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FIDUS INVESTMENT CORPORATION

(FDUS)
  Report
Delayed Nasdaq  -  04:00 2022-09-26 pm EDT
16.94 USD   -1.45%
09/08FIDUS INVESTMENT CORPORATION : Ex-dividend day for
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08/23Fidus Investment Corp : Entry into a Material Definitive Agreement, Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant, Financial Statements and Exhibits (form 8-K)
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08/23Fidus Investment Corporation Enters into the Amendment No. 2 to the Amended and Restated Senior Secured Revolving Credit Agreement
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FIDUS INVESTMENT CORP Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

08/04/2022 | 04:19pm EDT
The following discussion and analysis of our financial condition and results of
operations should be read in conjunction with Fidus Investment Corporation's
consolidated financial statements and related notes appearing in our annual
report on Form 10-K for the year ended December 31, 2021, filed with the SEC on
March 3, 2022. The information contained in this section should also be read in
conjunction with our unaudited consolidated financial statements and related
notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.

Except as otherwise specified, references to "we," "us," "our," "Fidus" and "FIC" refer to Fidus Investment Corporation and its consolidated subsidiaries.

Forward Looking Statements


This Quarterly Report on Form 10-Q contains forward-looking statements that
involve substantial risks and uncertainties. These forward-looking statements
are not historical facts, but rather are based on current expectations,
estimates and projections about Fidus Investment Corporation, our current and
prospective portfolio investments, our industry, our beliefs, and our
assumptions. Words such as "anticipates," "expects," "intends," "plans," "will,"
"may," "continue," "believes," "seeks," "estimates," "would," "could," "should,"
"targets," "projects" and variations of these words and similar expressions are
intended to identify forward-looking statements. The forward-looking statements
contained in this Quarterly Report on Form 10-Q involve risks and uncertainties,
including statements as to:

our future operating results and the uncertainties associated with the continued
impact of the COVID-19 pandemic thereon;
•
changes in the financial and lending markets;
•
our business prospects and the prospects of our portfolio companies, including
our and their ability to achieve our respective objectives as a result of the
current COVID-19 pandemic;
•
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 and the impact of the COVID-19 pandemic
thereon;
•
the ability of our portfolio companies to achieve their objectives;
•
our expected financing and investments;
•
the adequacy of our cash resources and working capital;
•
the timing of cash flows, if any, from the operations of our portfolio companies
and the impact of the COVID-19 pandemic thereon;
•
the ability of the Investment Advisor to locate suitable investments for us and
to monitor and administer our investments and the impacts of the COVID-19
pandemic thereon;
•
the ability of our investment advisor to attract and retain highly talented
professionals;
•
our regulatory structure and tax treatment;
•
our ability to operate as a BDC and a RIC and each of the Funds to operate as an
SBIC;
•
the timing, form and amount of any dividend distributions;
•
the impact of interest rate volatility, including the decommissioning of LIBOR
and rising interest rates, and the elevated level of inflation on our business
and portfolio companies;
•
the valuation of any investments in portfolio companies, particularly those
having no liquid trading market; and
•
our ability to recover unrealized losses.

These statements are not guarantees of future performance and are subject to
risks, uncertainties and other factors, some of which are beyond our control and
difficult to predict and could cause actual results to differ materially from
those expressed or forecasted in the forward-looking statements, including
without limitation:

an economic downturn, including as a result of the current COVID-19 pandemic,
and significant disruptions to our portfolio companies, including supply chain
disruptions and labor shortages, could impair our portfolio companies' ability
to continue to operate, which could lead to the loss of some or all of our
investments in such portfolio companies;
•
a contraction of available credit and/or an inability to access the equity
markets, including as a result of the COVID-19 pandemic, could impair our
lending and investment activities;
•
interest rate volatility, including the decommissioning of LIBOR and rising
interest rates, could adversely affect our results, particularly because we use
leverage as part of our investment strategy;
•
the elevated level of inflation could adversely affect our business, results of
operations and financial condition of our portfolio companies, which may, in
turn, impact the valuation of such portfolio companies; and
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the risks, uncertainties and other factors we identify in Item 1A. - Risk Factors contained in our Annual Report on Form 10-K for the year ended December 31, 2021, elsewhere in this Quarterly Report on Form 10-Q and in our other filings with the SEC.


Although we believe that the assumptions on which these forward-looking
statements are based are reasonable, any of those assumptions could prove to be
inaccurate, and as a result, the forward-looking statements based on those
assumptions also could be inaccurate. Important assumptions include our ability
to originate new debt investments, certain margins and levels of profitability
and the availability of additional capital. In light of these and other
uncertainties, the inclusion of a projection or forward-looking statement in
this Quarterly Report on Form 10-Q should not be regarded as a representation by
us that our plans and objectives will be achieved. These risks and uncertainties
include those described or identified in Item 1.A - Risk Factors contained in
our Annual Report on Form 10-K for the year ended December 31, 2021, filed with
the SEC on March 3, 2022. You should not place undue reliance on these
forward-looking statements, which apply only as of the date of this Quarterly
Report on Form 10-Q.

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Overview

General and Corporate Structure


We provide customized debt and equity financing solutions to lower middle-market
companies, which we define as U.S. based companies having revenues between $10.0
million and $150.0 million. Our investment objective is to provide attractive
risk-adjusted returns by generating both current income from our debt
investments and capital appreciation from our equity related investments. Our
investment strategy includes partnering with business owners, management teams
and financial sponsors by providing customized financing for ownership
transactions, recapitalizations, strategic acquisitions, business expansion and
other growth initiatives. We seek to maintain a diversified portfolio of
investments in order to help mitigate the potential effects of adverse economic
events related to particular companies, regions or industries.

FIC was formed as a Maryland corporation on February 14, 2011. We completed our
initial public offering, or IPO, in June 2011. On June 20, 2011, FIC acquired
all of the limited partnership interests of Fund I and membership interests of
Fidus Mezzanine Capital GP, LLC, its general partner, resulting in Fund I
becoming our wholly-owned SBIC subsidiary. Immediately following the
acquisition, we and Fund I elected to be treated as business development
companies, or BDCs, under the 1940 Act and our investment activities have been
managed by Fidus Investment Advisors, LLC, our investment advisor, and
supervised by our board of directors, a majority of whom are independent of us.
On March 29, 2013, we commenced operations of a second wholly-owned subsidiary,
Fund II. On April 18, 2018, we commenced operations of a third wholly-owned
subsidiary, Fund III.

Fund II and Fund III received their SBIC licenses on May 28, 2013, and March 21,
2019, respectively. We plan to continue to operate the Funds as SBICs, subject
to SBA approval, and to utilize the proceeds of the sale of SBA-guaranteed
debentures to enhance returns to our stockholders. As of September 9, 2019, Fund
I completed a wind-down plan, relinquished its SBIC license, and can no longer
issue additional SBA debentures. We have also made, and continue to make,
investments directly through FIC. We believe that utilizing FIC and the Funds as
investment vehicles provides us with access to a broader array of investment
opportunities

We have certain wholly-owned taxable subsidiaries (the "Taxable Subsidiaries"),
each of which generally holds one or more of our portfolio investments listed on
the consolidated schedules of investments. The Taxable Subsidiaries are
consolidated for financial reporting purposes, such that our consolidated
financial statements reflect our investment in the portfolio company investments
owned by the Taxable Subsidiaries. The purpose of the Taxable Subsidiaries is to
permit us to hold equity investments in portfolio companies that are taxed as
partnerships for U.S. federal income tax purposes (such as entities organized as
limited liability companies ("LLCs") or other forms of pass through entities)
while complying with the "source-of-income" requirements contained in the RIC
tax provisions. The Taxable Subsidiaries are not consolidated with us for U.S.
federal corporate income tax purposes, and each Taxable Subsidiary will be
subject to U.S. federal corporate income tax on its taxable income. Any such
income or expense is reflected in the consolidated statements of operations.

COVID-19 Update


On March 11, 2020, the World Health Organization declared the novel coronavirus,
or COVID-19, as a pandemic, and on March 13, 2020 the United States declared a
national emergency with respect to COVID-19. The outbreak of COVID-19 has
severely impacted global economic activity and caused significant volatility and
negative pressure in financial markets. We have been closely monitoring, and
will continue to monitor, the impact of the COVID-19 pandemic, including the
Delta and Omicron and new variants, and its impact on all aspects of our
business, including how it will impact our portfolio companies, employees, due
diligence and underwriting processes, and financial markets. Given the fluidity
of the pandemic, we cannot estimate the long-term impact of COVID-19 on our
business, future results of operations, financial position or cash flows at this
time. Further, the operational and financial performance of the portfolio
companies in which we make investments may be significantly impacted by
COVID-19, which may in turn impact the valuation of our investments. We believe
our portfolio companies have taken, and continue to take, immediate actions to
effectively and efficiently respond to the challenges posed by COVID-19 and
related orders imposed by state and local governments and private businesses,
including developing liquidity plans supported by internal cash reserves, and
shareholder support. The COVID-19 pandemic and preventative measures taken to
contain or mitigate its spread have caused, and are continuing to cause,
business shutdowns and cancellations of events, restrictions on travel,
significant reduction in demand for certain goods and services, reductions in
business activity and financial transactions, supply chain disruptions, labor
difficulties and shortages, commodity inflation and elements of economic and
financial market instability in the United States and globally. Such effects
will likely continue for the duration of the pandemic, which is uncertain, and
for some period thereafter.

Investments
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We seek to create a diversified investment portfolio that primarily includes
debt investments and, to a lesser extent, equity securities. Our investments
typically range between $5.0 million to $35.0 million per portfolio company,
although this investment size may vary proportionately with the size of our
capital base. Our investment objective is to provide attractive risk-adjusted
returns by generating both current income from our debt investments and capital
appreciation from our equity related investments. We may invest in the equity
securities of our portfolio companies, such as preferred stock, common stock,
warrants and other equity interests, either directly or in conjunction with our
debt investments.

