FRANKLIN BSP LENDING CORPORATION The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements ofFranklin BSP Lending Corporation (the "Company," "FBLC," "we," or "our") and the notes thereto and other financial information included elsewhere in this Annual Report on Form 10-K. We are externally managed by our adviser,Franklin BSP Lending Adviser, L.L.C. (the "Adviser"). Forward Looking Statements This report, and other statements that we may make, may contain forward-looking statements with respect to future financial or business performance, strategies, or expectations. Forward-looking statements are typically identified by words or phrases such as "trend," "opportunity," "pipeline," "believe," "comfortable," "expect," "anticipate," "current," "intention," "estimate," "position," "assume," "potential," "outlook," "continue," "remain," "maintain," "sustain," "seek," "achieve," and similar expressions, or future conditional verbs such as "will," "would," "should," "could," "may," or similar expressions. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and we assume no duty to and do not undertake to update forward-looking statements. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance. In addition to factors previously disclosed in ourU.S. Securities and Exchange Commission ("SEC") reports and those identified elsewhere in this report, including the "Risk Factors" section, the following factors, among others, could cause actual results to differ materially from forward-looking statements or historical performance:
•our future operating results;
•changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, including the effect of rising interest rates and a potential global recession;
•the impact of geopolitical conditions, including revolution, insurgency,
terrorism or war, including those arising out of the ongoing conflict between
•the impact that the discontinuation of LIBOR and the transition to new reference rates could have on the value of our LIBOR-indexed portfolio investments and the cost of borrowing under our credit facilities;
•the impact of the investments that we expect to make;
•the ability of our portfolio companies to achieve their objectives;
•our contractual arrangements and relationships with third parties;
•our expected financings 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;
•our repurchase of shares;
•actual and potential conflicts of interest with our Adviser and its affiliates;
•the dependence of our future success on the general economy and its effect on the industries in which we invest;
•the ability to qualify and maintain our qualifications as a regulated investment company ("RIC") and a business development company ("BDC");
•the timing, form, and amount of any distributions;
•the impact of fluctuations in interest rates on our business;
•the valuation of any investments in portfolio companies, particularly those having no liquid trading market;
•the impact of changes to generally accepted accounting principles, and the impact to FBLC; and
•the impact of changes to tax legislation and, generally, our tax position.
Our actual results could differ materially from those implied or expressed in
the forward-looking statements for any reason, including the factors set forth
in "Item 1A. Risk Factors" and elsewhere in this Annual Report.
61
--------------------------------------------------------------------------------Overview
We are an externally managed, non-diversified closed-end management investment company incorporated inMaryland inMay 2010 that has elected to be regulated as a BDC under the Investment Company Act of 1940, as amended ("the 1940 Act"). In addition, we have elected to be treated for tax purposes as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). Our investment activities are managed by the Adviser, a subsidiary ofBenefit Street Partners L.L.C. ("BSP") and supervised by our Board of Directors, a majority of whom are independent of the Adviser and its affiliates. As a BDC, we are required to comply with certain regulatory requirements. Our investment objective is to generate both current income and to a lesser extent long-term capital appreciation through debt and equity investments. We invest primarily in senior secured loans, and to a lesser extent, mezzanine loans, unsecured loans, and equity of predominantly privateU.S. middle market companies. We define middle market companies as those with EBITDA of between$25 million and$100 million annually, although we may invest in larger or smaller companies. We may also purchase interests in loans or corporate bonds through secondary market transactions. We expect that each investment generally will range between approximately 0.5% and 3.0% of our total assets. As ofDecember 31, 2022 , 76.5% of our portfolio was invested in senior secured loans. Senior secured loans generally are senior debt instruments that rank ahead of subordinated debt and equity in priority of payments and are generally secured by liens on the operating assets of a borrower which may include inventory, receivables, plant, property, and equipment. Mezzanine debt is subordinated to senior loans and is generally unsecured. We may also invest in the equity and junior debt tranches of collateralized loan obligation investment vehicles ("Collateralized Securities " or "CLO's"). EffectiveApril 1, 2022 , we have elected to not invest, directly or indirectly, in coal-related companies, or invest in portfolio companies primarily engaged in directly investing in the exploration for, or the production of, coal at the discretion of the Adviser; provided, however, we shall be considered in compliance with this investment restriction if, from this date forward, we do not invest in any portfolio company that has a Global Industry Classification Standard designation of "coal and consumable fuels."
Financial and Operating Highlights
(Dollars in millions, except per share amounts) AtDecember 31, 2022 : Investment Portfolio$ 2,875.1 Net assets 1,665.5 Debt (net of deferred financing costs) 1,224.2 Net asset value per share 7.28
Portfolio Activity for the Year Ended
Purchases during the period 510.0
Sales, repayments, and other exits during the period 396.0
Number of portfolio companies at end of period 150
Operating results for the Year Ended
Net investment income per share 0.59
Distributions declared per share 0.60
Net increase in net assets resulting from operations per share 0.39
Net investment income 125.1
Net realized and unrealized loss, net of change in deferred taxes (43.1)
Net increase in net assets resulting from operations 82.0
Portfolio and Investment Activity
During the year endedDecember 31, 2022 , we made$510.0 million of investments in new and existing portfolio companies and had$396.0 million in aggregate amount of sales and repayments, resulting in a net increase in investments of$114.0 million for the period. The total portfolio of debt investments at fair value consisted of 93.5% bearing variable interest rates and 6.5% bearing fixed interest rates. 62
-------------------------------------------------------------------------------- Our portfolio composition, based on fair value atDecember 31, 2022 was as follows: December 31, 2022 Weighted Average Percentage of Current Yield for Total Total Portfolio (4) Portfolio (1) Senior Secured First Lien Debt 69.4 % 11.0 % Senior Secured Second Lien Debt 7.1 12.9 Subordinated Debt 4.7 12.9 Debt Subtotal 81.2 % 11.3 % Collateralized Securities (2) 1.1 17.2 Equity/Other (3) 7.1 18.1 FBLC Senior Loan Fund, LLC (3) 10.6 9.0 Total 100.0 % 11.6 % ______________
(1) Includes the effect of the amortization or accretion of loan premiums or discounts.
(2) Weighted average current yield forCollateralized Securities is based on the estimation of effective yield to expected maturity for each security as calculated in accordance with Accounting Standards Codification ("ASC") Topic 325-40-35, Beneficial Interests in Securitized Financial Assets (see Note 2 - Summary of Significant Accounting Policies).
(3) Weighted average current yield for Equity/Other may be based on actual or annualized income, where applicable.
