FS KKR CAPITAL CORP. The information contained in this section should be read in conjunction with our consolidated financial statements and related notes thereto appearing elsewhere in this annual report on Form 10-K.
Forward-Looking Statements
Some of the statements in this annual report on Form 10-K constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this annual report on Form 10-K may include statements as to: • our future operating results;
• our business prospects and the prospects of the companies in which we may
invest, including our and their ability to achieve our respective
objectives as a result of the current COVID-19 pandemic;
• the impact of the investments that we expect to make;
• the ability of our portfolio companies to achieve their objectives;
• our current and expected financings and investments;
• receiving and maintaining corporate credit ratings and changes
in the
general interest rate environment;
• the adequacy of our cash resources, financing sources and working capital;
• the timing and amount of cash flows, distributions and dividends, if any,
from our portfolio companies;
• our contractual arrangements and relationships with third parties;
• actual and potential conflicts of interest with the other funds in the
any of their affiliates;
• the dependence of our future success on the general economy and its
effect on the industries in which we may invest;
• general economic and political trends and other external factors,
including the current COVID-19 pandemic and related disruptions caused
thereby;
• our use of financial leverage;
• the ability of the Advisor to locate suitable investments for us and to
monitor and administer our investments;
• the ability of the Advisor or its affiliates to attract and retain highly
talented professionals;
• our ability to maintain our qualification as a RIC and as a BDC;
• the impact on our business of the Dodd-Frank Act, and the rules and
regulations issued thereunder;
• the effect of changes to tax legislation on us and the portfolio
companies in which we may invest and our and their tax position; and
• the tax status of the enterprises in which we may invest.
In addition, words such as "anticipate," "believe," "expect" and "intend"
indicate a forward-looking statement, although not all forward-looking
statements include these words. The forward-looking statements contained in this
annual report on Form 10-K involve risks and uncertainties. Our actual results
could differ materially from those implied or expressed in the forward-looking
statements for any reason, including those factors set forth in "Item 1A. Risk
Factors." Factors that could cause actual results to differ materially include:
• changes in the economy;
• geo-political risks;
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• risks associated with possible disruption in our operations or the
economy generally due to terrorism, natural disasters or pandemics;
• future changes in laws or regulations and conditions in our operating
areas; and
• the price at which shares of our common stock may trade on the NYSE.
We have based the forward-looking statements included in this annual report on
Form 10-K on information available to us on the date of this annual report on
Form 10-K. Except as required by the federal securities laws, we undertake no
obligation to revise or update any forward-looking statements, whether as a
result of new information, future events or otherwise. Stockholders are advised
to consult any additional disclosures that we may make directly to stockholders
or through reports that we may file in the future with the SEC , including annual
reports on Form 10-K, quarterly reports on Form 10-Q and current reports on
Form 8-K. The forward-looking statements and projections contained in this
annual report on Form 10-K are excluded from the safe harbor protection provided
by Section 27A of the Securities Act of 1933, as amended, or the Securities Act,
and Section 21E of the Exchange Act.
Overview
We were incorporated under the general corporation laws of theState of Maryland onDecember 21, 2007 and formally commenced investment operations onJanuary 2, 2009 . We are an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act and has elected to be treated forU.S. federal income tax purposes, and intends to qualify annually, as a RIC under Subchapter M of the Code.
We are externally managed by the Advisor pursuant to the investment advisory agreement and supervised by our board of directors, a majority of whom are independent.
Our investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation. We seek to meet our investment objectives by:
• utilizing the experience and expertise of the management team of the
Advisor;
• employing a defensive investment approach focused on long-term credit
performance and principal protection;
• focusing primarily on debt investments in a broad array of private
companies, including middle-market companies, which we define as
companies with annual EBITDA of
of investment;
• investing primarily in established, stable enterprises with positive cash
flows; and
• maintaining rigorous portfolio monitoring in an attempt to anticipate and
pre-empt negative credit events within our portfolio, such as an event of
insolvency, liquidation, dissolution, reorganization or bankruptcy of a
portfolio company.