First Lien Debt. We structure some of our investments as senior secured or first
lien debt investments. First lien debt investments are secured by a first
priority lien on existing and future assets of the borrower and may take the
form of term loans or revolving lines of credit. First lien debt is typically
senior on a lien basis to other liabilities in the issuer's capital structure
and has the benefit of a first-priority security interest in assets of the
issuer. The security interest ranks above the security interest of any second
lien lenders in those assets. Our first lien debt may include stand-alone first
lien loans, "last out" first lien loans, or "unitranche" loans. Stand-alone
first lien loans are traditional first lien loans. All lenders in the facility
have equal rights to the collateral that is subject to the first-priority
security interest. "Last out" first lien loans have a secondary priority behind
super-senior "first out" first lien loans in the collateral securing the loans
in certain circumstances. The arrangements for a "last out" first lien loan are
set forth in an "agreement among lenders," which provides lenders with "first
out" and "last out" payment streams based on a single lien on the collateral.
Since the "first out" lenders generally have priority over the "last out"
lenders for receiving payment under certain specified events of default, or upon
the occurrence of other triggering events under intercreditor agreements or
agreements among lenders, the "last out" lenders bear a greater risk and, in
exchange, receive a higher effective interest rate, through arrangements among
the lenders, than the "first out" lenders or lenders in stand-alone first lien
loans. Agreements among lenders also typically provide greater voting rights to
the "last out" lenders than the intercreditor agreements to which second lien
lenders often are subject.

Many of our debt investments also include excess cash flow sweep features,
whereby principal repayment may be required before maturity if the portfolio
company achieves certain defined operating targets. Additionally, our debt
investments typically have principal prepayment penalties in the early years of
the debt investment. The majority of our debt investments provide for a variable
interest rate, generally with a LIBOR floor.

Second Lien Debt. Some of our debt investments take the form of second lien
debt, which includes senior subordinated notes. Second lien debt investments
obtain security interests in the assets of the portfolio company as collateral
in support of the repayment of such loans. Second lien debt typically is senior
on a lien basis to other liabilities in the issuer's capital structure and has
the benefit of a security interest over assets of the issuer, though ranking
junior to first lien debt secured by those assets. First lien lenders and second
lien lenders typically have separate liens on the collateral, and an
intercreditor agreement provides the first lien lenders with priority over the
second lien lenders' liens on the collateral. These loans typically provide for
no contractual loan amortization, with all amortization deferred until loan
maturity, and may include payment-in-kind ("PIK") interest, which increases the
principal balance over the term and, coupled with the deferred principal payment
provision, increases credit risk exposure over the life of the loan.

Subordinated Debt. These investments are typically structured as unsecured,
subordinated notes. Structurally, subordinated debt usually ranks subordinate in
priority of payment to first lien and second lien debt and may not have the
benefit of financial covenants common in first lien and second lien debt.
Subordinated debt may rank junior as it relates to proceeds in certain
liquidations where it does not have the benefit of a lien in specific collateral
held by creditors (typically first lien and/or second lien) who have a perfected
security interest in such collateral. However, subordinated debt ranks senior to
common and preferred equity in an issuer's capital structure. These loans
typically have relatively higher fixed interest rates (often representing a
combination of cash pay and PIK interest) and amortization of principal deferred
to maturity. The PIK feature (meaning a feature allowing for the payment of
interest in the form of additional principal amount of the loan instead of in
cash), which effectively operates as negative amortization of loan principal,
coupled with the deferred principal payment provision, increases credit risk
exposure over the life of the loan.

Equity Securities. Our equity securities typically consist of either a direct
minority equity investment in common or preferred stock or
membership/partnership interests of a portfolio company, or we may receive
warrants to buy a minority equity interest in a portfolio company in connection
with a debt investment. Warrants we receive with our debt investments typically
require only a nominal cost to exercise, and thus, as a portfolio company
appreciates in value, we may achieve additional investment return from this
equity interest. Our equity investments are typically not control-oriented
investments, and in many cases, we acquire equity securities as part of a group
of private equity investors in which we are not the lead investor. We may
structure such equity investments to include provisions protecting our rights as
a minority-interest holder, as well as a "put," or right to sell such securities
back to the issuer, upon the occurrence of specified events. In many cases, we
may also seek to obtain registration rights in connection with these equity
interests, which may include demand and "piggyback" registration rights. Our
equity investments typically are made in connection with debt investments to the
same portfolio companies.

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Revenues: We generate revenue in the form of interest and fee income on debt
investments and dividends, if any, on equity investments. Our debt investments,
whether in the form of second lien, subordinated or first lien loans, typically
have terms of five to seven years and most bear interest at fixed or variable
rates. In some instances, we receive payments on our debt investments based on
scheduled amortization of the outstanding balances. In addition, we may receive
repayments of some of our debt investments prior to their scheduled maturity
dates, which may include prepayment penalties. The frequency or volume of these
repayments fluctuates significantly from period to period. Our portfolio
activity may reflect the proceeds of sales of securities. In some cases, our
investments provide for deferred interest payments or PIK interest. The
principal amount of debt investments and any accrued but unpaid interest
generally become due at the maturity date. In addition, we may generate revenue
in the form of commitment, origination, amendment, or structuring fees and fees
for providing managerial assistance. Debt investment origination fees, OID and
market discount or premium, if any, are capitalized, and we accrete or amortize
such amounts into interest income. We record prepayment penalties on debt
investments as fee income when earned. Interest and dividend income is recorded
on the accrual basis to the extent that we expect to collect such amounts.
Interest is accrued daily based on the outstanding principal amount and the
contractual terms of the debt investment. Dividend income is recorded as
dividends are declared or at the point an obligation exists for the portfolio
company to make a distribution, and is generally recognized when received.
Distributions of earnings from portfolio companies are evaluated to determine if
the distribution is a distribution of earnings or a return of capital.
Distributions of earnings are included in dividend income while a return of
capital is recorded as a reduction in the cost basis of the investment.
Estimates are adjusted as necessary after the relevant tax forms are received
from the portfolio company. Debt investments or preferred equity investments
(for which we are accruing PIK dividends) are placed on non-accrual status when
principal, interest or dividend payments become materially past due, or when
there is reasonable doubt that principal, interest or dividends will be
collected. Interest and dividend payments received on non-accrual investments
may be recognized as interest or dividend income or may be applied to the
investment principal balance based on management's judgment. Non-accrual
investments are restored to accrual status when past due principal, interest or
dividends are paid and, in management's judgment, payments are likely to remain
current. See "Critical Accounting Policies and Use of Estimates - Revenue
Recognition."

We recognize realized gains or losses on investments based on the difference
between the net proceeds from the disposition and the cost basis of the
investment, without regard to unrealized gains or losses previously recognized.
We record current period changes in fair value of investments that are measured
at fair value as a component of the net change in unrealized appreciation
(depreciation) on investments in the consolidated statements of operations.

Expenses: All investment professionals of the Investment Advisor and/or its
affiliates, when and to the extent engaged in providing investment advisory and
management services to us, and the compensation and routine overhead expenses
allocable to personnel who provide these services to us, are provided and paid
for by the Investment Advisor and not by us. We bear all other out-of-pocket
costs and expenses of our operations and transactions, including, without
limitation, those relating to:

organization;

calculating our net asset value (including the cost and expenses of any
independent valuation firm);
•
fees and expenses incurred by the Investment Advisor under the Investment
Advisory Agreement or payable to third parties, including agents, consultants or
other advisors, in monitoring financial and legal affairs for us and in
monitoring our investments and performing due diligence on our prospective
portfolio companies or otherwise relating to, or associated with, evaluating and
making investments, including "dead deal" costs;
•
interest payable on debt, if any, incurred to finance our investments;
•
offerings of our common stock and other securities;
•
investment advisory fees and management fees;
•
administration fees and expenses, if any, payable under the Administration
Agreement (including payments under the Administration Agreement between us and
the Investment Advisor based upon our allocable portion of the Investment
Advisor's overhead in performing its obligations under the Administration
Agreement, including rent and the allocable portion of the cost of our officers,
including our chief compliance officer, our chief financial officer, and their
respective staffs);
•
transfer agent, dividend agent and custodial fees and expenses;
•
federal and state registration fees;
•
all costs of registration and listing our shares on any securities exchange;
•
U.S. federal, state and local taxes;
•
Independent Directors' fees and expenses;
•
costs of preparing and filing reports or other documents required by the SEC or
other regulators including printing costs;
•
costs of any reports, proxy statements or other notices to stockholders,
including printing and mailing costs;
•
our allocable portion of any fidelity bond, directors and officers/errors and
omissions liability insurance, and any other insurance premiums;
•
direct costs and expenses of administration, including printing, mailing, long
distance telephone, copying, secretarial and other staff, independent auditors
and outside legal costs;
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proxy voting expenses; and
•
all other expenses reasonably incurred by us or the Investment Advisor in
connection with administering our business.

