended
Net investment income
Net investment income was$7.1 million and$4.8 million for the three months endedJune 30, 2022 and 2021, respectively. The increase of approximately$2.3 million , or 47.0%, was due to a$1.4 million increase in total investment income, coupled with a$0.9 million decrease in expenses described above.
Net realized gain or loss
There was no net realized gain (loss) recorded for the three months endedJune 30, 2022 . Net realized gain (loss) for the three months endedJune 30, 2021 was approximately$(8.7) million , primarily due to the full exit of our debt and equity positions inRed Apple Stores Inc. Substantially all of the net realized losses were reflected in unrealized depreciation in prior periods.
Net unrealized appreciation or depreciation
For the three months endedJune 30, 2022 and 2021, the change in net unrealized appreciation or depreciation on our investments, Interest Rate Swap, and foreign currency translation was an increase in net unrealized depreciation of$(9.7) million and a decrease in net unrealized depreciation of$35.9 million , respectively. The increase in net unrealized depreciation for the three months endedJune 30, 2022 was primarily due to i) an overall increase in valuation depreciation across our portfolio due to spread widening and general market declines during the quarter (see Item 1A. Risk Factors), out of which our investments inZest Acquisition Corp. , Thras.io, LLC,Razor Group GmbH andMagenta Buyer, LLC contributed to$(2.8) million of that decrease; ii) a$(1.5) million increase in valuation depreciation in our investment inJuul Labs Inc ; partially offset by iii) a$0.8 million decrease in unrealized depreciation inGordon Brothers Finance Company , including the 47 -------------------------------------------------------------------------------- reversal of$2.0 million of previously recognized depreciation as a result of a paydown during the quarter and$(1.2) million of valuation depreciation during the quarter. The decrease in net unrealized depreciation for the three months endedJune 30, 2021 was primarily due to a$23.2 million increase in the fair value ofSVP-Singer Holdings, LP , based on expected proceeds on the sale of the portfolio company which successfully closed inJuly 2021 , and an$8.4 million reversal of previously recognized depreciation, including foreign currency translation, related to the full exit of our debt and equity investments inRed Apple Stores Inc.
Net increase or decrease in net assets resulting from operations
The net increase or (decrease) in net assets resulting from operations for the three months endedJune 30, 2022 and 2021 was$(2.5) million and$32.0 million , respectively. As compared to the prior period, the decrease is reflective of net realized and unrealized gain (loss) of$(9.7) million for the current period, as compared to$27.2 million of net realized and unrealized gain (loss) for the three months endedJune 30, 2021 , the impact of which was partially offset by an increase in net investment income of approximately$2.3 million period-over-period.
Results comparisons for the six months ended
Investment income
Six Months Ended
June 30, 2022 June 30, 2021
Investment income
Interest and fees on senior secured loans $ 23,973,523 $ 19,575,574
Interest and fees on other debt securities 285,205
433,903
Interest earned on short-term investments, cash equivalents 37,903
1,431
Dividends and fees on equity securities 154,611 1,119,475 Total investment income$ 24,451,242 $ 21,130,383 Total investment income for the six months endedJune 30, 2022 increased$3.3 million , or 15.7%, as compared to the six months endedJune 30, 2021 . The increase was primarily due to a 22.8% higher average balance in senior secured loans, at amortized cost, during the six months endedJune 30, 2022 , and an increase in fee and other one-time income of$1.0 million period over period as a result of certain exited investments during the period. The increase in portfolio size is primarily due to net deployments during 2021 and the first half of 2022, which were substantially all in senior secured debt. These increases are partially offset by a decrease in dividend income of$1.0 million period over period, which is attributable to the exit ofSenior Loan Partners duringDecember 2021 . Expenses Six Months Ended June 30, 2022 June 30, 2021 Operating expenses Interest and other debt expenses$ 5,589,642 $ 5,722,273 Management fees 4,007,031 3,575,450 Incentive fees on income 88,356 - Incentive fees on capital gains (1,544,569 ) - Administrative expenses 664,769 637,001 Professional fees 510,346 666,993 Insurance expense 395,872 400,961 Director fees 306,250 306,250 Investment advisor expenses 51,638 175,000 Other operating expenses 766,596 613,514