We pursue our investment objective by investing primarily in the debt of middle marketU.S. companies with a focus on originated transactions sourced through the network of the Advisor and its affiliates. We define direct originations as any investment where the Company's investment adviser, sub-adviser or their affiliates had negotiated the terms of the transaction beyond just the price, which, for example, may include negotiating financial covenants, maturity dates or interest rate terms. These directly originated transactions include participation in other originated transactions where there may be third parties involved, or a bank acting as an intermediary, for a closely held club, or similar transactions. These direct originations include investments originated by FB Income Advisor, GDFM or their affiliates. Our portfolio is comprised primarily of investments in senior secured loans and second lien secured loans of private middle marketU.S. companies and, to a lesser extent, subordinated loans and certain asset-based financing loans of privateU.S. companies. Although we do not expect a significant portion of our portfolio to be comprised of subordinated loans, there is no limit on the amount of such loans in which we may invest. We may purchase interests in loans or make other debt investments, including investments in senior secured bonds, through secondary market transactions in the OTC market or directly from our target companies as primary market or directly originated investments. In connection with our debt investments, we may on occasion receive equity interests such as warrants or options as additional consideration. We may also purchase or otherwise acquire interests in the form of common or preferred equity or equity-related securities, such as rights and warrants that may be converted into or exchanged for common stock or other equity or the cash value of common stock or other equity, including through a co-investment with a financial sponsor or possibly the restructuring of an investment. In addition, a portion of our portfolio may be comprised of corporate bonds, structured products, other debt securities and derivatives, including total return 52
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swaps and credit default swaps. The Advisor will seek to tailor our investment focus as market conditions evolve. Depending on market conditions, we may increase or decrease our exposure to less senior portions of the capital structures of our portfolio companies or otherwise make opportunistic investments, such as where the market price of loans, bonds or other securities reflects a lower value than deemed warranted by the Advisor's fundamental analysis. Such investment opportunities may occur due to general dislocations in the markets, a misunderstanding by the market of a particular company or an industry being out of favor with the broader investment community and may include event driven investments, anchor orders and structured products. The senior secured loans, second lien secured loans and senior secured bonds in which we invest generally have stated terms of three to seven years and subordinated debt investments that we make generally have stated terms of up to ten years, but the expected average life of such securities is generally three to four years. However, we may invest in loans and securities with any maturity or duration. Our debt investments may be rated by a NRSRO and, in such case, generally will carry a rating below investment grade (rated lower than "Baa3" by Moody's or lower than "BBB-" by S&P). We may invest without limit in debt or other securities of any rating, as well as debt or other securities that have not been rated by a NRSRO. Acquisition of FSKR OnJune 16, 2021 , we completed the 2021 Merger. Pursuant to the 2020 Merger Agreement, Merger Sub merged with and into FSKR, with FSKR continuing as the surviving company and as a wholly-owned subsidiary of the Company, or the First Merger, and, immediately thereafter, FSKR merged with and into the Company, with the Company continuing as the surviving company. In accordance with the terms of the 2020 Merger Agreement, (i) each outstanding share of FSKR common stock was converted into the right to receive 0.9498 shares of the Company's common stock. This exchange ratio was determined based on the closing net asset value, or NAV, per share of$26.77 and$25.42 for the Company and FSKR, respectively, as ofJune 14, 2021 , to ensure that the NAV of shares investors will own in FSK is equal to the NAV of the shares they held in FSKR. As a result, the Company issued an aggregate of approximately 161,374,028 shares of its common stock to former FSKR stockholders. Following the consummation of the 2021 Merger, we entered into the investment advisory agreement.