Portfolio Composition, Investment Activity and Yield


During the six months ended June 30, 2022 and 2021, we invested $160.1 million
and $167.3 million, respectively, in debt and equity investments including nine
and ten new portfolio companies, respectively. During the six months ended June
30, 2022 and 2021, we received proceeds from sales or repayments, including
principal, return of capital dividends and net realized gains (losses), of $68.0
million and $191.6 million, respectively, including exits of two and four
portfolio companies, respectively. The following table summarizes investment
purchases and sales and repayments of investments by type for the six months
ended June 30, 2022 and 2021 (dollars in millions).
                         Purchases of Investments                           

Sales and Repayments of Investments

                                                       Six Months Ended June 30,
                      2022                      2021                          2022                           2021
First Lien
Debt(1)        $  91.2        57.0 %     $ 132.9        79.4 %     $   14.3               21.0 %     $   32.6        17.0 %
Second Lien
Debt              32.0        20.0          11.5         6.8           18.7               27.5          135.0        70.5
Subordinated
Debt              32.5        20.3          16.0         9.6              -                  -           24.0        12.5
Equity             4.4         2.7           6.9         4.2           35.0               51.5              -           -
Warrants             -           -             -           -              -                  -              -           -
Total          $ 160.1       100.0 %     $ 167.3       100.0 %     $   68.0              100.0 %     $  191.6       100.0 %


(1) For the six months ended June 30, 2022 and 2021, includes unitranche
securities, which account for 37.4% and 73.8% of purchases, respectively. For
the six months ended June 30, 2022 and 2021, includes unitranche securities,
which account for 17.4% and 11.7% of repayments, respectively.

As of June 30, 2022, the fair value of our investment portfolio totaled $810.5
million and consisted of 73 active portfolio companies and twelve portfolio
companies that have sold their underlying operations. As of June 30, 2022, 39
portfolio companies' debt investments bore interest at a variable rate, which
represented $467.2 million, or 69.8%, of our debt investment portfolio on a fair
value basis, and the remainder of our debt investment portfolio was comprised of
fixed rate investments. Overall, the portfolio had net unrealized appreciation
of $70.8 million as of June 30, 2022. As of June 30, 2022, our average active
portfolio company investment at amortized cost was $10.1 million, which excludes
investments in the twelve portfolio companies that have sold their underlying
operations.

As of December 31, 2021, the fair value of our investment portfolio totaled
$719.1 million and consisted of 70 active portfolio companies and eight
portfolio companies that have sold their underlying operations. As of December
31, 2021, 32 portfolio companies' debt investments bore interest at a variable
rate, which represented $376.0 million, or 68.4%, of our debt investment
portfolio on a fair value basis, and the remainder of our debt investment
portfolio was comprised of fixed rate investments. Overall, the portfolio had
net unrealized appreciation of $97.3 million as of December 31, 2021. As of
December 31, 2021, our average active portfolio company investment at amortized
cost was $8.8 million, which excludes investments in the eight portfolio
companies that have sold their underlying operations.

The weighted average yield on debt investments as of June 30, 2022 and December
31, 2021 was 11.9% and 12.3%, respectively. The weighted average yield of our
debt investments is not the same as a return on investment for our stockholders
but, rather, relates to a portion of our investment portfolio and is calculated
before the payment of all of our and our subsidiaries' fees and expenses. The
weighted average yields were computed using the effective interest rates for
debt investments at cost including the accretion of OID and debt investment
origination fees, but excluding investments on non-accrual status, if any.

The following table shows the portfolio composition by investment type at fair value and cost and as a percentage of total investments (dollars in millions):

                                Fair Value                                             Cost
                    June 30,                December 31,                June 30,                December 31,
                      2022                      2021                      2022                      2021
First Lien
Debt(1)        $ 432.6        53.4 %     $ 354.9        49.4 %     $ 430.5        58.2 %     $ 353.3        56.8 %
Second Lien
Debt             168.5        20.8         158.8        22.1         182.2        24.6         168.6        27.1
Subordinated
Debt              68.5         8.4          36.1         5.0          68.4         9.2          36.0         5.8
Equity           137.7        17.0         166.1        23.1          55.3         7.5          60.6         9.8
Warrants           3.2         0.4           3.2         0.4           3.3         0.5           3.3         0.5
Total          $ 810.5       100.0 %     $ 719.1       100.0 %     $ 739.7       100.0 %     $ 621.8       100.0 %


(1) Includes unitranche investments, which account for 41.7% and 45.5% of our portfolio on a fair value and cost basis as of June 30, 2022, respectively. Includes unitranche investments, which account for 40.2% and 46.3% of our portfolio on a fair value and cost basis as of December 31, 2021, respectively.


All investments made by us as of June 30, 2022 and December 31, 2021 were made
in portfolio companies headquartered in the United States. The following table
shows portfolio composition by geographic region at fair value and cost and as a
percentage of total investments (dollars in millions). The geographic
composition is determined by the location of the corporate headquarters of the
portfolio company, which may not be indicative of the primary source of the
portfolio company's business.

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                             Fair Value                                             Cost
                 June 30,                December 31,                June 30,                December 31,
                   2022                      2021                      2022                      2021
Midwest     $ 189.9        23.4 %     $ 157.2        21.9 %     $ 124.4        16.8 %     $  89.9        14.5 %
Southeast     237.3        29.3         220.0        30.6         238.5        32.2         197.4        31.7
Northeast     133.5        16.5         126.6        17.6         133.1        18.0         127.8        20.6
West          119.8        14.8         105.9        14.7         121.9        16.5         100.1        16.1
Southwest     130.0        16.0         109.4        15.2         121.8        16.5         106.6        17.1
Total       $ 810.5       100.0 %     $ 719.1       100.0 %     $ 739.7       100.0 %     $ 621.8       100.0 %

The following table shows the detailed industry composition of our portfolio at fair value and cost as a percentage of total investments:

                                       Fair Value                               Cost
                              June 30,         December 31,          June 30,       December 31,
Name                            2022               2021                2022             2021
Information Technology
Services                            30.2 %              27.0 %             32.9 %            30.6 %
Healthcare Products                 12.8                11.2                5.7               3.6
Business Services                   11.9                13.3               12.9              14.3
Component Manufacturing              8.4                 4.1                9.0               4.0
Specialty Distribution               7.2                 8.0                7.0               8.2
Aerospace & Defense
Manufacturing                        5.7                 7.9                6.1               8.4
Building Products
Manufacturing                        3.7                 3.7                4.0               4.8
Healthcare Services                  3.4                 3.6                3.5               4.2
Promotional Products                 3.1                 3.1                3.4               4.1
Transportation Services              2.9                 2.9                3.2               3.3
Environmental Industries             2.7                 3.0                3.0               3.5
Consumer Products                    2.2                 2.6                2.4               3.0
Oil & Gas Services                   1.8                 2.9                2.0               0.5
Utilities: Services                  1.4                 1.9                1.5               1.8
Industrial Cleaning &
Coatings                             1.3                 1.5                1.8               2.1
Retail                               1.3                 1.6                1.5               1.8
Restaurants                          0.0   (1)           0.0   (1)          0.1               0.1
Specialty Chemicals                  0.0   (1)             -                  -               0.0   (1)
Utility Equipment
Manufacturing                          -                 1.5                  -               1.4
Vending Equipment
Manufacturing                        0.0   (1)           0.2                  -               0.3
Total                              100.0 %             100.0 %            100.0 %           100.0 %

(1) Percentage is less than 0.1% of respective total.

Portfolio Asset Quality


In addition to various risk management and monitoring tools, the Investment
Advisor uses an internally developed investment rating system to characterize
and monitor the credit profile and our expected level of returns on each
investment in our portfolio. We use a five-level numeric rating scale. The
following is a description of the conditions associated with each investment
rating:

Investment Rating 1 is used for investments that involve the least amount of
risk in our portfolio. The portfolio company is performing above expectations,
the debt investment is expected to be paid in the near term and the trends and
risk factors are favorable, and may include an expected capital gain on the
equity investment.
•
Investment Rating 2 is used for investments that involve a level of risk similar
to the risk at the time of origination. The portfolio company is performing
substantially within our expectations and the risk factors are neutral or
favorable. Each new portfolio investment enters our portfolio with Investment
Rating 2.
•
Investment Rating 3 is used for investments performing below expectations and
indicates the investment's risk has increased somewhat since origination. The
portfolio company requires closer monitoring, but we expect a full return of
principal and collection of all interest and/or dividends.
•
Investment Rating 4 is used for investments performing materially below
expectations and the risk has increased materially since origination. The
investment has the potential for some loss of investment return, but we expect
no loss of principal.
•
Investment Rating 5 is used for investments performing substantially below our
expectations and the risks have increased substantially since origination. We
expect some loss of principal.

As the COVID-19 pandemic continues to evolve, we are maintaining close communications with our portfolio companies to proactively assess and manage risks across our investment portfolio. We have also increased oversight and analysis of credits in vulnerable industries in an attempt to improve performance and reduce credit risk.

The following table shows the distribution of our investments on the 1 to 5 investment rating scale at fair value and cost as of June 30, 2022 and December 31, 2021 (dollars in millions):

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                              Fair Value                                             Cost
                  June 30,                December 31,                June 30,                December 31,
Investment
Rating              2022                      2021                      2022                      2021
1            $ 123.5        15.2 %     $ 119.8        16.7 %     $  35.2         4.7 %     $  19.1         3.1 %
2              638.7        78.8         566.7        78.8         631.5        85.4         556.1        89.4
3               45.7         5.7          31.7         4.4          59.2         8.0          40.4         6.5
4                0.2           -           0.9         0.1           1.3         0.2           3.0         0.5
5                2.4         0.3             -           -          12.5         1.7           3.2         0.5
Total        $ 810.5       100.0 %     $ 719.1       100.0 %     $ 739.7       100.0 %     $ 621.8       100.0 %

Based on our investment rating system, the weighted average rating of our portfolio as of June 30, 2022 and December 31, 2021 was 1.9 and 1.9, respectively, on a fair value basis and 2.1 and 2.1, respectively, on a cost basis.