(4) As ofDecember 31, 2022 ,FBLC Senior Loan Fund, LLC's holdings consisted of 91.2% senior secured debt, of which 88.1% represented senior secured first lien debt. As ofDecember 31, 2022 , we held investments inSiena Capital Finance, LLC ("Siena") consisting of subordinated debt and equity, which represented 2.7% and 2.7% of our total portfolio, respectively. As ofDecember 31, 2022 , we held investments inEncina Equipment Finance, LLC ("Encina") consisting of subordinated debt and equity, which represented 1.9% and 2.8% of our portfolio, respectively. The respective businesses of Siena and Encina primarily involve making senior secured asset-based loans to middle market companies and equipment finance transactions secured by mission-critical equipment of middle market companies, respectively. If the underlying investments ofFBLC Senior Loan Fund described above were held by us and we were to treat the investments in Siena and Encina as senior secured first lien investments, given the underlying businesses of those portfolio companies, then our portfolio composition as ofDecember 31, 2022 would be as follows: December 31, 2022 Percentage of Total Portfolio Senior Secured First Lien Debt 88.7 % Senior Secured Second Lien Debt 6.9 Senior Secured - Subtotal 95.6 % Subordinated Debt 0.1 Debt Subtotal 95.7 % Collateralized Securities 2.8 Equity/Other 1.5 Total 100.0 % During the year endedDecember 31, 2021 , we made$1,932.8 million of investments in new and existing portfolio companies and had$1,898.1 million in aggregate amount of sales and repayments, resulting in net investments of$34.7 million for the period. The total portfolio of debt investments at fair value consisted of 91.5% bearing variable interest rates and 8.5% bearing fixed interest rates. 63 -------------------------------------------------------------------------------- Our portfolio composition, based on fair value atDecember 31, 2021 was as follows: December 31, 2021 Weighted Average Percentage of Current Yield for Total Total Portfolio (4) Portfolio (1) Senior Secured First Lien Debt 65.9 % 7.6 % Senior Secured Second Lien Debt 8.8 9.1 Subordinated Debt 4.2 11.0 Debt Subtotal 78.9 % 7.9 % Collateralized Securities (2) 1.3 15.0 Equity/Other (3) 8.8 17.1 FBLC Senior Loan Fund, LLC (3) 11.0 8.0 Total 100.0 % 8.8 % ______________
(1) Includes the effect of the amortization or accretion of loan premiums or discounts.
(2) Weighted average current yield forCollateralized Securities is based on the estimation of effective yield to expected maturity for each security as calculated in accordance with Accounting Standards Codification ("ASC") Topic 325-40-35, Beneficial Interests in Securitized Financial Assets (see Note 2 - Summary of Significant Accounting Policies).
(3) Weighted average current yield for Equity/Other may be based on actual or annualized income, where applicable.
(4) As ofDecember 31, 2021 ,FBLC Senior Loan Fund, LLC's holdings consisted of 92.7% senior secured debt, of which 87.0% represented senior secured first lien debt. As ofDecember 31, 2021 , we held investments inSiena Capital Finance, LLC ("Siena") consisting of subordinated debt and equity, which represented 2.7% and 2.4% of our total portfolio, respectively. As ofDecember 31, 2021 , we held investments inEncina Equipment Finance, LLC ("Encina") consisting of subordinated debt and equity, which represented 1.4% and 2.9% of our total portfolio, respectively. The respective businesses of Siena and Encina primarily involve making senior secured asset-based loans to middle market companies and equipment finance transactions secured by mission-critical equipment of middle market companies, respectively. If the underlying investments ofFBLC Senior Loan Fund described above were held by us and we were to treat the investments in Siena and Encina as senior secured first lien investments, given the underlying businesses of those portfolio companies, then our portfolio composition as ofDecember 31, 2021 would be as follows:December 31, 2021 Percentage of Total Portfolio Senior Secured First Lien Debt 85.2 % Senior Secured Second Lien Debt 8.8 Senior Secured - Subtotal 94.0 % Subordinated Debt 0.2 Debt Subtotal 94.2 %Collateralized Securities 3.0 Equity/Other 2.8 Total 100.0 % Portfolio Asset Quality Our Adviser employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our Adviser grades the credit risk of all debt investments on a scale of 1 to 5 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio debt investment relative to the inherent risk at the time the original debt investment was made (i.e., at the time of acquisition), although it may also take into account under certain circumstances the performance of the portfolio company's business, the collateral coverage of the investment and other relevant factors. 64 -------------------------------------------------------------------------------- Loan Rating Summary Description Debt investment exceeding fundamental
performance expectations and/or
1 capital gain expected. Trends and risk factors since the time of
investment are favorable.
2 Performing consistent with expectations and afull return of principal and
interest expected. Trends and risk factors are neutral to favorable. All
investments are initially rated a "2".
3 Performing debt investment requiring closer monitoring. Trends and risk
factors show some deterioration.
4 Underperforming debt investment. Some loss of interest or dividend
expected, but still expecting a positivereturn on investment. Trends and
risk factors are negative.
5 Underperforming debt investment with expected loss of interest and some
principal.
The weighted average risk rating of our investments based on fair value was 2.2
and 2.1 as of December 31, 2022 and December 31, 2021 , respectively. As of
December 31, 2022 , we had 5 portfolio companies on non-accrual with a total
amortized cost of $44.6 million and fair value of $8.2 million , which
represented 1.5% and 0.3% of the investment portfolio's total amortized cost and
fair value, respectively. As of December 31, 2021 , we had 6 portfolio companies
on non-accrual with a total amortized cost of $42.5 million and fair value of
$12.2 million , which represented 1.5%, and 0.4% of the investment portfolio's
total amortized cost and fair value, respectively. Refer to Note 2 - Summary of
Significant Accounting Policies - in our consolidated financial statements
included in this report for additional details regarding our non-accrual policy.
OnJanuary 20, 2021 ,FBLC and Cliffwater Corporate Lending Fund ("CCLF") formed a joint venture,FBLC Senior Loan Fund, LLC (the "SLF"), that invests primarily in senior secured loans, and to a lesser extent may invest in mezzanine loans, unsecured loans and equity of predominantly privateU.S. middle market companies. SLF was formed as aDelaware limited liability company and is not consolidated by FBLC for financial reporting purposes. FBLC provides capital to SLF in the form of LLC equity interests. At formation, FBLC and CCLF owned 87.5% and 12.5%, respectively, of the LLC equity interests of SLF. For both years ended,December 31, 2022 andDecember 31, 2021 , FBLC and CCLF owned 79.8% and 20.2%, respectively, of the LLC equity interests of SLF. Profit and loss are allocated based on each members' ownership percentage of the joint venture's net asset value. SLF has an Administrative and Loan Services Agreement with BSP, an affiliate of the Company, pursuant to which BSP provides certain operational and valuation services for SLF's investments; as well as certain agreements with third-party service providers. FBLC and CCLF each appoint two members to SLF's four-person board of members. All material decisions with respect to SLF, including those involving its investment portfolio, require unanimous approval of a quorum of the board of members. Quorum is defined as (i) the presence of two members of the board of members; provided that at least one individual is present that was elected, designated or appointed by each member; (ii) the presence of three members of the board of members; provided that the individual that was elected, designated or appointed by the member with only one individual present shall be entitled to cast two votes on each matter; and (iii) the presence of four members of the board of members; provided that two individuals are present that were elected, designated or appointed by each member. As part of the initial contribution to SLF, FBLC contributed$751.8 million of assets including$664.2 million of investments and$42.4 million of cash as well as$446.9 million worth of liabilities including the Citi Credit Facility (as defined in Note 5) debt of$344.4 million in exchange for$304.9 million of equity in SLF. As ofDecember 31, 2022 andDecember 31, 2021 , FBLC's investment in SLF consisted of equity contributions of$304.9 million . Below is a summary of SLF's portfolio as ofDecember 31, 2022 andDecember 31, 2021 . A listing of the individual investments in SLF's portfolio as of such dates can be found in "Note 3 - Fair Value of Investments" in the notes to the accompanying consolidated financial statements (dollars in thousands): December 31, 2022 December 31, 2021 Total assets$ 965,671 $ 1,195,960 Total investments (1)$ 855,705 $ 1,088,337 Weighted Average Current Yield for Total Portfolio (2) 10.2 % 5.4 % Number of Portfolio companies in SLF 163 172 Largest portfolio company investment (1) $ 19,381 $ 27,965 Total of five largest portfolio company investments (1) $ 86,158 $ 113,297 _____________________ 65
--------------------------------------------------------------------------------
(1) At fair value
(2) Includes the effect of the amortization or accretion of loan premiums or discounts.