Revenues
The principal measure of our financial performance is net increase in net assets resulting from operations, which includes net investment income, net realized gain or loss on investments, net realized gain or loss on foreign currency, net unrealized appreciation or depreciation on investments and net unrealized gain or loss on foreign currency. Net investment income is the difference between our income from interest, dividends, fees and other investment income and our operating and other expenses. Net realized gain or loss on investments is the difference between the proceeds received from dispositions of portfolio investments and their amortized cost, including the respective realized gain or loss on foreign currency for those foreign denominated investment transactions. Net realized gain or loss on foreign currency is the portion of realized gain or loss attributable to foreign currency fluctuations. Net unrealized appreciation or depreciation on investments is the net change in the fair value of our investment portfolio, including the respective unrealized gain or loss on foreign currency for those foreign denominated investments. Net unrealized gain or loss on foreign currency is the net change in the value of receivables or accruals due to the impact of foreign currency fluctuations. We principally generate revenues in the form of interest income on the debt investments we hold. In addition, we generate revenues in the form of non-recurring commitment, closing, origination, structuring or diligence fees, monitoring fees, fees for providing managerial assistance, consulting fees, prepayment fees and performance-based fees. We may also generate revenues in the form of dividends and other distributions on the equity or other securities we hold. Expenses Our primary operating expenses include the payment of management and incentive fees and other expenses under the investment advisory agreement and the administration agreement, interest expense from financing arrangements and other indebtedness, and other expenses necessary for our operations. The management and incentive fees compensate the Advisor for its work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments. The Advisor oversees our day-to-day operations, including the provision of general ledger accounting, fund accounting, legal services, investor relations, certain government and regulatory affairs activities, and other administrative services. The Advisor also performs, or oversees the performance of, our corporate operations and required administrative services, which includes being responsible for the financial records that we are required to maintain and preparing reports for our stockholders and reports filed with theSEC . In addition, the Advisor assists us in calculating our net asset value, overseeing the preparation and filing of tax returns and the printing and dissemination of reports to our stockholders, and generally overseeing the payment of our expenses and the performance of administrative and professional services rendered to us by others. 53
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Pursuant to the administration agreement, we reimburse the Advisor for expenses necessary to perform services related to our administration and operations, including the Advisor's allocable portion of the compensation and related expenses of certain personnel of FS Investments and KKR Credit providing administrative services to us on behalf of the Advisor. We reimburse the Advisor no less than quarterly for all costs and expenses incurred by the Advisor in performing its obligations and providing personnel and facilities under the administration agreement. The Advisor allocates the cost of such services to us based on factors such as total assets, revenues, time allocations and/or other reasonable metrics. Our board of directors reviews the methodology employed in determining how the expenses are allocated to us and the proposed allocation of administrative expenses among us and certain affiliates of the Advisor. Our board of directors then assesses the reasonableness of such reimbursements for expenses allocated to us based on the breadth, depth and quality of such services as compared to the estimated cost to us of obtaining similar services from third-party service providers known to be available. In addition, our board of directors considers whether any single third-party service provider would be capable of providing all such services at comparable cost and quality. Finally, our board of directors compares the total amount paid to the Advisor for such services as a percentage of our net assets to the same ratio as reported by other comparable BDCs.
We bear all other expenses of our operations and transactions, including (without limitation) fees and expenses relating to:
• corporate and organization expenses relating to offerings of our
securities, subject to limitations included in the investment advisory
agreement;
• the cost of calculating our net asset value, including the cost of any
third-party pricing or valuation services;
• the cost of effecting sales and repurchases of shares of our common stock
and other securities;
• investment advisory fees;
• fees payable to third parties relating to, or associated with, making
investments and valuing investments, including fees and expenses
associated with performing due diligence reviews of prospective
investments;
• interest payments on our debt or related obligations;
• transfer agent and custodial fees;
• research and market data (including news and quotation equipment and
services, and any computer hardware and connectivity hardware (e.g.,
telephone and fiber optic lines) incorporated into the cost of obtaining
such research and market data);
• fees and expenses associated with marketing efforts;
• federal and state registration fees;
• federal, state and local taxes;
• fees and expenses of directors not also serving in an executive officer
capacity for us or the Advisor;
• costs of proxy statements, stockholders' reports, notices and other filings;
• fidelity bond, directors and officers/errors and omissions liability
insurance and other insurance premiums;
• direct costs such as printing, mailing, long distance telephone and staff;
• fees and expenses associated with accounting, corporate governance,
government and regulatory affairs activities, independent audits and
outside legal costs;
• costs associated with our reporting and compliance obligations under the
1940 Act and applicable federal and state securities laws, including
compliance with the Sarbanes-Oxley Act;
• brokerage commissions for our investments; and
• all other expenses incurred by the Advisor or us in connection with
administering our business, including expenses incurred by the Advisor in
performing administrative services for us and administrative personnel
paid by the Advisor, to the extent they are not controlling persons of
the Advisor or any of its affiliates, subject to the limitations included
in the investment advisory agreement and the administration agreement.