Non-Accrual

As of June 30, 2022, we had debt investments in three portfolio companies on
non-accrual status. As of December 31, 2021, we had a debt investment in one
portfolio company on non-accrual status (dollars in millions).
                                               June 30, 2022                 December 31, 2021
                                            Fair                         Fair
Portfolio Company                           Value         Cost           Value                 Cost
EBL, LLC (EbLens)                         $     5.6     $     9.3     $         -    (1)    $        -   (1)
US GreenFiber, LLC                                -           5.2               -    (2)           5.2   (2)
K2 Merger Agreement Agent, LLC (fka K2
Industrial Services, Inc.)                      2.2           2.4               -    (1)             -   (1)
Total                                     $     7.8     $    16.9     $         -           $      5.2



(1) Portfolio company debt investment was not on non-accrual status at December
31, 2021.
(2) Portfolio company was on PIK-only non-accrual status at December 31, 2021,
meaning we ceased recognizing PIK interest income on the investment.

Discussion and Analysis of Results of Operations

Comparison of three and six months ended June 30, 2022 and 2021

Investment Income


Below is a summary of the changes in total investment income for the three
months ended June 30, 2022 as compared to the same period in 2021 (dollars in
millions, percent change calculated based on underlying dollar amounts in
thousands):

                                              Three Months Ended June 30,
                                              2022                  2021           $ Change       % Change (1)(2)
Interest income                           $        19.4         $        17.8     $      1.6                   8.9 %
Payment-in-kind interest income                     0.4                   1.1           (0.7 )               (66.8 %)
Dividend income                                     0.1                   0.8           (0.7 )               (90.8 %)
Fee income                                          1.3                   2.1           (0.8 )               (36.5 %)
Interest on idle funds and other income               -                     -              -                    NM
Total investment income                   $        21.2         $        21.8     $     (0.6 )                (3.1 %)



(1) NM = Not meaningful
(2) Percent change calculated based on underlying dollar amounts in thousands as
presented on the consolidated statements of operations.

For the three months ended June 30, 2022, total investment income was $21.2
million, a decrease of $0.6 million or (3.1%), from the $21.8 million of total
investment income for the three months ended June 30, 2021. As reflected in the
table above, the decrease is primarily attributable to the following:

$0.9 million increase in total interest income (which includes payment-in-kind
interest income) resulting from an increase in average debt investment balances,
partially offset by a lower weighted average yield on debt investment balances
outstanding, during 2022 as compared to 2021.

$0.7 million decrease in dividend income due to a decrease in distributions received from equity investments.

$0.8 million decrease in fee income resulting from a decrease in amendment and
origination fees, partially offset by an increase in prepayment fees, during
2022 as compared to 2021.

Below is a summary of the changes in total investment income for the six months ended June 30, 2022 as compared to the same period in 2021 (dollars in millions):

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                                              Six Months Ended June 30,
                                              2022                  2021          $ Change        % Change (1)(2)
Interest income                           $        36.5         $       36.9     $      (0.4 )                (1.3 %)
Payment-in-kind interest income                     0.9                  2.1            (1.2 )               (55.9 %)
Dividend income                                     0.8                  0.9            (0.1 )               (16.8 %)
Fee income                                          3.5                  5.2            (1.7 )               (32.0 %)
Interest on idle funds and other income               -                    -               -                    NM
Total investment income                   $        41.7         $       45.1     $      (3.4 )                (7.6 %)


(1) NM = Not meaningful
(2) Percent change calculated based on underlying dollar amounts in thousands as
presented on the consolidated statements of operations.

For the six months ended June 30, 2022, total investment income was $41.7
million, a decrease of $3.4 million or (7.6%), from the $45.1 million of total
investment income for the six months ended June 30, 2021. As reflected in the
table above, the decrease is primarily attributable to the following:

$1.6 million decrease in total interest income (which includes a $1.2 million
decrease in payment-in-kind interest ("PIK") income) resulting from a decrease
in weighted average yield on debt investment balances outstanding, repayments of
PIK debt investments, and an increase in PIK investments on non-accrual,
partially offset by an increase in average debt investment balances outstanding,
during 2022 as compared to 2021.

$0.1 million decrease in dividend income due to a decrease in distributions received from equity investments.

$1.7 million decrease in fee income resulting from a decrease in prepayment, amendment, and origination fees during 2022 as compared to 2021.

Expenses

Below is a summary of the changes in total expenses, including income tax provision, for the three months ended June 30, 2022 as compared to the same period in 2021 (dollars in millions, percent change calculated based on underlying dollar amounts in thousands):

                                          Three Months Ended June 30,
                                          2022                  2021           $ Change       % Change (1)(2)
Interest and financing expenses       $         4.7         $         4.6     $      0.1                   1.7 %
Base management fee                             3.6                   3.2            0.4                  12.5 %
Incentive fee - income                          1.2                   2.5           (1.3 )               (53.6 %)
Incentive fee (reversal) - capital
gains                                          (0.6 )                 3.8           (4.4 )              (115.6 %)
Administrative service expenses                 0.5                   0.5              -                    NM
Professional fees                               0.3                   0.3              -                    NM
Other general and administrative
expenses                                        0.5                   0.4            0.1                  34.1 %
Total expenses, before base
management and income incentive fee
waivers                                        10.2                  15.3           (5.1 )               (33.8 %)
Base management and income
incentive fee waivers                          (0.1 )                   -           (0.1 )                  NM
Total expenses, before income tax
provision                                      10.1                  15.3           (5.2 )               (34.1 %)
Income tax provision (benefit)                    -                     -              -                    NM
Total expenses, including income
tax provision                         $        10.1         $        15.3     $     (5.2 )               (33.9 %)


(1) NM = Not meaningful
(2) Percent change calculated based on underlying dollar amounts in thousands as
presented on the consolidated statements of operations.

For the three months ended June 30, 2022, total expenses, including income tax
provision, were $10.1 million, a decrease of $5.2 million or (33.9%), from the
$15.3 million of total expenses for the three months ended June 30, 2021. As
reflected in the table above, changes across periods were primarily attributable
to the following:

$0.1 million increase in interest and financing expenses due to an increase in
average borrowings outstanding, partially offset by a decrease in the weighted
average interest rate during 2022 as compared to 2021.

$0.3 million net increase in base management fee, including the base management fee waiver, due to higher average total assets during 2022 as compared to 2021.

$1.3 million net decrease in the income incentive fee due to a decrease in pre-incentive fee net investment income during 2022 as compared to 2021.

$4.4 million decrease in the accrued capital gains incentive fee due to a $22.4
million decrease in net gain on investments (net realized gains (losses), plus
net change in unrealized appreciation (depreciation) on investments) plus
realized losses on extinguishment of debt, during 2022 as compared to the same
period in 2021.

Below is a summary of the changes in total expenses, including income tax provision, for the six months ended June 30, 2022 as compared to the same period in 2021 (dollars in millions):

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                                         Six Months Ended June 30,
                                         2022                  2021          $ Change        % Change (1)(2)
Interest and financing expenses      $         9.1         $        9.7     $      (0.6 )                (7.2 %)
Base management fee                            7.0                  6.3             0.7                   8.9 %
Incentive fee - income                         2.2                  5.3            (3.1 )               (57.2 %)
Incentive fee - capital gains                 (0.3 )                4.0            (4.3 )              (108.4 %)
Administrative service expenses                0.9                  0.8             0.1                  10.6 %
Professional fees                              0.8                  0.7             0.1                  26.8 %
Other general and administrative
expenses                                       0.8                  0.7             0.1                  10.4 %
Total expenses, before base
management and income incentive
fee waivers                                   20.5                 27.5            (7.0 )               (25.7 %)
Base management and income
incentive fee waivers                         (0.2 )                  -            (0.2 )                  NM
Total expenses, before income tax
provision                                     20.3                 27.5            (7.2 )               (26.2 %)
Income tax provision (benefit)                   -                    -               -                    NM
Total expenses, including income
tax provision                        $        20.3         $       27.5     $      (7.2 )               (26.3 %)


(1) NM = Not meaningful
(2) Percent change calculated based on underlying dollar amounts in thousands as
presented on the consolidated statements of operations.

For the six months ended June 30, 2022, total expenses, including income tax
provision, were $20.3 million, a decrease of $7.2 million or (26.3%), from the
$27.5 million of total expenses for the six months ended June 30, 2021. As
reflected in the table above, changes across periods were primarily attributable
to the following:

$0.6 million decrease in interest and financing expenses due to a decrease in
weighted average interest rate and a decrease in average borrowings outstanding
during 2022 as compared to 2021.

$0.5 million net increase in base management fee, including the base management fee waiver, due to higher average total assets during 2022 as compared to 2021.

$3.1 million net decrease in the income incentive fee due to a decrease in pre-incentive fee net investment income during 2022 as compared to the same period in 2021.

$4.3 million decrease in the accrued capital gains incentive fee due to a $21.6
million decrease in net gain on investments (net realized gains (losses), plus
net change in unrealized appreciation (depreciation) on investments), plus
realized losses on extinguishment of debt during 2022 as compared to the same
period in 2021.

$0.1 million increase in professional fees due to increased legal, audit and tax compliance costs during 2022 as compared to 2021.

Net Investment Income


Net investment income increased by $4.5 million, or 70.1%, to $11.0 million
during the three months ended June 30, 2022 as compared to the same period in
2021, as a result of the $5.2 million decrease in total expenses, including base
management fee waivers and income tax provision, partially offset by the $0.6
decrease in total investment income.

Net investment income increased by $3.8 million, or 21.6%, to $21.3 million
during the six months ended June 30, 2022 as compared to the same period in
2021, as a result of the $7.2 million decrease in total expenses, including base
management and incentive fee waivers and income tax provision, partially offset
by the $3.4 decrease in total investment income.