Total expenses, before incentive fee waiver 10,835,931 12,097,442
Incentive fee waiver -
-
Total expenses, net of incentive fee waiver
Total expenses, net of incentive fee waiver, decreased$1.3 million , or 10.4%, for the six months endedJune 30, 2022 from the comparable period in 2021, primarily due to the reversal of previously accrued incentive fees on capital gains, as required by GAAP during the six months endedJune 30, 2022 , which was partially offset by an increase in management fees period over period. The Company is required under GAAP to accrue a hypothetical liquidation basis incentive fee on capital gains, based upon net realized capital gains and unrealized capital appreciation and depreciation on investments held at the end of each period. If the resulting calculation amount is negative, the accrual for GAAP in a given period may result in the reduction or reversal of Incentive Fees on capital gains accrued in a prior period (see Note 3 to the consolidated financial statements). The accrual (reversal) of Incentive Fees on capital gains was approximately$(1.5) million and zero during the six months endedJune 30, 2022 and 2021, respectively. As ofJune 30, 2022 andDecember 31, 2021 , the balance of accrued Incentive Fees on capital gains was zero and$1.5 million , respectively. However, as ofDecember 31, 2021 no Incentive Fees on capital gains were realized and payable to the Advisor as of such date. 48 --------------------------------------------------------------------------------
For the six months ended
Management fees increased approximately$0.4 million , or 12.1%, for the six months endedJune 30, 2022 from the comparable period in 2021 due to an increase in the total assets on which management fees are calculated (in arrears). The increase in total assets was primarily due to net deployments during 2021.
Net investment income
Net investment income was
Net realized gain or loss
Net realized gain (loss) for the six months endedJune 30, 2022 was approximately$0.8 million , primarily due to escrow proceeds received from SVP -Singer Holdings, LP , which was exited during 2021. Net realized gain (loss) for the six months endedJune 30, 2021 was$(19.7) million , primarily due to the restructure ofAdvanced Lighting Technologies, LLC , and exits of our investments inRed Apple Stores Inc. ,First Boston Construction Holdings, LLC , andAdvantage Insurance Inc. Substantially all of the net realized losses were reflected in unrealized depreciation in prior periods.
Net unrealized appreciation or depreciation
For the six months endedJune 30, 2022 and 2021, the change in net unrealized appreciation or depreciation on our investments, Interest Rate Swap, and foreign currency translation was an increase in net unrealized depreciation of$(11.5) million and a decrease in net unrealized depreciation of$58.9 million , respectively. The increase in net unrealized depreciation for the six months endedJune 30, 2022 was primarily due to i) an overall increase in valuation depreciation across our portfolio due to spread widening and general market declines during the period (see Item 1A. Risk Factors), out of which our investments inZest Acquisition Corp. ,Stitch Holdings L.P. , Thras.io, LLC, andMagenta Buyer, LLC contributed to$(3.3) million of that decrease; ii) a$(1.6) million increase in valuation depreciation in our investment inJuul Labs Inc. ; partially offset by iii) a$0.9 million decrease in unrealized depreciation inGordon Brothers Finance Company , including the reversal of$2.0 million of previously recognized depreciation as a result of a paydown during the period and$(1.1) million of valuation depreciation during the period. The decrease in net unrealized depreciation for the six months endedJune 30, 2021 was primarily due to i) a$27.4 million decrease in net unrealized depreciation onSVP-Singer Holdings, LP , including the reversal of previously recognized depreciation of$1.5 million associated with a distribution from the portfolio company and$25.9 million of valuation appreciation, based on expected proceeds on the sale of the portfolio company which successfully closed inJuly 2021 ; ii) the reversal of previously recognized depreciation of$19.3 million , including foreign currency translation, related to the exits of our investments inRed Apple Stores Inc. ,First Boston Construction Holdings, LLC andAdvantage Insurance Inc. , and the restructure ofAdvanced Lighting Technologies, LLC ; and iii) overall increase in valuation appreciation across our portfolio.