Below is certain summarized financial information for SLF as of
Selected Statements of Assets and Liabilities
Information December 31, December 31,
2022 2021
ASSETS
Investments, at fair value (amortized cost of
$923,304 and $1,085,170 , respectively) $ 855,705 $ 1,088,337
Cash and other assets 109,966 107,623
Total assets $ 965,671 $ 1,195,960
LIABILITIES
Revolving credit facilities (net of deferred
financing costs of $1,483 and $2,488 , respectively) $ 549,067 $ 631,562
Secured borrowings 60,899 94,737
Other liabilities 20,264 71,008
Total liabilities $ 630,230 $ 797,307
MEMBERS' CAPITAL
Total members' capital $ 335,441 $ 398,653
Total liabilities and members' capital $ 965,671 $ 1,195,960
For the period
January 20, 2021
For the year ended (inception) through
Selected Statements of Operations Information December 31, December 31,
2022 2021
Investment income:
Total investment income $ 69,988 $ 44,964
Operating expenses:
Interest and credit facility financing expenses 24,003 10,051
Other expenses 2,498 2,161
Total expenses 26,501 12,212
Net investment income 43,487 32,752
Realized and unrealized gain (loss):
Net realized and unrealized gain (loss) (75,053) 10,093
Net increase (decrease) in members' capital
resulting from operations $ (31,566) $ 42,845
66
--------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Operating results for the years ended
For the years ended December 31,
2022 2021 2020
Total investment income $ 276,411 $ 232,786 $ 196,685
Total expenses 145,126 121,828 102,919
Income tax expense, including excise tax 6,189 3,311 2,566
Net investment income $ 125,096 $ 107,647 $ 91,200
Investment Income
For the year ended December 31, 2022 , total investment income was $276.4 million
and was primarily attributable to interest income from investments in portfolio
companies with an average portfolio fair value of $2.8 billion and a weighted
average current yield of 11.6%. Included within total investment income was $7.6
million , of fee income for the year ended December 31, 2022 . Fee income consists
primarily of prepayment and amendment fees. For the year ended December 31, 2021
total investment income was $232.8 million and was primarily attributable to
interest income from investments in portfolio companies with an average
portfolio fair value of $2.7 billion and a weighted average current yield of
8.8%. Included within total investment income was $7.1 million of fee income for
the year ended December 31, 2021 . Fee income consists primarily of prepayment
and amendment fees. For the year ended December 31, 2020 total investment income
was $196.7 million and was primarily attributable to interest income from
investments in portfolio companies with an average portfolio fair value of $2.6
billion and a weighted average current yield of 8.3%. Included within total
investment income was $6.1 million of fee income for the year ended December 31,
2020 . Fee income consists primarily of prepayment and amendment fees.
Operating Expenses
The composition of our operating expenses for the years ended
For the years ended December 31,
2022 2021 2020
Management fees $ 42,851 $ 39,563 $ 37,764
Incentive fee on income 31,274 26,912 6,223
Interest and debt fees 59,942 44,241 46,971
Professional fees 3,899 3,572 5,397
Other general and administrative 5,400 5,807 4,877
Administrative services 788 748 702
Directors' fees 972 985 985
Total operating expenses $ 145,126 $ 121,828 $ 102,919
For the years ended December 31, 2022 , 2021, and 2020, we incurred management
fees of $42.9 million , $39.6 million , and $37.8 million , respectively. For the
year ended December 31, 2022 , 2021, and 2020, we incurred incentive fees on
income of $31.3 million , $26.9 million , and $6.2 million .
For the years ended December 31, 2022 , 2021, and 2020, we incurred interest and
debt fees of $59.9 million , $44.2 million , and $47.0 million , respectively.
Interest and debt fees are comprised of interest expense, non-usage fees,
trustee fees, amortization of deferred financing costs, and amortization of
discount if applicable related to our revolving credit facilities and unsecured
notes, each as defined herein in the section entitled "Borrowings". The increase
in interest and debt fees for the year ended December 31, 2022 as compared to
the same periods in 2021 and 2020 is primarily the result of an increase in
average debt outstanding on our credit facilities as well as higher interest
rates.
67
--------------------------------------------------------------------------------
Net Realized Gain (Loss) and Net Change in Unrealized Appreciation (Depreciation) on Investments, Foreign Currency Transactions, and Forward Currency Exchange Contracts
Net realized gain (loss) and net change in unrealized appreciation (depreciation) on investments and foreign currency transactions, net of change in deferred taxes for the years endedDecember 31, 2022 , 2021, and 2020 were as follows (dollars in thousands): For the years ended December 31, 2022 2021 2020 Net realized gain (loss) Control investments$ 6,842 $ (6,239) $ (18,650) Affiliate investments (4,719) 23,155 2,448 Non-affiliate investments 5,320 1,199 (115,614) Net realized gain (loss) on foreign currency transactions 468 (791) (333) Net realized loss on extinguishment of debt (1,769) (1,286) - Total net realized gain (loss) 6,142 16,038 (132,149) Net change in unrealized appreciation (depreciation) on investments Control investments (9,172) 8,806 (13,747) Affiliate investments (3,529) 21,960 (19,275) Non-affiliate investments (34,633) 55,066 35,995 Net change in deferred taxes (1,656) (4,076) 2,263 Total net change in unrealized appreciation (depreciation) on investments, net of change in deferred taxes (48,990) 81,756 5,236
Net change in unrealized appreciation (depreciation) from forward currency exchange contracts
(266) 743 (89)
Net realized and unrealized gain (loss) $
(43,114)
Net realized and unrealized loss on investments and foreign currency transactions, net of change in deferred taxes, resulted in net losses of$43.1 million for the year endedDecember 31, 2022 compared to a net gain of$98.5 million and net losses of$127.0 million for 2021 and 2020, respectively. We look at net realized gain (loss) and change in unrealized appreciation (depreciation) together, as movement in unrealized appreciation or depreciation can be the result of realizations.
The net realized and unrealized loss for the year ended
The net realized and unrealized gain for the year endedDecember 31, 2021 was primarily driven by unrealized gains on Senior Secured Investments and Equity Investments.