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In addition, we have contracted withState Street Bank and Trust Company to provide various accounting and administrative services, including, but not limited to, preparing preliminary financial information for review by the Advisor, preparing and monitoring expense budgets, maintaining accounting and corporate books and records, processing trade information provided by us and performing testing with respect to RIC compliance.
COVID-19Developments
The rapid spread of the COVID-19 pandemic, and associated impacts on theU.S. and global economies, has negatively impacted, and is likely to continue to negatively impact, the business operations of some of our portfolio companies. We cannot at this time fully predict the continued impact of COVID-19 and its variants on our business or the business of our portfolio companies, its duration or magnitude or the extent to which it will negatively impact our portfolio companies' operating results or our own results of operations or financial condition. We expect that certain of our portfolio companies may continue to experience economic distress for the foreseeable future and may significantly limit business operations if subjected to prolonged economic distress. These developments could result in a decrease in the value of our investments. COVID-19 has already had adverse effects on our investment income and we expect that such adverse effects may continue for some time. These adverse effects may require us to restructure certain of our investments, which could result in further reductions to our investment income or in impairments on our investments. In addition, disruptions in the capital markets have resulted in illiquidity in certain market areas. These market disruptions and illiquidity are likely to have an adverse effect on our business, financial condition, results of operations and cash flows. Unfavorable economic conditions caused by COVID-19 and its variants can also be expected to increase our funding costs and limit our access to the capital markets. These events have limited our investment originations and have also had a material negative impact on our operating results. We will continue to carefully monitor the impact of the COVID-19 pandemic on our business and the business of our portfolio companies. Because the full effects of the COVID-19 pandemic are not capable of being known at this time, we cannot estimate the impacts of COVID-19 and its variants on our future financial condition, results of operations or cash flows. We do, however, expect that it may continue to have a negative impact on our business and the financial condition of certain of our portfolio companies.
Portfolio Investment Activity for the Years Ended
Total Portfolio Activity
The following tables present certain selected information regarding our portfolio investment activity for the years endedDecember 31, 2021 and 2020: For the Year Ended December 31, December 31, Net Investment Activity 2021 2020 Purchases(1)$ 13,826 $ 2,336 Sales and Repayments (5,575 ) (2,301 ) Net Portfolio Activity$ 8,251 $ 35 For the Year Ended December 31, 2021 December 31, 2020 Sales and Sales and New Investment Activity by Asset Class(1) Purchases Percentage
Repayments Percentage Purchases Percentage Repayments Percentage Senior Secured Loans-First Lien
$ 9,713 71 %$ 3,704 66 %$ 1,464 63 %$ 1,624 71 % Senior Secured Loans-Second Lien 1,400 10 % 833 15 % 99 4 % 275 12 % Other Senior Secured Debt 95 1 % 52 1 % 3 0 % 35 1 % Subordinated Debt 46 0 % 99 2 % 25 1 % 167 7 % Asset Based Finance 1,541 11 % 462 8 % 426 18 % 181 8 % Credit Opportunities Partners JV, LLC 587 4 % - - 319 14 % - - Equity/Other 444 3 % 425 8 % - - 19 1 % Total$ 13,826 100 %$ 5,575 100 %$ 2,336 100 %$ 2,301 100 %
(1) Purchases and new investments for the year ended
investments acquired at a cost of
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The following table summarizes the composition of our investment portfolio at
cost and fair value as of
December 31, 2021 December 31, 2020
Amortized Fair Percentage Amortized Fair Percentage
Cost(1) Value of Portfolio Cost(1) Value of Portfolio Senior Secured Loans-First Lien
$ 9,695 $ 9,765 60.7 %$ 3,597 $ 3,449 50.9 % Senior Secured Loans-Second Lien 1,564 1,557 9.7 % 1,035 880 13.0 % Other Senior Secured Debt 149 120 0.7 % 127 86 1.3 % Subordinated Debt 188 111 0.7 % 243 171 2.5 % Asset Based Finance 2,132 2,245 13.9 % 1,025 951 14.0 % Credit Opportunities Partners JV, LLC 1,397 1,396 8.7 % 810 713 10.5 % Equity/Other 932 907 5.6 % 616 530 7.8 % Total$ 16,057 $ 16,101 100.0 %$ 7,453 $ 6,780 100.0 %
(1) Amortized costs represent the original cost adjusted for the amortization of
premiums and/or accretion of discounts, as applicable, on investments.