Net increase or decrease in net assets resulting from operations
The net increase or (decrease) in net assets resulting from operations for the six months endedJune 30, 2022 and 2021 was$3.0 million and$48.2 million , respectively. As compared to the prior period, the decrease is reflective of net realized and unrealized gain (loss) of$(10.6) million for the current period, as compared to$39.2 million of net realized and unrealized gain (loss) for the six months endedJune 30, 2021 , the impact of which was partially offset by an increase in net investment income of approximately$4.6 million period-over-period.
Supplemental Non-GAAP information
We report our financial results on a GAAP basis; however, management believes that evaluating our ongoing operating results may be enhanced if investors have additional non-GAAP basis financial measures. Management reviews non-GAAP financial measures to assess ongoing operations and, for the reasons described below, considers them to be effective indicators, for both management and investors, of our financial performance over time. Management does not advocate that investors consider such non-GAAP financial measures in isolation from, or as a substitute for, financial information prepared in accordance with GAAP. AfterMarch 6, 2017 , Incentive Fees based on income are calculated for each calendar quarter and may be paid on a quarterly basis if certain thresholds are met. In addition, as previously disclosed, the Advisor, in consultation with the Company's Board of Directors, had agreed to waive Incentive Fees based on income fromMarch 7, 2017 toJune 30, 2019 . BCIA had agreed to honor such waiver. The Advisor had voluntarily waived a portion of its Incentive Fees based on income fromJuly 1, 2019 throughSeptember 30, 2021 . We record our liability for Incentive Fee based on capital gains by performing a hypothetical liquidation basis calculation at the end of each reporting period, as required by GAAP, which assumes that all unrealized capital appreciation and depreciation is realized as of the reporting date. It should be noted that Incentive Fees based on capital gains (if any) are not due and payable until the end of the annual measurement period, or everyJune 30 . The incremental Incentive Fee disclosed for a given period is not necessarily indicative of actual full 49 -------------------------------------------------------------------------------- year results. Changes in the economic environment, financial markets and other parameters used in determining such estimates could cause actual results to differ and such differences could be material. There can be no assurance that unrealized capital appreciation and depreciation will be realized in the future, or that any accrued capital gains Incentive Fee will become payable. Incentive Fee amounts on capital gains actually paid by the Company will specifically exclude consideration of unrealized capital appreciation, consistent with requirements under the Advisers Act and the Current Management Agreement. See Note 3 to the consolidated financial statements for a more detailed description of the Company's Incentive Fee. Computations for all periods are derived from our consolidated financial statements as follows: Three Months Ended Six Months Ended June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021 GAAP Basis: Net Investment Income$ 7,120,216 $ 4,842,724 $ 13,615,311 $ 9,032,941 Net Investment Income per share 0.10 0.07 0.18 0.12 Addback: GAAP incentive fee (reversal) based on capital gains (1,073,068 ) - (1,544,569 ) - Addback: GAAP incentive fee based on Income net of incentive fee waiver (if any) 69,343 - 88,356 - Pre-Incentive Fee1: Net Investment Income$ 6,116,491 $ 4,842,724 $ 12,159,098 $ 9,032,941 Net Investment Income per share 0.08 0.07 0.16 0.12 Less: Incremental incentive fee (69,343 ) - (88,356 ) - based on Income net of incentive fee waiver (if any) As Adjusted2: Net Investment Income$ 6,047,148 $ 4,842,724 $ 12,070,742 $ 9,032,941 Net Investment Income per share 0.08 0.07 0.16 0.12
Pre-Incentive Fee1: Amounts are adjusted to remove all incentive fees. Such fees have been accrued (reversed) but are not due and payable at the reporting date.