The net realized and unrealized loss for the year ended
68
--------------------------------------------------------------------------------Changes in Net Assets from Operations
For the year endedDecember 31, 2022 , we recorded a net increase in net assets resulting from operations of$82.0 million versus a net increase in net assets resulting from operations of$206.2 million for the year endedDecember 31, 2021 . The decrease from prior year is primarily driven by an increase in unrealized losses on investments. Based on the weighted average shares of common stock outstanding for the years endedDecember 31, 2022 and 2021, respectively, our per share net increase in net assets resulting from operations was$0.39 for the year endedDecember 31, 2022 , versus a net increase in net assets of$1.03 for the year endedDecember 31, 2021 . For the year endedDecember 31, 2021 , we recorded a net increase in net assets resulting from operations of$206.2 million versus a net decrease in net assets resulting from operations of$35.8 million for the year endedDecember 31, 2020 . The increase is primarily driven by an increase in realized and unrealized gain on our investments. Based on the weighted average shares of common stock outstanding for the years endedDecember 31, 2021 and 2020, respectively, our per share net increase in net assets resulting from operations was$1.03 for the year endedDecember 31, 2021 , versus a net decrease in net assets of$0.18 for the year endedDecember 31, 2020 .
Cash Flows
For the year endedDecember 31, 2022 , net cash used in operating activities was$11.9 million . This was primarily driven by sales and repayments of investments of$396.0 million and net change in unrealized depreciation of$47.3 million , offset by purchases of investments of$510.0 million . The level of cash flows used in or provided by operating activities is affected by the timing of purchases, redemptions and sales of portfolio investments. Net cash provided by financing activities of$23.5 million during the year endedDecember 31, 2022 was primarily driven by proceeds from issuance of shares of$198.4 million and proceeds from debt of$550.3 million , partially offset by payments on debt of$599.5 million , stockholder distributions of$96.8 million and repurchases of common stock of$23.6 million . For the year endedDecember 31, 2021 , net cash used in operating activities was$427.5 million . This was primarily driven by purchases of investments of$1,612.9 million , offset by sales and repayments of investments of$1,233.8 million . The level of cash flows used in or provided by operating activities is affected by the timing of purchases, redemptions, and sales of portfolio investments. Net cash provided by financing activities of$417.9 million during the year endedDecember 31, 2021 was primarily driven by proceeds from debt of$1,208.3 million partially offset by payments on debt of$701.0 million and stockholder distributions of$69.2 million . For the year endedDecember 31, 2020 , net cash provided by operating activities was$12.5 million . This was primarily driven by sales and repayments of investments of$847.2 million , net realized loss from investments of$131.8 million and payable for unsettled trades of$151.7 million , partially offset by purchases of investments of$1,038.1 million . The level of cash flows used in or provided by operating activities is affected by the timing of purchases, redemptions, and sales of portfolio investments. Net cash used in financing activities of$5.4 million during the year endedDecember 31, 2020 was primarily driven by payments on debt of$1,035.0 million and stockholder distributions of$63.7 million , partially offset by proceeds from debt of$1,057.1 million . 69
--------------------------------------------------------------------------------
Recent Developments
Unregistered Sales of
OnFebruary 7, 2023 , pursuant to a drawdown notice previously delivered to investors, the Company issued and sold approximately 4.9 million shares of the Company's common stock for an aggregate offering price of approximately$36.3 million . Share Repurchase Program OnDecember 14, 2022 , the Company offered to purchase up to approximately 4,602,000 shares of its common stock pursuant to its SRP at a price equal to$7.38 per share. The offer expired onJanuary 25, 2023 (the "Expiration Date"). OnFebruary 24, 2023 , the Company purchased 3,472,698 shares of its common stock for aggregate consideration of$25.6 million pursuant to the limitations of the SRP as detailed in Note 10.
Liquidity and Capital Resources
We generate cash flows from fees, interest, and dividends earned from our investments, as well as proceeds from sales of our investments and, previously, from the net proceeds of our Offering. As ofDecember 31, 2022 , we had issued 262.6 million shares of our common stock for gross proceeds of$2.6 billion , including the shares purchased by affiliates and shares issued pursuant to the DRIP. As ofDecember 31, 2022 , we had$460.0 million of senior unsecured notes outstanding. As ofDecember 30, 2021 , we had issued 232.4 million shares of our common stock for gross proceeds of$2.4 billion , including the shares purchased by affiliates and shares issued pursuant to the DRIP. Our principal demands for funds in both the short-term and long-term are for portfolio investments, for the payment of operating expenses, distributions to our investors, repurchases under our share repurchase program, and for the payment of principal and interest on our outstanding indebtedness. We may also from time to time enter into other agreements with third parties whereby third parties will contribute to specific investment opportunities. Other potential future sources of capital include proceeds from secured or unsecured financings from banks or other lenders, proceeds from private offerings, proceeds from the sale of investments, and undistributed funds from operations. However, our ability to incur additional debt will be dependent on a number of factors, including our degree of leverage, the value of our unencumbered assets, and borrowing restrictions that may be imposed by lenders.
We intend to conduct annual tender offers pursuant to our share repurchase program. Our Board of Directors will consider the following factors, among others, in making its determination regarding whether to cause us to offer to repurchase shares and under what terms:
•the effect of such repurchases on our qualification as a RIC (including the consequences of any necessary asset sales);
•the liquidity of our assets (including fees and costs associated with disposing of assets);
•our investment plans and working capital requirements;
•the relative economies of scale with respect to our size;
•our history in repurchasing shares or portions thereof; and
•the condition of the securities markets.
We intend to conduct tender offers on an annual basis. We intend to continue to limit the number of shares to be repurchased in any calendar year to the lesser of (i) 10% of the weighted average number of shares outstanding in the prior calendar year or (ii) the number of shares of common stock the Company is able to repurchase with the proceeds received from the sale of shares of common stock under the DRIP during the relevant redemption period. In addition, in the event of a stockholder's death or disability, any repurchases of shares made in connection with a stockholder's death or disability may be included within the overall limitation imposed on tender offers during the relevant redemption period, which provides that we may limit the number of shares to be repurchased during any redemption period to the number of shares of common stock we are able to repurchase with the proceeds received from the sale of shares of common stock under the DRIP during such redemption period.
Distributions
The amount of each such distribution is subject to the discretion of the Board
of Directors and applicable legal restrictions related to the payment of
distributions. The Company calculates each stockholder's specific distribution
amount for the quarter using record and declaration dates. The distributions are
payable by the fifth day following each record date.
70
--------------------------------------------------------------------------------
The table below shows the components of the distributions we have declared
and/or paid during the years ended December 31, 2022 , 2021, and 2020 (dollars in
thousands).
For the years ended December 31,
2022 2021 2020
Distributions declared $ 128,246 $ 99,737 $ 90,981
Distributions paid $ 124,207 $ 91,978 $ 85,990
Portion of distributions paid in cash $ 96,848 $ 69,156 $ 63,658
Portion of distributions paid in DRIP shares $ 27,359 $
22,822
As of
We may fund our cash distributions to stockholders from any sources of funds available to us, including offering proceeds, borrowings, net investment income from operations, capital gain proceeds from the sale of assets, and non-capital gain proceeds from the sale of assets. We have not established limits on the amount of funds we may use from available sources to make distributions. We may have distributions which could be characterized as a return of capital for tax purposes. During the years endedDecember 31, 2022 , 2021, and 2020 no portion of our distributions was characterized as return of capital for tax purposes. The estimated tax characteristics of our quarterly distributions are reported in our periodic reports with theSEC made available to stockholders. The final tax characteristics of our distributions made in respect of our anticipated fiscal year endingDecember 31, 2022 will be reported after the end of the calendar year 2022 in our periodic reports with theSEC made available to stockholders. Stockholders should read any written disclosure accompanying a distribution payment carefully and should not assume that the source of any distribution is our ordinary income or gain. Moreover, you should understand that any such distributions were not based on our investment performance and can only be sustained if we achieve positive investment performance in future periods and/or our Adviser continues to make such reimbursements. There can be no assurance that we will achieve the performance necessary to sustain our distributions or that we will be able to pay distributions at all.