Net Gain (Loss) on Investments


For the three and six months ended June 30, 2022, the total net realized
gain/(loss) on investments, before income tax (provision)/benefit, was $18.3
million and $25.2 million, respectively. Income tax (provision) benefit from
realized gains on investments was $(0.1) million and $(0.1) million for the
three and six months ended June 30, 2022, respectively. We realize a gain/(loss)
on our equity investments primarily when we either sell our equity investment or
the underlying portfolio company is sold. Significant realized gains (losses)
for the three and six months ended June 30, 2022 are summarized below (dollars
in millions):

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                                                                    Period Ended June 30, 2022
                                                                   Three                  Six
Portfolio Company                    Realization Event (1)        Months                 Months
Software Technology, LLC           Escrow distribution         $           -         $            -
Frontline Food Services, LLC
(f/k/a Accent Food Services,
LLC)                               Sale of portfolio company               -                    0.2
Revenue Management Solutions,
LLC                                Escrow distribution                     -                    0.1
SpendMend LLC                      Exit of portfolio company             0.1                    6.3
FDS Avionics Corp.                 Escrow distribution                     -                   (0.4 )
Mesa Line Services, LLC            Escrow liability release             (0.2 )                  0.3
Mirage Trailers LLC                Sale of portfolio company               -                    0.3
Alzheimer's Research and
Treatment Center, LLC              Escrow distribution                     -                      -
Allied 100 Group, Inc.             Escrow distribution                     -                      -
TransGo, LLC                       Sale of portfolio company             1.9                    1.9
AVC Investors, LLC (dba Auveco)    Sale of portfolio company             0.8                    0.8
CRS Solutions Holdings, LLC (dba
CRS Texas)                         Sale of portfolio company             0.4                    0.4
Pinnergy, Ltd.                     Sale of portfolio company            15.3                   15.3
Net realized gain (loss) on
investments                                                             18.3                   25.2
Income tax (provision) benefit
from realized gains on
investments                                                             (0.1 )                 (0.1 )
Net realized gain (loss), net of
income tax provision, on
investments                                                    $        18.2         $         25.1


(1) As it relates to realization events, we define an 'exit' of a portfolio
company as situations where we have completely exited our position in all of the
portfolio company's securities and no longer carry the portfolio company on our
consolidated schedule of investments. We define a 'sale' of a portfolio company,
distinguished from an exit, as situations where the underlying operations of a
portfolio company have been sold, but where we retain a residual ownership
interest in the legacy entity (we generally distinguish these residual portfolio
company investments from 'active' portfolio company investments).


For the three and six months ended June 30, 2021, the total net realized
gain/(loss) on investments, before income tax (provision)/benefit, was $2.2
million and $5.4 million, respectively. There was no income tax (provision)
benefit from realized gains on investments for the three and six months ended
June 30, 2021, respectively. We realize a gain/(loss) on our equity investments
primarily when we either sell our equity investment or the underlying portfolio
company is sold. Significant realized gains (losses) for the three and six
months ended June 30, 2021 are summarized below (dollars in millions):

                                                               Period Ended June 30, 2021
                                                              Three                  Six
                                          Realization
Portfolio Company                          Event (1)          Months                Months
                                        Exit of
                                        portfolio
Wheel Pros, Inc.                        company            $        2.1         $          2.1
                                        Exit of
                                        portfolio
Software Technology, LLC                company                       -                    1.4
                                        Exit of
Spectra A&D Acquisition, Inc. (fka      portfolio
FDS Avionics Corp.)                     company                       -                    1.0
                                        Sale of
                                        portfolio
Rohrer Corporation                      company                       -                    0.9
Other                                                               0.1                      -
Net realized gain (loss) on
investments                                                         2.2                    5.4
Income tax provision from realized
gains on investments                                                  -                      -
Net realized gain (loss), net of
income tax provision, on investments                       $        2.2     

$ 5.4



(1) As it relates to realization events, we define an 'exit' of a portfolio
company as situations where we have completely exited our position in all of the
portfolio company's securities and no longer carry the portfolio company on our
schedule of investments. We define a 'sale' of a portfolio company,
distinguished from an exit, as situations where the underlying operations of a
portfolio company have been sold, but where we retain a residual ownership
interest in the legacy entity (we generally distinguish these residual portfolio
company investments from 'active' portfolio company investments).


During the six months ended June 30, 2022 and 2021, we recorded a net change in unrealized appreciation (depreciation) on investments attributable to the following (dollars in millions):



                                     Three Months Ended June 30,               Six Months Ended June 30,
Unrealized Appreciation
(Depreciation)                       2022                    2021              2022                2021
Exit, sale or restructuring
of investments                  $         (17.5 )       $         (1.7 )   $       (23.9 )     $        (3.3 )
Fair value adjustments to
debt investments                           (5.4 )                  0.7              (3.4 )              (4.5 )
Fair value adjustments to
equity investments                          1.7                   18.3               0.8                24.5

Net change in unrealized appreciation (depreciation) $ (21.2 ) $ 17.3 $ (26.5 ) $ 16.7

Net Increase in Net Assets Resulting From Operations

Net increase (decrease) in net assets resulting from operations during the three months ended June 30, 2022 and 2021 was $8.0 million and $25.9 million, respectively, as a result of the events described above.

Net increase (decrease) in net assets resulting from operations during the six months ended June 30, 2022 and 2021 was $19.7 million and $37.4 million, respectively, as a result of the events described above.

                                       47
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Liquidity and Capital Resources


As of June 30, 2022, we had $72.5 million in cash and cash equivalents and our
net assets totaled $484.0 million. We believe that our current cash and cash
equivalents on hand, our Credit Facility, our continued access to SBA-guaranteed
debentures, and our anticipated cash flows from investments will provide
adequate capital resources with which to operate and finance our investment
business and make distributions to our stockholders for at least the next 12
months. We intend to generate additional cash primarily from the future
offerings of securities (including the "at-the-market" program) and future
borrowings, as well as cash flows from operations, including income earned from
investments in our portfolio companies. On both a short-term and long-term
basis, our primary use of funds will be investments in portfolio companies and
cash distributions to our stockholders. During the six months ended June 30,
2022, we repaid $20.0 million of SBA debentures which would have matured during
the period March 1, 2025 through March 1, 2028. Our remaining outstanding SBA
debentures continue to mature in 2025 and subsequent years through 2032, which
will require repayment on or before the respective maturity dates. This
"Liquidity and Capital Resources" section should be read in conjunction with the
"COVID-19 Updates" section above.

Cash Flows


For the six months ended June 30, 2022, we experienced a net decrease in cash
and cash equivalents in the amount of $97.0 million. During that period, we made
payments of $93.1 million of cash for operating activities, which included the
funding of $160.1 million of investments which was partially offset by proceeds
received from sales and repayments of investments of $68.0 million. During the
same period, we received repayments of $0.4 million on our secured borrowings,
made repayments of SBA debentures of $20.0 million; which were offset by
proceeds from the issuances of SBA debentures of $41.5 million, paid cash
dividends paid to stockholders of $23.5 million, and made payment of deferred
financing costs related to our debt financings of $1.5 million.

Capital Resources

We anticipate that we will continue to fund our investment activities on a long-term basis through a combination of additional debt and equity capital.

SBA debentures


The Funds are licensed SBICs, and have the ability to issue debentures
guaranteed by the SBA at favorable interest rates. Under the Small Business
Investment Act and the SBA rules applicable to SBICs, an SBIC can have
outstanding at any time debentures guaranteed by the SBA in an amount up to
twice its regulatory capital. The SBA regulations currently limit the amount
that is available to be borrowed by any SBIC and guaranteed by the SBA to 300.0%
of an SBIC's regulatory capital or $175.0 million, whichever is less. For two or
more SBICs under common control, the maximum amount of outstanding SBA
debentures cannot exceed $350.0 million. SBA debentures have fixed interest
rates that approximate prevailing 10-year Treasury Notes rates plus a spread and
have a maturity of ten years with interest payable semi-annually. The principal
amount of the SBA debentures is not required to be paid before maturity but may
be pre-paid at any time. As of June 30, 2022, Fund II and Fund III had $50.0
million and $78.5 million of outstanding SBA debentures, respectively. Subject
to SBA regulatory requirements and approval, Fund III may access up to $96.5
million of additional SBA debentures under the SBIC debenture program. For more
information on the SBA debentures, please refer to Note 6 to our consolidated
financial statements.

Credit Facility

In June 2014, we entered into a senior secured revolving credit agreement (the
"Credit Agreement") and the senior secured revolving credit facility (the
"Credit Facility") to provide additional funding for our investment and
operational activities. On April 24, 2019, we entered into the Amended Credit
Agreement, which amends, restates, and replaces the Credit Agreement. On June
26, 2020, the Company amended the Amended Credit Agreement, but the material
terms were unchanged. Among other revisions, the amendment to the Amended Credit
Agreement modifies certain covenants therein, including to amend the minimum
consolidated interest coverage ratio to be 2.25 to 1.00 for the four quarter
period ending on June 30, 2020, 2.00 to 1.00 for the four quarter periods ending
on each of September 30, 2020 and December 31, 2020, and 1.75 to 1.00 for each
four quarter period ending at the end of each quarter thereafter. The Credit
Facility is secured by substantially all of our assets, excluding the assets of
the Funds.
                                       48
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Under the Amended Credit Agreement, (i) revolving commitments by lenders were
increased from $90.0 million to $100.0 million, with an accordion feature that
allows for an increase in total commitments up to $250.0 million, subject to
satisfaction of certain conditions at the time of any such future increase, (ii)
the maturity date of the Credit Facility was extended from June 16, 2019 to
April 24, 2023, and (iii) borrowings under the Credit Facility bear interest, at
our election, at a rate per annum equal to (a) 3.00% (or 2.75% if certain
conditions are satisfied, including if (x) no equity interests are included in
the borrowing base, (y) the contribution to the borrowing base of eligible
portfolio investments that are performing first lien bank loans is greater than
or equal to 35%, and (z) the contribution to the borrowing base of eligible
portfolio investments that are performing first lien bank loans, performing last
out loans, or performing second lien loans is greater than or equal to 60%) plus
the one, two, three or six month LIBOR rate, as applicable, or (b) 2.00% (or
1.75% if the above conditions are satisfied) plus the highest of (A) a prime
rate, (B) the Federal Funds rate plus 0.5%, (C) three month LIBOR plus 1.0%, and
(D) zero. We pay a commitment fee that varies depending on the size of the
unused portion of the Credit Facility: 3.00% per annum on the unused portion of
the Credit Facility at or below 35% of the commitments and 0.50% per annum on
any remaining unused portion of the Credit Facility between the total
commitments and the 35% minimum utilization. The Amended Credit Agreement also
modifies certain covenants in the Credit Facility, including to provide for a
minimum asset coverage ratio of 2.00 to 1.00 (on a regulatory basis). The Credit
Facility is secured by a first priority security interest in all of our assets,
excluding the assets of our SBIC subsidiaries.