The following table presents certain selected information regarding the
composition of our investment portfolio as of
December 31, 2021 December 31, 2020
Number of Portfolio Companies 189 164
% Variable Rate Debt Investments (based
on fair value)(1)(2) 69.7 % 63.5 %
% Fixed Rate Debt Investments (based on
fair value)(1)(2) 10.2 % 9.0 %
% Other Income Producing Investments
(based on fair value)(3) 13.1 % 16.9 %
% Non-Income Producing Investments (based
on fair value)(2) 5.1 % 8.1 %
% of Investments on Non-Accrual (based on
fair value) 1.9 % 2.5 %
Weighted Average Annual Yield on Accruing
Debt Investments(2)(4) 9.2 % 8.8 %
Weighted Average Annual Yield on All Debt
Investments(5) 8.7 % 7.9 %
(1) "Debt Investments" means investments that pay or are expected to pay a stated
interest rate, stated dividend rate or other similar stated return.
(2) Does not include investments on non-accrual status.
(3) "Other Income Producing Investments" means investments that pay or are
expected to pay interest, dividends or other income to the Company on an
ongoing basis but do not have a stated interest rate, stated dividend rate or
other similar stated return.
(4) The Weighted Average Annual Yield on Accruing Debt Investments is computed as
(i) the sum of (a) the stated annual interest rate, dividend rate or other
similar stated return of each accruing
amount, adjusted to
necessary, as of the end of the applicable reporting period, plus (b) the
annual amortization of the purchase or original issue discount or premium of
each accruing
Debt Investments included in the calculated group as of the end of the
applicable reporting period.
(5) The Weighted Average Annual Yield on All Debt Investments is computed as
(i) the sum of (a) the stated annual interest rate, dividend rate or other
similar stated return of each
adjusted to
as of the end of the applicable reporting period, plus (b) the annual
amortization of the purchase or original issue discount or premium of each
included in the calculated group as of the end of the applicable reporting
period.
For the year endedDecember 31, 2021 , our total return based on net asset value was 18.47% and our total return based on market value was 41.45%. For the year endedDecember 31, 2020 , our total return based on net asset value was (9.69)% and our total return based on market value was (19.73)%. See footnotes 8 and 9 to the table included in Note 12 to our audited consolidated financial statements included herein for information regarding the calculation of our total return based on net asset value and total return based on market value, respectively. 56
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Direct Originations
We define Direct Originations as any investment where the Advisor or its affiliates negotiates the terms of the transaction beyond just the price, which, for example, may include negotiating financial covenants, maturity dates or interest rate terms. These Direct Originations include participation in other originated transactions where there may be third parties involved, or a bank acting as an intermediary, for a closely held club, or similar transactions. The following table presents certain selected information regarding our Direct Originations as ofDecember 31, 2021 and 2020:
Characteristics of All Direct Originations held in Portfolio
December 31, 2020
Number of Portfolio Companies 167 135
% of Investments on Non-Accrual 1.9 % 2.6 %
Total Cost of Direct Originations $ 15,341.3 $ 7,048.4
Total Fair Value of Direct Originations $ 15,433.3 $ 6,447.3
% of Total Investments, at Fair Value 95.9 % 95.1 %
Weighted Average Annual Yield on Accruing Debt Investments(1) 8.9 % 8.7 %
Weighted Average Annual Yield on All Debt Investments(2) 8.5 % 7.8 %
(1) The Weighted Average Annual Yield on Accruing Debt Investments is computed as
(i) the sum of (a) the stated annual interest rate, dividend rate or other
similar stated return of each accruing
amount, adjusted to
necessary, as of the end of the applicable reporting period, plus (b) the
annual amortization of the purchase or original issue discount or premium of
each accruing
Debt Investments included in the calculated group as of the end of the
applicable reporting period. Does not include Debt Investments on non-accrual
status.