The following table sets forth the distributions declared during the years ended
For the years ended December 31,
2022 2021 2020
Distributions $ 128,246 $ 99,737 $ 90,981
Total distributions $ 128,246 $ 99,737 $ 90,981
Private Placement of Shares
On April 1, 2022 , April 12, 2022 and May 13, 2022 , we entered into stock
purchase agreements with certain investors (collectively, the "Purchase
Agreements") and associated subscription agreements (collectively, the
"Subscription Agreements"), totaling $234.8 million , for the sale of our common
stock at the net asset value of each drawdown date. Investors are required to
make capital contributions to purchase our common stock each time we deliver a
drawdown notice in an aggregate amount not to exceed their respective capital
commitments. All purchases will generally be made subject to the terms and
conditions set forth in the Purchase Agreements and Subscription Agreements, at
a per-share price as determined by our Board, which price will be determined
prior to the issuance of our common stock and in accordance with the limitations
under Section 23 of the 1940 Act. As of December 31, 2022 , we have called $198.4
million of capital commitments.
In connection with the Purchase Agreements, the Adviser has sold and will sell
additional shares of the Company to such investors at a discounted price or
contribute other consideration in connection with each drawdown. The Company is
not obligated to reimburse the Adviser for the shares that were sold at a
discounted price or the other consideration that was provided by the Adviser.
71
--------------------------------------------------------------------------------Taxation as a RIC
We have elected to be treated as a RIC under Subchapter M of the Code commencing with our tax year endedDecember 31, 2011 and intend to maintain our qualification as a RIC thereafter. As a RIC, we generally will not be subject to corporate-levelU.S. federal income taxes on any income that we distribute as dividends forU.S. federal income tax purposes to our stockholders. To maintain our qualification as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements. In addition, in order to maintain RIC tax treatment, we must distribute to our stockholders, for each tax year, an amount equal to at least 90% of our "investment company taxable income," which is generally our net ordinary income plus the excess, if any, of realized net short-term capital gain over realized net long-term capital loss and determined without regard to any deduction for dividends paid, or the annual distribution requirement. Even if we qualify as a RIC, we generally will be subject to corporate-levelU.S. federal income tax on our undistributed taxable income and could be subject to state, local, and foreign taxes. Additionally, in order to avoid the imposition of aU.S. federal excise tax, we are required to distribute, in respect of each calendar year, dividends to our stockholders of an amount at least equal to the sum of 98% of our calendar year net ordinary income (taking into account certain deferrals and elections); 98.2% of our capital gain net income (adjusted for certain ordinary losses) for the one year period ending onOctober 31 of such calendar year; and any net ordinary income and capital gain net income for preceding calendar years that were not distributed during such calendar years and on which we previously did not incur anyU.S. federal income tax. If we fail to qualify as a RIC for any reason and become subject to corporate tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions. Such a failure would have a material adverse effect on us and our stockholders. In addition, we could be required to recognize unrealized gains, incur substantial taxes and interest and make substantial distributions in order to re-qualify as a RIC. We cannot assure stockholders that they will receive any distributions.
Related Party Transactions and Agreements
Investment Advisory Agreement
We entered into an Investment Advisory Agreement as ofFebruary 1, 2019 , under which the Adviser, subject to the overall supervision of our Board of Directors, manages the day-to-day operations of, and provides investment advisory services to us. The Adviser and its affiliates also provide investment advisory services to other funds that have investment mandates that are similar, in whole and in part, with ours. The Adviser and its affiliates serve as investment adviser or sub-adviser to private funds and registered open-end funds, and serves as an investment adviser to a public real estate investment trust. The Adviser's policies are designed to manage and mitigate the conflicts of interest associated with the allocation of investment opportunities. In addition, any affiliated fund currently formed or formed in the future and managed by the Adviser or its affiliates may have overlapping investment objectives with our own and, accordingly, may invest in asset classes similar to those targeted by us. However, in certain instances due to regulatory, tax, investment, or other restrictions, certain investment opportunities may not be appropriate for either us or other funds managed by the Adviser or its affiliates. The Board renewed the Investment Advisory Agreement onJanuary 30, 2023 .
Administration Agreement
OnNovember 1, 2016 , we entered into the Administration Agreement with BSP, pursuant to which BSP provides us with office facilities and administrative services. The Administration Agreement may be terminated by either party without penalty upon not less than 60 days' written notice to the other. For the years endedDecember 31, 2022 , 2021, and 2020, the Company incurred$1.4 million ,$1.6 million , and$2.0 million , respectively, in administrative service fees under the Administration Agreement. Co-Investment Relief The 1940 Act generally prohibits BDCs from entering into negotiated co-investments with affiliates absent an order from theSEC permitting the BDC to do so. TheSEC staff has granted us exemptive relief that allows it to enter into certain negotiated co-investment transactions alongside other funds managed by the Adviser 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) of our eligible 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 in respect of 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. 72
--------------------------------------------------------------------------------
Due To/From Affiliated Funds
As of
Borrowings
We are only allowed to borrow money such that our asset coverage, which, as defined in the 1940 Act, measures the ratio of total assets less total liabilities not represented by senior securities to total borrowings, equals at least 200% after such borrowing, with certain limited exceptions. We are continually exploring additional forms of alternative debt financing which could include new or expanded credit facilities or the issuance of debt securities. We may use borrowed funds, known as "leverage," to make investments and to attempt to increase returns to our stockholders by reducing our overall cost of capital. We currently have credit facilities with Wells Fargo and JPM and have$460.0 million in aggregate principal of unsecured notes outstanding.