Amounts available to borrow under the Credit Facility are subject to a minimum
borrowing/collateral base that applies an advance rate to certain investments
held by us, excluding investments held by the Funds. We are subject to
limitations with respect to the investments securing the Credit Facility,
including, but not limited to, restrictions on sector concentrations, loan size,
payment frequency and status and collateral interests, as well as restrictions
on portfolio company leverage, which may also affect the borrowing base and
therefore amounts available to borrow.

We have made customary representations and warranties and we are required to
comply with various covenants, reporting requirements and other customary
requirements for similar credit facilities. These covenants are subject to
important limitations and exceptions that are described in the documents
governing the Credit Facility. As of June 30, 2022, we were in compliance with
all covenants of the Credit Facility and there were no borrowings outstanding
under the Credit Facility.

Notes

On February 2, 2018, we closed the public offering of approximately $43.5
million in aggregate principal amount of our 5.875% notes due 2023, or the "2023
Notes." On February 22, 2018, the underwriters exercised their option to
purchase an additional $6.5 million in aggregate principal of the 2023 Notes.
The total net proceeds to us from the 2023 Notes, including the exercise of the
underwriters' option, after deducting underwriting discounts of approximately
$1.5 million and offering expenses of $0.4 million, were approximately $48.1
million. On January 19, 2021, we redeemed $50.0 million in the aggregate
principal amount on the issued and outstanding 2023 Notes, resulting in a
realized loss on extinguishment of debt of approximately $0.8 million.

On February 8, 2019, we closed the public offering of approximately $60.0
million in aggregate principal amount of our 6.000% notes due 2024, or the
"February 2024 Notes". On February 19, 2019, the underwriters exercised their
option to purchase an additional $9.0 million in aggregate principal of the
February 2024 Notes. The total net proceeds to us from the February 2024 Notes,
including the exercise of the underwriters' option, after deducting underwriting
discounts of approximately $2.1 million and estimated offering expenses of $0.4
million, were approximately $66.5 million. On February 16, 2021, we redeemed
$50.0 million of the $69.0 million in aggregate principal amount on the February
2024 Notes, resulting in a realized loss on extinguishment of debt of
approximately $1.1 million. On November 2, 2021, we fully redeemed the remaining
$19.0 million in aggregate principal amount on the issued and outstanding
February 2024 Notes, resulting in a realized loss on extinguishment of debt of
approximately $0.3 million.

On October 16, 2019, we closed the public offering of approximately $55.0
million in aggregate principal amount of our 5.375% notes due 2024, or the
"November 2024 Notes" (and collectively with the 2023 Notes and the February
2024 Notes, the "Public Notes"). On October 23, 2019, the underwriters exercised
their option to purchase an additional $8.3 million in aggregate principal of
the November 2024 Notes. The total net proceeds to us from the November 2024
Notes, including the exercise of the underwriters' option, after deducting
underwriting discounts of approximately $1.9 million and estimated offering
expenses of $0.3 million, were approximately $61.1 million. On November 2, 2021,
we fully redeemed the $63.3 million in aggregate principal amount on the issued
and outstanding November 2024 Notes, resulting in a realized loss on
extinguishment of debt of approximately $1.3 million.
                                       49
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On December 23, 2020, we closed the offering of $125.0 million in aggregate
principal amount of our 4.75% notes due 2026, or the "January 2026 Notes". The
total net proceeds to us from the January 2026 Notes after deducting
underwriting discounts of $2.5 million and estimated offering expenses of
approximately $0.4 million, were approximately $122.1 million. The January 2026
Notes will mature on January 31, 2026 and bear interest at a rate of 4.75%. The
January 2026 Notes may be redeemed in whole or in part at any time or from time
to time at our option subject to a make whole provision if redeemed more than
three months prior to maturity and at par thereafter. Interest on the January
2026 Notes is payable on January 31 and July 31 of each year. We do not intend
to list the January 2026 Notes on any securities exchange or automated dealer
quotation system. As of June 30, 2022, the outstanding principal balance of the
January 2026 Notes was approximately $125.0 million.

On October 8, 2021, we closed the offering of $125.0 million in aggregate
principal amount of our 3.50% notes due 2026, or the "November 2026 Notes"
(collectively with the Public Notes and the January 2026 Notes, the "Notes").
The total net proceeds to us from the November 2026 Notes, based on a public
offering price of 99.996% of par, after deducting underwriting discounts of $2.5
million and estimated offering expenses of approximately $0.3 million, were
approximately $122.2 million. The November 2026 Notes will mature on November
15, 2026 and bear interest at a rate of 3.50%. The November 2026 Notes may be
redeemed in whole or in part at any time or from time to time at our option
subject to a make whole provision if redeemed more than three months prior to
maturity and at par thereafter. Interest on the November 2026 Notes is payable
on May 15 and November 15 of each year, beginning May 15, 2022. We do not intend
to list the November 2026 Notes on any securities exchange or automated dealer
quotation system. As of June 30, 2022, the outstanding principal balance of the
November 2026 Notes was approximately $125.0 million.

Each of the Notes are unsecured obligations and rank pari passu with our
existing and future unsecured indebtedness; effectively subordinated to all of
our existing and future secured indebtedness; and structurally subordinated to
all existing and future indebtedness and other obligations of any of our
subsidiaries, financing vehicles, or similar facilities we may form in the
future, with respect to claims on the assets of any such subsidiaries, financing
vehicles, or similar facilities.

Secured Borrowing


As of June 30, 2022, the carrying value of secured borrowings totaled $17.3
million and the fair value of the associated loans included in investments was
$17.3 million. As of December 31, 2021, carrying value of secured borrowings
totaled $17.6 million and the fair value of the associated loans included in
investments was $17.5 million. These secured borrowings were created as a result
of our completion of partial loan sales of certain unitranche loan assets that
did not meet the definition of a "participating interest." As a result, sale
treatment was not permitted and these partial loan sales were treated as secured
borrowings. The weighted average interest rate on our secured borrowings was
approximately 5.119% and 4.392% as of June 30, 2022 and December 31, 2021,
respectively.

As of June 30, 2022, the weighted average stated interest rates for our SBA
debentures and Notes were 2.846% and 4.125%, respectively. As of June 30, 2022,
we had $100.0 million of unutilized commitment under our Credit Facility, and we
were subject to a 1.375% fee on such amount. As of June 30, 2022, the weighted
average stated interest rate on total debt outstanding was 3.753%.

As a BDC, we are generally required to meet an asset coverage ratio of at least
150.0% (defined as the ratio which the value of our consolidated total assets,
less all consolidated liabilities and indebtedness not represented by senior
securities, bears to the aggregate amount of senior securities representing
indebtedness), which includes borrowings and any preferred stock we may issue in
the future. This requirement limits the amount that we may borrow. On April 29,
2019, our Board, including a majority of the non-interested directors, approved
a minimum asset coverage ratio of 150% under Sections 18(a)(1) and 18(a)(2) of
the 1940 Act. As a result, we are subject to the 150% asset coverage ratio
effective as of April 29, 2020. We have received exemptive relief from the U.S.
Securities and Exchange Commission ("SEC") to allow us to exclude the senior
securities issued by the Funds from the definition of senior securities in the
150% asset coverage requirement applicable to the Company under the 1940 Act,
which, in turn, will enable us to fund more investments with debt capital.

As a BDC, we are generally not permitted to issue and sell our common stock at a
price below net asset value per share. We may, however, sell our common stock,
or warrants, options or rights to acquire our common stock, at a price below the
then-current net asset value per share of our common stock if the Board,
including the Independent Directors, determines that such sale is in the best
interests of us and our stockholders, and if our stockholders approve such sale.
On June 29, 2022, our stockholders voted to allow us to sell or otherwise issue
common stock at a price below net asset value per share for a period of one year
ending on the earlier of June 29, 2023 or the date of our 2023 Annual Meeting of
Stockholders. Our stockholders specified that the cumulative number of shares
sold in each offering during the one-year period ending on the earlier of June
29, 2023 or the date of our 2023 Annual Meeting of Stockholders may not exceed
25.0% of our outstanding common stock immediately prior to each such sale.
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Stock Repurchase Program


We have an open market stock repurchase program (the "Stock Repurchase Program")
under which we may acquire up to $5.0 million of our outstanding common stock.
Under the Stock Repurchase Program, we may, but are not obligated to, repurchase
outstanding common stock in the open market from time to time provided that we
comply with the prohibitions under our insider trading policies and the
requirements of Rule 10b-18 of the Securities Exchange Act of 1934, as amended,
including certain price, market value and timing constraints. The timing,
manner, price and amount of any share repurchases will be determined by our
management, in its discretion, based upon the evaluation of economic and market
conditions, stock price, capital availability, applicable legal and regulatory
requirements and other corporate considerations. On November 1, 2021, the Board
extended the Stock Repurchase Program through December 31, 2022, or until the
approved dollar amount has been used to repurchase shares. The Stock Repurchase
Program does not require us to repurchase any specific number of shares and we
cannot assure that any shares will be repurchased under the Stock Repurchase
Program. The Stock Repurchase Program may be suspended, extended, modified or
discontinued at any time. We did not make any repurchases of common stock during
the three and six months ended June 30, 2022 and 2021. Refer to Note 8 to our
consolidated financial statements for additional information concerning stock
repurchases.