(2) The Weighted Average Annual Yield on All Debt Investments is computed as
(i) the sum of (a) the stated annual interest rate, dividend rate or other
similar stated return of each
adjusted to
as of the end of the applicable reporting period, plus (b) the annual
amortization of the purchase or original issue discount or premium of each
included in the calculated group as of the end of the applicable reporting
period.
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Portfolio Composition by Industry Classification
The table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as ofDecember 31, 2021 and 2020: December 31, 2021 December 31, 2020 Fair Percentage of Fair Percentage of Industry Classification Value Portfolio Value Portfolio Automobiles & Components$ 89 0.5 %$ 104 1.5 % Banks 15 0.1 % 14 0.2 % Capital Goods 2,281 14.2 % 799 11.8 % Commercial & Professional Services 1,615 10.0 % 564 8.3 % Consumer Durables & Apparel 551 3.4 % 385 5.7 % Consumer Services 393 2.4 % 145 2.1 % Credit Opportunities Partners JV, LLC 1,396 8.7 % 713 10.5 % Diversified Financials 672 4.2 % 467 6.9 % Energy 241 1.5 % 107 1.6 % Food & Staples Retailing 296 1.8 % 221 3.3 % Food, Beverage & Tobacco 256 1.6 % 106 1.6 % Health Care Equipment & Services 1,613 10.0 % 604 8.9 % Household & Personal Products 227 1.4 % 190 2.8 % Insurance 898 5.6 % 208 3.1 % Materials 211 1.3 % 147 2.2 % Media & Entertainment 720 4.5 % 36 0.5 % Pharmaceuticals, Biotechnology & Life Sciences 235 1.5 % 34 0.5 % Real Estate 876 5.4 % 555 8.2 % Retailing 288 1.8 % 344 5.1 % Software & Services 2,698 16.8 % 770 11.3 % Technology Hardware & Equipment 42 0.3 % 15 0.2 % Telecommunication Services 128 0.8 % 71 1.0 % Transportation 360 2.2 % 181 2.7 % Total$ 16,101 100.0 %$ 6,780 100.0 % Portfolio Asset Quality
In addition to various risk management and monitoring tools, the Advisor uses an investment rating system to characterize and monitor the expected level of returns on each investment in our portfolio. The Advisor uses an investment rating scale of 1 to 4. The following is a description of the conditions associated with each investment rating:
Investment
Rating Summary Description
1 Performing Investment -generally executing in accordance with plan
and there are no concerns about the portfolio company's
performance or ability to meet covenant requirements.
2 Performing investment-no concern about repayment of both interest
and our cost basis but company's recent performance or trends in
the industry require closer monitoring.
3 Underperforming investment-some loss of interest or dividend
possible, but still expecting a positive return on investment.
4 Underperforming investment-concerns about therecoverability of
principal or interest.
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The following table shows the distribution of our investments on the 1 to 4
investment rating scale at fair value as of
December 31, 2021 December 31, 2020
Fair Percentage of Fair Percentage of
Investment Rating Value Portfolio Value Portfolio
1 $ 12,602 78 % $ 4,538 67 %
2 2,468 15 % 1,537 23 %
3 748 5 % 349 5 %
4 283 2 % 356 5 %
Total $ 16,101 100 % $ 6,780 100 %
The amount of the portfolio in each grading category may vary substantially from period to period resulting primarily from changes in the composition of the portfolio as a result of new investment, repayment and exit activities. In addition, changes in the grade of investments may be made to reflect our expectation of performance and changes in investment values.