Wells Fargo Credit Facility
OnAugust 28, 2020 , the Company entered into a$300.0 million revolving credit facility with the Company, as collateral manager, Funding I, as borrower, the lenders party thereto, Wells Fargo, as administrative agent, andU.S. Bank , as collateral agent and collateral custodian (the "Wells Fargo Credit Facility"). The Wells Fargo Credit Facility provides for borrowings throughAugust 28, 2023 , and any amounts borrowed under the Wells Fargo Credit Facility will mature onAugust 28, 2025 . Prior to the Second Amendment (defined below), the Wells Fargo Credit Facility was priced at three-month LIBOR, with a LIBOR floor of zero, plus a spread calculated based upon the composition of loans in the collateral pool, which will not exceed 2.75% per annum. Interest is payable quarterly in arrears. Funding I will be subject to a non-usage fee to the extent the commitments available under the Wells Fargo Credit Facility have not been borrowed. The non-usage fee per annum is 0.50% for the first 25% of the unused balance and up to 2.0% for the remaining unused balance. Funding I paid a structuring fee and incurred other customary costs and expenses in connection with the Wells Fargo Credit Facility. Pursuant to an amendment entered into onApril 6, 2021 , the commitment fee for any unused portion of the Wells Fargo Credit Facility was temporarily reduced untilSeptember 30, 2021 (the "First Amendment"). Additionally, pursuant to the First Amendment, the maximum spread was reduced from 2.75% to 2.50% as a result of this amendment. The other terms of the Wells Fargo Credit Facility were unchanged. Pursuant to an amendment entered into onMay 27, 2022 (the "Second Amendment"), the benchmark rate was transitioned from LIBOR to SOFR. After the Second Amendment, the Wells Fargo Credit Facility is priced at Daily Simple SOFR, with a Daily Simple SOFR floor of zero, plus a spread calculated based upon the composition of loans in the collateral pool, which will not exceed 2.60% per annum. Funding I's obligations under the Wells Fargo Credit Facility are secured by a first priority security interest in substantially all of the assets of Funding I, including its portfolio of investments and the Company's equity interest in Funding I. The obligations of Funding I under the Wells Fargo Credit Facility are non-recourse to the Company. In connection with the Wells Fargo Credit Facility, the Company and Funding I have made certain representations and warranties and are required to comply with various covenants and other customary requirements. The Wells Fargo Credit Facility contains customary default provisions pursuant to which the administrative agent and the lenders under the Wells Fargo Credit Facility may terminate the Company in its capacity as collateral manager/portfolio manager under the Wells Fargo Credit Facility. Upon the occurrence of an event of default under the Wells Fargo Credit Facility, the administrative agent or the lenders may declare the outstanding advances and all other obligations under the Wells Fargo Credit Facility immediately due and payable.
JPM Credit Facility
OnAugust 28, 2020 , the Company, through a wholly-owned, consolidated special purpose financing subsidiary,57th Street , entered into a$300.0 million revolving credit facility withJPMorgan Chase Bank ,Nation Association , as administrative agent ("JPM"), andU.S. Bank , as collateral agent, collateral administrator and securities intermediary (the "JPM Credit Facility"). 73 -------------------------------------------------------------------------------- The JPM Credit Facility provides for borrowings throughAugust 28, 2023 , and any amounts borrowed under the JPM Credit Facility will mature onAugust 28, 2023 unless the administrative agent exercises its option to extend the maturity date toAugust 28, 2024 . The JPM Credit Facility is priced at three-month LIBOR, with a LIBOR floor of zero, plus a spread of 2.75% per annum. Interest is payable quarterly in arrears.57th Street will be subject to a non-usage fee to the extent the commitments available under the JPM Credit Facility have not been borrowed. The non-usage fee per annum is 0.50% for the first 20% of the unused balance and up to 2.75% for the remaining unused balance untilAugust 28, 2021 , when the non-usage fee per annum is 0.75% for the first 20% of the unused balance and up to 2.75% for the remaining unused balance.57th Street paid a structuring fee and incurred other customary costs and expenses in connection with the JPM Credit Facility. OnJanuary 21, 2021 , the Company entered into an amendment (the "JPM Amendment") to the JPM Credit Facility. The JPM Amendment, among other things, increases the amount that the Company is permitted to borrow under the JPM Credit Agreement from$300.0 million to$400.0 million . OnApril 12, 2021 , the Company, through57th Street , amended and restated the JPM Credit Facility. The amendment and restatement temporarily reduced the previous minimum funding amount untilOctober 13, 2021 . The other material terms of the JPM Credit Facility were unchanged. OnDecember 9, 2022 , the Company entered into an amendment (the "JPM 2022 Amendment") to the JPM Credit Facility. The JPM 2022 Amendment, among other things, (1) extends the maturity date of the JPM Credit Facility toAugust 28, 2024 , (2) extends the maturity date, upon the exercise of the Extension Options (as defined in the JPM Credit Facility), of the JPM Credit Facility toAugust 28, 2025 , and (3) changes the benchmark rate and applicable margin for advances under the JPM Credit Facility to three-month Term SOFR plus 3.00% (subject to further increases consistent with the terms of the JPM Credit Facility).57th Street's obligations under the JPM Credit Facility are secured by a first priority security interest in substantially all of the assets of57th Street , including its portfolio of investments and the Company's equity interest in57th Street . The obligations of57th Street under the JPM Credit Facility are non-recourse to the Company. In connection with the JPM Credit Facility, the Company and57th Street have made certain representations and warranties and are required to comply with various covenants and other customary requirements. The JPM Credit Facility contains customary default provisions pursuant to which the administrative agent and the lenders under the JPM Credit Facility may terminate the Company in its capacity as collateral manager/portfolio manager under the JPM Credit Facility. Upon the occurrence of an event of default under the JPM Credit Facility, the administrative agent or the lenders may declare the outstanding advances and all other obligations under the JPM Credit Facility immediately due and payable.
JPM Revolver Facility
OnJune 10, 2022 , the Company entered into a$495.0 million revolving credit facility withJPMorgan Chase Bank , as administrative agent and as collateral agent,MUFG Union Bank, N.A. ,Sumitomo Mitsui Banking Corporation , andWells Fargo Bank, National Association as syndication agents, as well as other Lender parties (the "JPM Revolver Facility"). The JPM Revolver Facility provides for borrowings throughJune 10, 2026 , and any amounts borrowed under the JPM Revolver Facility will mature onJune 10, 2027 . The JPM Revolver Facility is priced at three-month Term SOFR, plus a spread calculated based upon the composition of loans in the collateral pool, which will not exceed 1.98% per annum. Interest is payable quarterly in arrears. The Company will be subject to a non-usage fee of 0.38% to the extent the commitments available under the JPM Revolver Facility have not been borrowed. The Company paid a structuring fee and incurred other customary costs and expenses in connection with the JPM Revolver Facility. In connection with the JPM Revolver Facility, the Company has made certain customary representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. The JPM Revolver Facility contains customary events of default for similar financing transactions. Upon the occurrence and during the continuation of an event of default,JPMorgan Chase Bank, N.A . may declare the outstanding advances and all other obligations under the JPM Revolver Facility immediately due and payable. 74
--------------------------------------------------------------------------------
Citi Credit Facility
OnJune 27, 2014 , the Company, through a wholly-owned, special purpose financing subsidiary, CB Funding, entered into a credit facility (as amended from time to time, the "Citi Credit Facility") withCitibank, N.A . ("Citi") as administrative agent andU.S. Bank as collateral agent, account bank, and collateral custodian. FromJanuary 1, 2020 toJanuary 20, 2021 , the Citi Credit Facility provided for borrowings in an aggregate principal amount of up to$400.0 million on a committed basis, with a reinvestment period ending onMay 31, 2021 and maturity date ofMay 31, 2022 . OnJanuary 20, 2021 , SLF, the Company's joint venture with CCLF entered into an amendment to the Citi Credit Facility (the "Citi Credit Agreement"). The amendment, among other things, (i) replaces the Company with SLF as the collateral manager under the Citi Credit Agreement, (ii) extends the end of the reinvestment period fromMay 31, 2021 toMay 31, 2023 and (iii) extends the final maturity date fromMay 31, 2022 toMay 31, 2024 . As a result of this amendment to the Citi Credit Facility, the Company incurred a realized loss on extinguishment of debt of$1.3 million . In connection with the Citi Credit Facility, CB Funding has made certain representations and warranties, is required to comply with various covenants, reporting requirements, and other customary requirements for similar facilities and is subject to certain customary events of default. Upon the occurrence and during the continuation of an event of default, Citi may declare the outstanding advances and all other obligations under the Citi Credit Facility immediately due and payable. During the continuation of an event of default, CB Funding must pay interest at a default rate. The Citi Credit Facility contains customary default provisions for facilities of this type pursuant to which Citi may terminate the rights, obligations, power, and authority of the Company, in its capacity as servicer of the portfolio assets under the Citi Credit Facility, including, but not limited to, non-performance of Citi Credit Facility obligations, insolvency, defaults of certain financial covenants, and other events with respect to the Company that may be adverse to Citi and the secured parties under the Citi Credit Facility. The Citi Credit Facility is priced at three-month LIBOR plus a spread of 1.60% per annum through and including the last day of the investment period and 2.00% per annum thereafter. Interest is payable quarterly in arrears. CB Funding is subject to a non-usage fee to the extent the aggregate principal amount available under the Citi Credit Facility has not been borrowed. The non-usage fee per annum is 0.50%. Any amounts borrowed under the Citi Credit Facility along with any accrued and unpaid interest thereunder will mature, and will be due and payable, in three years.