Critical Accounting Policies and Use of Estimates


The preparation of financial statements in accordance with GAAP requires
management to make certain estimates and assumptions affecting amounts reported
in the financial statements. We have identified investment valuation, revenue
recognition and transfers of financial assets as our most critical accounting
policies and estimates. We continuously evaluate our policies and 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.

Valuation of Portfolio Investments

As a BDC, we report our assets and liabilities at fair value at all times consistent with GAAP and the 1940 Act. Accordingly, we are required to periodically determine the fair value of all of our portfolio investments.


Our investments generally consist of illiquid securities including debt and
equity investments in lower middle-market companies. Investments for which
market quotations are readily available are valued at such market quotations.
Because we expect that there will not be a readily available market for
substantially all of the investments in our portfolio, we value substantially
all of our portfolio investments at fair value as determined in good faith by
our board of directors using a documented valuation policy and consistently
applied valuation process. Due to the inherent uncertainty of determining the
fair value of investments that do not have a readily available market value, the
fair value of our investments may differ significantly from the values that
would have been used had a readily available market value existed for such
investments, and the difference could be material.

With respect to investments for which market quotations are not readily available, our board of directors undertakes a multi-step valuation process each quarter, as described below:

our quarterly valuation process begins with each portfolio company or investment
being initially evaluated and rated by the investment professionals of the
Investment Advisor responsible for the portfolio investment;
•
preliminary valuation conclusions are then documented and discussed with the
investment committee of the Investment Advisor;
•
our board of directors engages one or more independent valuation firm(s) to
conduct independent appraisals of a selection of our portfolio investments for
which market quotations are not readily available. Each portfolio company
investment is generally appraised by the valuation firm(s) at least once every
calendar year and each new portfolio company investment is appraised at least
once in the twelve-month period following the initial investment. In certain
instances, we may determine that it is not cost-effective, and as a result it is
not in our stockholders' best interest, to request the independent appraisal of
certain portfolio company investments. Such instances include, but are not
limited to, situations where we determine that the fair value of the portfolio
company investment is relatively insignificant to the fair value of the total
portfolio. Our board of directors consulted with the independent valuation
firm(s) in arriving at our determination of fair value for 10 and 17 of our
portfolio company investments representing 19.5% and 40.6% of the total
portfolio investments at fair value (exclusive of new portfolio company
investments made during the three months ended June 30, 2022 and December 31,
2021, respectively) as of June 30, 2022 and December 31, 2021, respectively;
•
the audit committee of our board of directors reviews the preliminary valuations
of the Investment Advisor and of the independent valuation firm(s) and responds
and supplements the valuation recommendations to reflect any comments; and
•
our board of directors discusses the valuations and determines the fair value of
each investment in our portfolio in good faith, based on the input of the
Investment Advisor, the independent valuation firm(s) and the audit committee.
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In making the good faith determination of the value of portfolio investments, we
start with the cost basis of the security. The transaction price is typically
the best estimate of fair value at inception. When evidence supports a
subsequent change to the carrying value from the original transaction price,
adjustments are made to reflect the expected exit values.

Consistent with the policies and methodologies adopted by the Board, we perform
detailed valuations of our debt and equity investments, including an analysis on
the Company's unfunded debt investment commitments, using both the market and
income approaches as appropriate. Under the market approach, we typically use
the enterprise value methodology to determine the fair value of an investment.
There is no one methodology to estimate enterprise value and, in fact, for any
one portfolio company, enterprise value is generally best expressed as a range
of values, from which we derive a single estimate of enterprise value. Under the
income approach, we typically prepare and analyze discounted cash flow models to
estimate the present value of future cash flows of either an individual debt
investment or of the underlying portfolio company itself.

We evaluate investments in portfolio companies using the most recent portfolio
company financial statements and forecasts. We also consult with the portfolio
company's senior management to obtain further updates on the portfolio company's
performance, including information such as industry trends, new product
development and other operational issues.

For our debt investments the primary valuation technique used to estimate the
fair value is the discounted cash flow method. However, if there is
deterioration in credit quality or a debt investment is in workout status, we
may consider other methods in determining the fair value, including the value
attributable to the debt investment from the enterprise value of the portfolio
company or the proceeds that would be received in a liquidation analysis. Our
discounted cash flow models estimate a range of fair values by applying an
appropriate discount rate to the future cash flow streams of our debt
investments, based on future interest and principal payments as set forth in the
associated debt investment agreements. We prepare a weighted average cost of
capital for use in the discounted cash flow model for each investment, based on
factors including, but not limited to: current pricing and credit metrics for
similar proposed or executed investment transactions of private companies; the
portfolio company's historical financial results and outlook; and the portfolio
company's current leverage and credit quality as compared to leverage and credit
quality as of the date the investment was made. We may also consider the
following factors when determining the fair value of debt investments: the
portfolio company's ability to make future scheduled payments; prepayment
penalties and other fees; estimated remaining life; the nature and realizable
value of any collateral securing such debt investment; and changes in the
interest rate environment and the credit markets that generally may affect the
price at which similar investments may be made. We estimate the remaining life
of our debt investments to generally be the legal maturity date of the
instrument, as we generally intend to hold debt investments to maturity.
However, if we have information available to us that the debt investment is
expected to be repaid in the near term, we would use an estimated remaining life
based on the expected repayment date.

For our equity investments, including equity securities and warrants, we
generally use a market approach, including valuation methodologies consistent
with industry practice, to estimate the enterprise value of portfolio companies.
Typically, the enterprise value of a private company is based on multiples of
EBITDA, net income, revenues, or in limited cases, book value. In estimating the
enterprise value of a portfolio company, we analyze various factors consistent
with industry practice, including but not limited to original transaction
multiples, the portfolio company's historical and projected financial results,
applicable market trading and transaction comparables, applicable market yields
and leverage levels, the nature and realizable value of any collateral, the
markets in which the portfolio company does business, and comparisons of
financial ratios of peer companies that are public.

We may also utilize an income approach when estimating the fair value of our
equity securities, either as a primary methodology if consistent with industry
practice or if the market approach is otherwise not applicable, or as a
supporting methodology to corroborate the fair value ranges determined by the
market approach. We typically prepare and analyze discounted cash flow models
based on projections of the future free cash flows (or earnings) of the
portfolio company. We consider various factors, including but not limited to the
portfolio company's projected financial results, applicable market trading and
transaction comparables, applicable market yields and leverage levels, the
markets in which the portfolio company does business, and comparisons of
financial ratios of peer companies that are public.

Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements express the uncertainties with respect to the possible effect of such valuations, and any changes in such valuations, on the consolidated financial statements.

Revenue Recognition


Investments and related investment income. Realized gains or losses on
investments are recorded upon the sale or disposition of a portfolio investment
and are calculated as the difference between the net proceeds from the sale or
disposition and the cost basis of the investment, without regard to unrealized
appreciation or depreciation previously recognized. Net change in unrealized
appreciation or depreciation on the consolidated statements of operations
includes changes in the fair value of investments from the prior period, as
determined by the Board through the application of our valuation policy, as well
as reclassifications of any prior period unrealized appreciation or depreciation
on exited investments to realized gains or losses on investments.
                                       52
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Interest and dividend income. Interest and dividend income are recorded on the
accrual basis to the extent that we expect to collect such amounts. Interest is
accrued daily based on the outstanding principal amount and the contractual
terms of the debt. Dividend income is recorded as dividends are declared or at
the point an obligation exists for the portfolio company to make a distribution,
and is generally recognized when received. Distributions from portfolio
companies are evaluated to determine if the distribution is a distribution of
earnings or a return of capital. Distributions of earnings are included in
dividend income while a return of capital is recorded as a reduction in the cost
basis of the investment. Estimates are adjusted as necessary after the relevant
tax forms are received from the portfolio company.

PIK income. Certain of our investments contain a PIK income provision. The PIK
income, computed at the contractual rate specified in the applicable investment
agreement, is added to the principal balance of the investment, rather than
being paid in cash, and recorded as interest or dividend income, as applicable,
on the consolidated statements of operations. Generally, PIK can be paid-in-kind
or all in cash. We stop accruing PIK income when there is reasonable doubt that
PIK income will be collected. PIK income that has been contractually capitalized
to the principal balance of the investment prior to the non-accrual designation
date is not reserved against interest or dividend income, but rather is assessed
through the valuation of the investment (with corresponding adjustments to
unrealized depreciation, as applicable). PIK income is included in our taxable
income and, therefore, affects the amount we are required to pay to our
stockholders in the form of dividends in order to maintain our tax treatment as
a RIC and to avoid paying corporate-level U.S. federal income tax, even though
we have not yet collected the cash.

Non-accrual. Debt investments or preferred equity investments (for which we are
accruing PIK dividends) are placed on non-accrual status when principal,
interest or dividend payments become materially past due, or when there is
reasonable doubt that principal, interest or dividends will be collected. Any
original issue discount and market discount are no longer accreted to interest
income as of the date the loan is placed on full non-accrual status. Interest
and dividend payments received on non-accrual investments may be recognized as
interest or dividend income or applied to the investment principal balance based
on management's judgment. Non-accrual investments are restored to accrual status
when past due principal, interest or dividends are paid and, in management's
judgment, are likely to remain current.