As Adjusted2: Amounts are adjusted to remove the GAAP accrual (reversal) for incentive fee based on capital gains, and to include only the incremental incentive fee based on income. Adjusted amounts reflect the fact that no Incentive Fee on capital gains was realized and payable to the Advisor during the three and six month periods endedJune 30, 2022 and 2021, respectively (see Note 3). Under the Current Management Agreement, incentive fee based on income is calculated for each calendar quarter and may be paid on a quarterly basis if certain thresholds are met. Amounts reflected the Company's ongoing operating results and reflect the Company's financial performance over time.
Financial condition, liquidity and capital resources
During the six months endedJune 30, 2022 , we generated operating cash flows primarily from interest and fees received on senior secured loans and other debt securities, as well as from sales of selected portfolio company investments or repayments of principal. Net cash used in operating activities for the six months endedJune 30, 2022 was$(13.1) million . Our use of cash from operating activities during the period primarily consisted of$(13.1) million in net purchases of investments, excluding PIK capitalization. Net cash provided by financing activities during the six months endedJune 30, 2022 was$22.7 million . Our sources of cash from financing activities consisted of$92.0 million from the issuance of our 2025 Private Placement Notes, and$92.0 million in net debt borrowings under the Credit Facility. Our uses of cash consisted of the$(143.7) million repayment of our 2022 Convertible Notes, cash distributions paid to stockholders of$(14.8) million , purchases of treasury stock of$(2.0) million , and payments of debt issuance costs of$(0.8) million . In the normal course of business, we may enter into guarantees on behalf of portfolio companies. Under these arrangements, we would be required to make payments to third parties if the portfolio companies were to default on their related payment obligations. There were no such guarantees outstanding atJune 30, 2022 andDecember 31, 2021 . In addition, from time to time, the Company may provide for a commitment to a portfolio company for investment in an existing or new security. AtJune 30, 2022 andDecember 31, 2021 , we were obligated to existing portfolio companies for unfunded commitments of$69.5 million across 38 portfolio companies and$49.4 million across 35 portfolio companies, respectively. As ofJune 30, 2022 , we have analyzed cash and cash equivalents and availability under our Credit Facility and believe that there is sufficient liquidity to meet all of our obligations, fund unfunded commitments should the need arise, and deploy capital into new and existing portfolio companies. 50 --------------------------------------------------------------------------------
Contractual obligations
A summary of our significant contractual payment obligations for the repayment
of outstanding borrowings at
Payments Due By Period (dollars in millions)
Total Less than 1 year 1-3 years 3-5 years After 5 years Credit Facility(1)
$ 146.0 $ -$ 146.0 $ - $ - 2025 Private Placement Notes 92.0 - - 92.0 - Interest and Debt Related Payables 0.7 0.7 - - - (1) AtJune 30, 2022 ,$119.0 million remained undrawn under our Credit Facility. Distributions Our quarterly distributions, if any, are determined by our Board of Directors. Distributions are declared considering our estimate of annual taxable income available for distribution to stockholders and the amount of taxable income carried over from the prior year for distribution in the current year. We cannot assure stockholders that they will receive any distributions at all or distributions at a particular level. The following table lists the quarterly distributions per share from our common stock sinceJune 2020 : Distribution Amount Per Share Outstanding Record Date Payment Date $ 0.10 June 1, 2020 July 7, 2020 $ 0.10 August 18, 2020 September 29, 2020 $ 0.10 November 18, 2020 December 30, 2020 $ 0.10 March 17, 2021 April 7, 2021 $ 0.10 June 16, 2021 July 7, 2021 $ 0.10 September 15, 2021 October 6, 2021 $ 0.10 December 16, 2021 January 6, 2022 $ 0.10 March 17, 2022 April 7, 2022 $ 0.10 June 16, 2022 July 7, 2022 $ 0.10 September 15, 2022 October 6, 2022
Tax characteristics of all distributions are reported to stockholders on Form 1099-DIV or Form 1042-S after the end of the calendar year.