MassMutual Credit Facility
OnJuly 7, 2020 , the Company and a wholly-owned, special purpose financing subsidiary of the Company,BDCA Asset Financing, LLC ("BDCA Asset Financing"), entered into a loan and servicing agreement (the "MassMutual Credit Facility") withMassachusetts Mutual Life Insurance Company ("MassMutual") as facility servicer and a lender andU.S. Bank National Association as collateral custodian, collateral administrator and administrative agent. The MassMutual Credit Facility provides for borrowings of up to$100.0 million on a committed basis, and, subject to satisfaction of certain conditions, contains an accordion feature whereby the Mass Mutual Credit Facility can be expanded to$150.0 million . BDCA Asset Financing's obligations under the MassMutual Credit Facility are secured by a first priority security interest in substantially all of the assets of BDCA Asset Financing, including its portfolio of investments and the Company's equity interest in BDCA Asset Financing. The obligations of BDCA Asset Financing under the MassMutual Credit Facility are non-recourse to the Company. The MassMutual Credit Facility provides for borrowings throughDecember 31, 2021 and matures onDecember 31, 2025 . The MassMutual Credit Facility is priced at three-month LIBOR, with a LIBOR floor of 0.75%, plus a spread of 5.0% per annum. Interest is payable quarterly in arrears. BDCA Asset Financing will be subject to a non-usage fee of 0.50% to the extent the aggregate principal amount available under the MassMutual Credit Facility has not been borrowed. BDCA Asset Financing paid a structuring fee and incurred other customary costs and expenses in connection with the MassMutual Credit Facility. In connection with the MassMutual Credit Facility, the Company and BDCA Asset Financing have made certain representations and warranties and are required to comply with various covenants and other customary requirements. The MassMutual Credit Facility contains customary default provisions pursuant to which MassMutual may terminate the Company in its capacity as portfolio asset servicer of the portfolio assets under the MassMutual Credit Facility. Upon the occurrence of an event of default, MassMutual may declare the outstanding advances and all other obligations under the MassMutual Credit Facility immediately due and payable.
Effective
75
--------------------------------------------------------------------------------2022 Notes
OnDecember 14, 2017 , the Company entered into a Purchase Agreement relating to the Company's sale of$150.0 million aggregate principal amount of its 4.75% fixed rate notes dueDecember 30, 2022 (the "2022 Notes"). The 2022 Notes are subject to customary indemnification provisions and representations, warranties, and covenants. The net proceeds from the sale of the 2022 Notes were approximately$147.0 million . The 2022 Notes bear interest at a rate of 4.75% per year payable semi-annually. OnDecember 30, 2022 , the Company paid off the 2022 Notes. 2023 Notes OnMay 11, 2018 , the Company entered into a Purchase Agreement relating to the Company's sale of$60.0 million aggregate principal amount of its 5.38% fixed rate notes dueMay 30, 2023 (the "2023 Notes"). The 2023 Notes are subject to customary indemnification provisions and representations, warranties, and covenants. The net proceeds from the sale of the 2023 Notes were approximately$58.7 million . The 2023 Notes bear interest at a rate of 5.375% per year payable semi-annually. 2024 Notes OnDecember 3, 2019 , the Company entered into a Purchase Agreement relating to the Company's sale of$100.0 million aggregate principal amount of its 4.85% fixed rate notes dueDecember 15, 2024 (the "2024 Notes"). The 2024 Notes are subject to customary indemnification provisions and representations, warranties, and covenants. The net proceeds from the sale of the 2024 Notes were approximately$98.4 million . The 2024 Notes bear interest at a rate of 4.85% per year payable semi-annually.
2026 Notes
OnMarch 24, 2021 , the Company entered into a Purchase Agreement relating to the Company's sale of$300.0 million aggregate principal amount of its 3.25% fixed rate notes dueMarch 30, 2026 (the "Restricted 2026 Notes"). The net proceeds from the sale of the Restricted 2026 Notes were approximately$296.0 million . Pursuant to a Registration Statement on Form N-14 (File No. 333-257321), onSeptember 22, 2021 , the Company closed an exchange offer in which holders of the Restricted 2026 Notes were offered the opportunity to exchange their Restricted 2026 Notes for new registered notes with substantially identical terms (the "Unrestricted 2026 Notes" and, together with the Restricted 2026 Notes, the 2026 Notes), through which holders representing 99.88% of the outstanding principal of the then Restricted 2026 Notes obtained Unrestricted 2026 Notes. The 2026 Notes are subject to customary indemnification provisions and representations, warranties and covenants. The 2026 Notes bear interest at a rate of 3.25% per year payable semi-annually.
See Note 5 to our consolidated financial statements contained in this Annual Report on Form 10-K for a more detailed discussion of our borrowings.
Contractual Obligations
The following table shows our payment obligations for repayment of debt and
other contractual obligations as of
Payment Due by Period
Less than 1
Total year 1 - 3 years 3- 5 years More than 5 years
Wells Fargo Credit Facility (1)
-
JPM Credit Facility (2) 320,000 - 320,000 - -
JPM Revolver Facility (3) 231,876 - - 231,876 -
2026 Notes (4) 297,469 - - 297,469 -
2024 Notes (5) 99,534 - 99,534 - -
2023 Notes (6) 59,973 59,973 - - -
Total contractual obligations
-
______________
(1)As of
(2)As of
(3)As of
(4)As of
76
--------------------------------------------------------------------------------
(5)As of
(6)As of
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.
Commitments
In the ordinary course of business, we may enter into future funding commitments. As ofDecember 31, 2022 , the Company had unfunded commitments on delayed draw term loans of$128.8 million , unfunded commitments on revolver term loans of$121.4 million , unfunded equity capital discretionary commitments of$11.1 million , and unfunded commitments on term loans of$0.4 million . As ofDecember 31, 2021 , the Company had unfunded commitments on delayed draw term loans of$163.6 million , unfunded commitments on revolver term loans of$102.9 million , unfunded equity capital discretionary commitments of$11.1 million , and unfunded commitments on term loans of$0.8 million . Please refer to Note 7 - Commitments and Contingencies for further detail of these unfunded commitments. We maintain sufficient cash on hand and available borrowing capacity to fund such unfunded commitments.