Warrants. In connection with our debt investments, we will sometimes receive
warrants or other equity-related securities (Warrants). We determine the cost
basis of Warrants based upon their respective fair values on the date of receipt
in proportion to the total fair value of the debt and Warrants received. Any
resulting difference between the face amount of the debt and its recorded fair
value resulting from the assignment of value to the Warrants is treated as OID
and accreted into interest income using the effective interest method over the
term of the debt investment. Upon the prepayment of a debt investment, any
unaccreted OID is accelerated into interest income.

Fee income. All transaction fees earned in connection with our investments are
recognized as fee income and are generally non-recurring. Such fees typically
include fees for services, including structuring and advisory services, provided
to portfolio companies. We recognize income from fees for providing such
structuring and advisory services when the services are rendered or the
transactions are completed. Upon the prepayment of a debt investment, any
prepayment penalties are recorded as fee income when earned.

We also typically receive debt investment origination or closing fees in
connection with investments. Such debt investment origination and closing fees
are capitalized as unearned income and offset against investment cost basis on
our consolidated statements of assets and liabilities and accreted into interest
income over the term of the investment. Upon the prepayment of a debt
investment, any unaccreted debt investment origination and closing fees are
accelerated into interest income.

Transfers of Financial Assets


Partial loan and equity sales. We follow the guidance in ASC 860, Transfers and
Servicing, when accounting for loan (debt investment) participations, equity
assignments and other partial loan sales. Such guidance requires a
participation, assignment or other partial loan or equity sale to meet the
definition of a "participating interest," as defined in the guidance, in order
for sale treatment to be allowed. Participations, assignments or other partial
loan or equity sales which do not meet the definition of a participating
interest should remain on our consolidated statements of assets and liabilities
and the proceeds recorded as a secured borrowing until the definition is met.
                                       53
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Recently Issued Accounting Standard


In June 2022, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") No. 2022-03, "Fair Value Measurement of
Equity Securities Subject to Contractual Sale Restrictions (Topic 820)," which
clarifies that a contractual sale restriction prohibiting the sale of an equity
security is a characteristic of the reporting entity holding the equity security
and is not included in the equity security's unit of account. Accordingly, an
entity should not consider the contractual sale restriction when measuring the
equity security's fair value. In addition, ASU No. 2022-03 prohibits an entity
from recognizing a contractual sale restriction as a separate unit of account.
ASU No. 2022-03's amendments are effective for fiscal years beginning after
December 15, 2023, with early adoption permitted. We are currently evaluating
the impact of the adoption of ASU No. 2022-03 on our consolidated financial
statements.

SEC Regulation S-K Update


In November 2020, the SEC issued a final rule that modernized and simplifies
Management's Discussion and Analysis of Financial Condition and Results of
Operations and certain financial disclosure requirements in Regulation S-K (the
"Amendments"). Specifically, the Amendments: (i) eliminate Item 301 of
Regulation S-K (Selected Financial Data); (ii) simplify Item 302 of Regulation
S-K (Supplementary Financial Information); and (iii) amend certain aspects of
Item 303 of Regulation S-K (Management's Discussion and Analysis of Financial
Condition and Results of Operations). The Amendments became effective on
February 10, 2021 and compliance was required for the registrant's fiscal year
ending on or after August 9, 2021. We adopted the Amendments on the effective
date which did not have a material impact on our Consolidated Financial
Statements.

Related Party Transactions

We have entered into a number of business relationships with affiliated or related parties, including the following:

We have entered into the Investment Advisory Agreement with Fidus Investment
Advisors as our investment advisor. Pursuant to the agreement, the Investment
Advisor manages our day-to-day operating and investing activities. We pay the
Investment Advisor a fee for its services under the Investment Advisory
Agreement consisting of two components - a base management fee and an incentive
fee. See Note 5 to our consolidated financial statements.
•
Fidus Group Holdings, LLC ("Holdings"), a limited liability company organized
under the laws of Delaware, is the parent company of Fidus Investment Advisors.
Edward H. Ross, our Chairman and Chief Executive Officer, and Thomas C. Lauer,
our President, are managers of Holdings.
•
We entered into the Administration Agreement with Fidus Investment Advisors to
provide us with the office facilities and administrative services necessary to
conduct day-to-day operations. See Note 5 to our consolidated financial
statements.
•
We entered into a license agreement with Fidus Partners, LLC, pursuant to which
Fidus Partners, LLC has granted us a non-exclusive, royalty-free license to use
the name "Fidus."
•
On February 25, 2020, the Company entered into a Limited Partnership Agreement
(the "Agreement") with Fidus Equity Fund I, L.P. ("FEF I"). Pursuant to the
Agreement, we will serve as the General Partner of FEF I. Owned by third-party
investors, FEF I was formed to purchase 50% of select equity investments from
us. We will not receive any fees from FEF I for any services provided in our
capacity as the General Partner of FEF I.
•
The Investment Advisor, in consultation with the Board, agreed to voluntarily
waive $0.1 million and $0.2 million of the base management fees on any assets
accounted for as secured borrowings as defined under GAAP for the three and six
months ended June 30, 2022, respectively, and $0.0 million for the three and six
months ended June 30, 2021, respectively.

In connection with the IPO and our election to be regulated as a BDC, we applied
for and received exemptive relief from the SEC on March 27, 2012 to allow us to
take certain actions that would otherwise be prohibited by the 1940 Act, as
applicable to BDCs. Effective June 30, 2014, pursuant to exemptive relief from
the SEC, we are permitted to exclude the senior securities issued by Fund II and
Fund III from the definition of senior securities in the asset coverage
requirement applicable to the Company under the 1940 Act.
                                       54
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While we may co-invest with investment entities managed by the Investment
Advisor or its affiliates, to the extent permitted by the 1940 Act and the rules
and regulations thereunder, the 1940 Act imposes significant limits on
co-investment. On January 4, 2017, the SEC staff has granted us relief sought in
an exemptive order that expands our ability to co-invest in portfolio companies
with other funds managed by the Investment Advisor or its affiliates
("Affiliated Funds") in a manner consistent with our investment objective,
positions, policies, strategies and restrictions as well as regulatory
requirements and other pertinent factors, subject to compliance with certain
conditions (the "Order"). Pursuant to the Order, we are permitted to co-invest
with our affiliates if a "required majority" (as defined in Section 57(o) of the
1940 Act) or the Independent Directors make certain conclusions in connection
with a co-investment transaction, including that (1) the terms of the
transactions, including the consideration to be paid, are reasonable and fair to
us and our stockholders and do not involve overreaching by us or our
stockholders on the part of any person concerned, and (2) the transaction is
consistent with the interests of our stockholders and is consistent with our
investment objective and strategies. However, neither we nor our affiliates are
obligated to invest or co-invest when investment opportunities are referred to
us or them.

In addition, we and our Investment Advisor have each adopted a joint code of
ethics pursuant to Rule 17j-1 under the 1940 Act that governs the conduct of our
and the Investment Advisor's officers, directors and employees. Additionally,
the Investment Advisor has adopted a code of ethics pursuant to Rule 204A-1
under the Advisers Act of 1940, as amended, and in accordance with Rule 17j-1(c)
under the 1940 Act. We have also adopted a code of business conduct that is
applicable to all officers, directors and employees of Fidus and our Investment
Advisor. Our officers and directors also remain subject to the duties imposed by
both the 1940 Act and the Maryland General Corporation Law.

Recent Developments

On July 6, 2022, we issued an additional $7.5 million in SBA debentures, which will pool in September 2022. Until the pooling date, the debentures bear interest at a fixed rate interim interest rate of 2.766%.


On July 8, 2022, we invested $7.8 million in first lien debt, $2.0 million in
subordinated debt, and $1.0 in common equity of AmeriWater, LLC, a leading
provider of water purification systems and aftermarket parts & consumables for
healthcare and industrial applications.

On July 12, 2022, we exited our equity investment in Palisade Company, LLC. We
received a distribution on our common equity investment for a realized gain of
approximately $1.9 million.

On July 18, 2022, we made a commitment of $4.9 million in second lien debt of Magenta Buyer, LLC, (dba Trellix), a leading global cybersecurity company.


On July 27, 2022, we exited our equity investment in Bandon Fitness (Texas) Inc.
We received a distribution on our common equity investment for a realized gain
of approximately $3.2 million.

On July 29, 2022, we exited our debt investment in Bedford Precision Parts LLC. We received payment in full of $4.5 million on our first lien debt.


On August 1, 2022, we received a distribution on our common equity investment in
SES Investors, LLC (dba SES Foam), resulting in a realized gain of approximately
$9.0 million.

On August 1, 2022, we exited our debt investment in Healthfuse, LLC. We received payment in full of $5.3 million on our first lien debt, which includes a prepayment fee.


On August 1, 2022, our Board declared a regular quarterly dividend of $0.36 per
share and a supplemental dividend of $0.07 per share payable on September 23,
2022, to stockholders of record as of September 9, 2022.

On August 1, 2022, our Board declared a regular quarterly dividend of $0.36 per
share and a supplemental dividend of $0.07 per share payable on December 16,
2022, to stockholders of record as of December 2, 2022.

On August 2, 2022, we sold a portion of our equity investment in Pfanstiehl,
Inc. and realized a gain of approximately $24.3 million. In conjunction with the
transaction, we invested $10.0 million in subordinated debt.

On August 3, 2022, we made a commitment of $20.0 million in first lien debt of
BP Thrift Buyer LLC (dba Unique and Eco Thrift), an owner and operator of retail
thrift stores.

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