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We have elected to be taxed as a RIC under Subchapter M of the Code. In order to
maintain favorable RIC tax treatment, we must distribute annually to our
stockholders at least 90% of our ordinary income and realized net short-term
capital gains in excess of realized net long-term capital losses, if any, out of
the assets legally available for distribution. In order to avoid certain excise
taxes imposed on RICs, we must distribute during each calendar year an amount at
least equal to the sum of:
• 98% of our ordinary income (not taking into account any capital gains or
losses) for the calendar year;
• 98.2% of the amount by which our capital gains exceed our capital losses
(adjusted for certain ordinary losses) for the one-year period generally
ending on
• certain undistributed amounts from previous years on which we paid no
We may, at our discretion, carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this income. If we choose to do so, all other things being equal, this would increase expenses and reduce the amounts available to be distributed to our stockholders. We will accrue excise tax on estimated taxable income as required. In addition, although we currently intend to distribute realized net capital gains (i.e., net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for such distributions, we may in the future decide to retain such capital gains for investment. There was no provision for federal excise taxes recorded for the year endedDecember 31, 2021 . The final tax characterization of distributions is determined after the fiscal year and is reported on Form 1099 and in the Company's annual report to stockholders. Distributions can be characterized as ordinary income, capital gains and/or return of capital. To the extent that distributions exceed the Company's current and accumulated earnings and profits, the excess may be treated as a non-taxable return of capital. Distributions that exceed a Company's taxable income but do not exceed the Company's current and accumulated earnings and profits, may be classified as ordinary income which is taxable to stockholders. The Company estimates the source of its distributions as required by Section 19(a) of the 1940 Act. On a quarterly basis, for any payment of dividends estimated to be paid from any other source other than net investment income accrued for current period or certain cumulative periods based on the Section 19(a) requirement, the Company posts a Section 19(a) notice through theDepository Trust Company's Legal Notice System and its website, as well as sends its registered stockholders a printed copy of such notice along with the dividend payment. The estimates of the source of the distribution are interim estimates based on GAAP that are subject to revision, and the exact character of the distributions for tax purposes cannot be determined until the final books and records are finalized for the calendar year. Therefore, these estimates are made solely in order to comply with the requirements of Section 19(a) of the 1940 Act and should not be relied upon for tax reporting or any other purposes and could differ significantly from the actual character of distributions for tax purposes. For the$0.10 dividend per share paid onJuly 7, 2022 , the Company estimates that approximately$0.097 was from net investment income and approximately$0.003 was estimated to be a return of capital. For Consolidated Statements of Changes in Net Assets, sources of distribution to stockholders will be adjusted on an annual basis, if necessary, and calculated in accordance with federal income tax regulations. We maintain an "opt out" dividend reinvestment plan for our common stockholders. As a result, except as discussed below, if we declare a distribution, stockholders' cash distributions will be automatically reinvested in additional shares of our common stock, unless they specifically "opt out" of the dividend reinvestment plan as to receive cash distributions. Additionally, if the Company makes a distribution to be paid in cash or in stock at the election of stockholders as of the applicable dividend record date (a "Cash/Stock Distribution"), the terms are subject to the amended Plan datedMay 13, 2020 described below (see Note 7 to the consolidated financial statements). OnMarch 6, 2018 , the Board of Directors of the Company adopted amendments to the Company's dividend reinvestment plan (the "Plan"). Under the terms of the amended Plan, if the Company declares a dividend or determines to make a capital gain or other distribution, the reinvestment plan agent will acquire shares for the participants' accounts, depending upon the following circumstances, (i) through receipt of additional unissued but authorized shares from the Company ("newly issued shares") and/or (ii) by purchase of outstanding shares on the open market ("open-market purchases"). If, on the distribution payment date, the last quarterly net asset value per share ("NAV") is equal to or less than the closing market price per share on such distribution payment date (such condition often referred to as a "market premium"), the reinvestment plan agent will invest the distribution amount in newly issued shares on behalf of the participants. The number of newly issued shares to be credited to each participant's account will be determined by dividing the dollar amount of the distribution by the greater of (i) the NAV or (ii) 95% of the closing market price on the distribution payment date. If, on the distribution payment date, the NAV is greater than the closing market price per share on such distribution payment date (such condition often referred to as a "market discount"), the reinvestment plan agent may, upon notice from the Company, either (a) invest the distribution amount in newly issued shares on behalf of the participants or (b) invest the distribution amount in shares acquired on behalf of the participants in open-market purchases. OnMay 13, 2020 , the Board of Directors of the Company adopted further amendments to the Plan. Under the terms of the amended Plan, if the Company makes a Cash/Stock Distribution, each stockholder will be required to elect whether to receive the distribution in cash or in shares of the Company's common stock ("Common Shares"), pursuant to such notices, forms or other documentation as may be provided to the stockholder by the Company (the "Election Forms"). If the stockholder is a Plan participant and elects to receive the Cash/Stock Distribution in cash, the stockholder will be deemed to have elected not to participate in the Plan solely with respect to such Cash/Stock Distribution and will receive the distribution in cash subject to any rules applicable to the distribution that may limit the portion of the distribution the Company is required to pay in cash. If the stockholder is a Plan participant and elects to receive the Cash/Stock Distribution in stock, the stockholder will receive the distribution in newly issued Common Shares. The number of newly issued Common Shares credited to the stockholders' account in either case will be determined by dividing the dollar amount of the distribution (or portion of the distribution to be paid in Common Shares) by the price per Common Share determined in accordance with the Election Forms rather than pursuant to the formula(s) otherwise applicable 52 -------------------------------------------------------------------------------- under the Plan. This feature of the Plan means that, under certain circumstances, we may issue shares of our common stock at a price below NAV per share, which could cause our stockholders to experience dilution. We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. Also, we may be limited in our ability to make distributions due to the asset coverage test applicable to us as a BDC under the 1940 Act and due to provisions in our existing and future debt arrangements. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of favorable RIC tax treatment. In addition, in accordance withU.S. GAAP and tax regulations, we include in income certain amounts that we have not yet received in cash, such as payment-in-kind interest, which represents contractual interest added to the loan balance that becomes due at the end of the loan term, or the accretion of original issue or market discount. Since we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the requirement to distribute at least 90% of our investment company taxable income to obtain tax benefits as a RIC and may be subject to income or excise taxes. In order to satisfy the annual distribution requirement applicable to RICs, we may have the ability to declare a large portion of a dividend in shares of our common stock instead of in cash. As long as a sufficient portion of such dividend is paid in cash and certain requirements are met, the entire distribution would generally be treated as a dividend forU.S. federal income tax purposes. Recent developments OnAugust 2, 2022 , the Company's Board of Directors declared a distribution of$0.10 per share, payable onOctober 6, 2022 to stockholders of record at the close of business onSeptember 15, 2022 . OnAugust 2, 2022 , pursuant to Rule 2a-5 under the 1940 Act, the Board of Directors designated the Advisor as the Valuation Designee to perform certain fair value functions, including performing fair value determinations for the Company. The Company has reviewed subsequent events occurring through the date that these consolidated financial statements were available to be issued, and determined that no subsequent events occurred requiring accrual or disclosure, except as disclosed above and elsewhere in these notes to consolidated financial statements. Notice is hereby given in accordance with Section 23(c) of the 1940 Act that from time to time the Company may purchase shares of its common stock in the open market at prevailing market prices.
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