Significant Accounting Estimates and Critical Accounting Policies
Our discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America ("U.S. GAAP"). The preparation of financial statements in conformity withU.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. While our significant accounting policies are more fully described in Note 2 - Summary of Significant Accounting Policies appearing elsewhere in this report, we believe the following accounting policies require the most significant judgment in the preparation of our consolidated financial statements.
Valuation of Portfolio Investments
Portfolio investments are reported on the consolidated statements of assets and liabilities at fair value. The Board of Directors (the "Board of Directors") has delegated to the Adviser as valuation designee (the "Valuation Designee") the responsibility of determining the fair value of the Company's investment portfolio, subject to oversight of the Board of Directors, pursuant to Rule 2a-5 under the 1940 Act. As such, our Valuation Designee is charged with determining the fair value of the Company's investment portfolio, subject to oversight of the Board of Directors. On a quarterly basis we perform an analysis of each investment to determine fair value as follows: Securities for which market quotations are readily available on an exchange are valued at the reported closing price on the valuation date. We may also obtain quotes with respect to certain of our investments from pricing services or brokers or dealers in order to value assets. When doing so, we determine whether the quote obtained is readily available according toU.S. GAAP to determine the fair value of the security. If determined readily available, we use the quote obtained. Investments without a readily determined market value are primarily valued using a market approach, an income approach, or both approaches, as appropriate. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company's ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process. For an investment in an investment fund that does not have a readily determinable fair value, we measure the fair value of the investment predominately based on the net asset value per share of the investment fund if the net asset value of the investment fund is calculated in a manner consistent with the measurement principles of ASC 946, as of our measurement date. 77 -------------------------------------------------------------------------------- For investments inCollateralized Securities , both the assets and liabilities of eachCollateralized Securities' capital structure are modeled. The model uses a waterfall engine to store the collateral data, generate collateral cash flows from the assets and distribute the cash flows to the liability structure based on the contractual priority of payments. The waterfall cash flows are discounted using rates that incorporate risk factors such as default risk, interest rate risk, downgrade risk, and credit spread risk, among others. In addition, broker quotations and/or comparable trade activity is considered as an input to determining fair value when available. As part of our quarterly valuation process our Valuation Designee may be assisted by one or more independent valuation firms, whom we've engaged. Our Valuation Designee, under the supervision of the Board of Directors, determines the fair value of each investment, in good faith, based on the input of the independent valuation firm(s) (to the extent applicable) and our Valuation Designee's own analysis.
With respect to investments for which market quotations are not readily available, our Valuation Designee undertakes a multi-step valuation process each quarter, as described below:
•Each portfolio company or investment will be valued by our Valuation Designee, with assistance from one or more independent valuation firms engaged by our Board of Directors;
•The independent valuation firm(s), if involved, will conduct independent appraisals and make an independent assessment of the value of each investment; and
•Our Valuation Designee, under the supervision of the Board of Directors, determines the fair value of each investment, in good faith, based on the input of independent valuation firms (to the extent applicable) and our Valuation Designee's own analysis. Our Valuation Designee also has established a Valuation Committee to assist our Valuation Designee in carrying out its designated responsibilities that the Board has designated to the Adviser as Valuation Designee, subject to oversight of the Board. Because there is not a readily available market value for most of the investments in its portfolio, we value substantially all of our portfolio investments at fair value as determined in good faith by our Board of Directors, as described herein. 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 fluctuate from period to period. Additionally, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that we may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which we have recorded it.
Revenue Recognition
Interest Income
Investment transactions are accounted for on the trade date. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Discount and premium on investments purchased are accreted/amortized over the expected life of the respective investment using the effective yield method. The amortized cost of investments represents the original cost adjusted for the accretion of discount and amortization of premium on investments. The Company has a number of investments inCollateralized Securities . Interest income from investments in the "equity" class of theseCollateralized Securities (in the Company's case, preferred shares, or subordinated notes) is recorded based upon an estimation of an effective yield to expected maturity utilizing assumed cash flows in accordance with ASC 325-40-35, Beneficial Interests in Securitized Financial Assets ("ASC 325-40-35"). The Company monitors the expected cash inflows from its equity investments inCollateralized Securities , including the expected principal repayments. The effective yield is determined and updated quarterly. In accordance with ASC 325-40, investments in CLOs are periodically assessed for other-than-temporary impairment ("OTTI"). When the Company determines that a CLO has OTTI, the amortized cost basis of the CLO is written down as of the date of the determination based on events and information evaluated and that write-down is recognized as a realized loss.
Dividend Income
Dividend income on preferred equity investments is recorded on an accrual basis
to the extent that such amounts are payable by the portfolio company and are
expected to be collected. Dividend income on common equity investments is
recorded on the record date for private portfolio companies and on the
ex-dividend date for publicly traded portfolio companies.
Dividend income from SLF is recorded on accrual basis once dividends are
declared by SLF's board of directors. Distributions from SLF are evaluated at
the time of distribution to determine if the distribution should be recorded as
dividend income or a return of capital. Generally, the Company will not record
distributions as dividend income unless there are sufficient accumulated
tax-basis earnings and profit in SLF prior to distribution. Distributions that
are classified as a return of capital are recorded as a reduction in the cost
basis of the investment.
78
--------------------------------------------------------------------------------
Fee Income
Fee income, such as structuring fees, origination, closing, amendment fees, commitment, and other upfront fees are generally non-recurring and are recognized as revenue when earned, either upfront or amortized into income. Upon the payment of a loan or debt security, any prepayment penalties and unamortized loan origination, structuring, closing, commitment, and other upfront fees are recorded as income.
Payment-in-Kind Interest/Dividends
We may hold debt and equity investments in our portfolio that contain PIK interest and dividend provisions. PIK interest and PIK dividend, which represent contractually deferred interest or dividends that add to the investment balance that is generally due at maturity, are recorded on accrual basis to the extent such amounts are expected to be collected.
Non-accrual Income
Investments are placed on non-accrual status when principal or interest/dividend payments are past due and/or when there is reasonable doubt that principal or interest will be collected. Accrued cash and un-capitalized PIK interest is generally reversed when an investment is placed on non-accrual status. Previously capitalized PIK interest is not reversed when an investment is placed on non-accrual status. Interest payments received on non-accrual investments may be recognized as income or applied to principal depending upon management's judgment of the ultimate outcome. Non-accrual investments are restored to accrual status when past due principal and interest is paid and, in management's judgment, are likely to remain current.
Net Realized Gain or Loss and Net Change in Unrealized Appreciation or Depreciation
Gain or loss on the sale of investments is calculated using the specific identification method. We measure realized gain or loss by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation will reflect the change in portfolio investment values during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when a gain or loss is realized.
See Note 2 - Summary of Significant Accounting Policies to the consolidated financial statements for a description of other accounting policies and recently issued accounting pronouncements.
© Edgar Online, source