Results of Operations
Comparison of the Years Ended
Revenues
Our investment income for the years ended
Year Ended December 31,
2021 2020 2019
Percentage of Percentage of Percentage of
Amount Total Income Amount Total Income Amount Total Income Interest income
$ 687 63.6 %$ 444 69.5 %$ 610 78.3 % Paid-in-kindinterest income 107 9.9 % 66 10.3 % 60 7.7 % Fee income 91 8.4 % 33 5.2 % 42 5.4 % Dividend income 196 18.1 % 96 15.0 % 67 8.6 % Total investment income(1)$ 1,081 100.0 %$ 639 100.0 %$ 779 100.0 %
(1) Such revenues represent
PIK interest for the years ended
respectively. Cash flows related to such non-cash revenues may not occur for
a number of reporting periods or years after such revenues are recognized.
The level of interest income we receive is generally related to the balance of income-producing investments, multiplied by the weighted average yield of our investments. Fee income is transaction based, and typically consists of prepayment fees and structuring fees. As such, fee income is generally dependent on new Direct Origination investments and the occurrence of events at existing portfolio companies resulting in such fees. The increase in interest income during the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 can primarily be attributed to the increase in assets resulting from the 2021 Merger. The increase in fee income during the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 can primarily be attributed to structuring fees and prepayment fees received in connection with increase investment and repayment activity during the current period. The increase in dividend income during the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 can be primarily attributed to the increase in dividends paid in respect to our investment inCredit Opportunities Partners JV, LLC , and a one-time dividend of$20 from one of our equity investments during the year endedDecember 31, 2021 . The decrease in investment income during the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 can be primarily attributed to the repayment of higher yielding assets replaced by lower yielding assets, the impact of the decline in LIBOR on our floating rate investments and the increase in our investment inCredit Opportunities Partners JV, LLC during the year endedDecember 31, 2020 . A portion of each of these factors was impacted by the current COVID-19 pandemic. 59
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The increase in dividend income during the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 can be primarily attributed to the increase in dividends paid in respect to our investment inCredit Opportunities Partners JV, LLC during the year endedDecember 31, 2020 , compared to the year endedDecember 31, 2019 .
Expenses
Our operating expenses, together with excise taxes, for the years ended
Year
Ended
2021 2020 2019
Management fees $ 173 $ 106 $ 115
Subordinated income incentive fees 77 - 57
Administrative services expenses 12 7 9
Accounting and administrative fees 3 2 2
Interest expense 231 170 170
Other expenses 19 13 9
Total operating expenses $ 515 $ 298 $ 362
Incentive fee waiver (30 ) - -
Net operating expenses before taxes 485 298 362
Excise taxes 12 10 7
Total net expenses, including excise taxes $ 497
The following table reflects selected expense ratios as a percent of average net assets for the years
ended
Year
Ended
2021 2020 2019
Ratio of operating expenses and excise taxes to average net assets
9.35 % 9.71 % 9.09 %
Ratio of incentive fee waiver to average net assets(1) (0.53 )% - -
Ratio of net operating expenses to average net assets 8.82 % 9.71 % 9.09 % Ratio of incentive fees, interest expense and excise taxes to average net assets(1)
5.15 % 5.67 % 5.77 %
Ratio of net operating expenses, excluding certain expenses, to average net assets
3.67 % 4.04 % 3.32 %
(1) Ratio data may be rounded in order to recompute the ending ratio of net
operating expenses, excluding certain expenses, to average net assets.
The increase in expenses during the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 can primarily be attributed to the increased management fee as a result of the higher asset base from the 2021 Merger, the increased subordinated income incentive fee pursuant to the terms of the investment advisory agreement following the 2021 Merger and increased interest expense resulting from the higher debt outstanding due to the 2021 Merger.
Incentive fees and interest expense, among other things, may increase or decrease our expense ratios relative to comparative periods depending on portfolio performance and changes in amounts outstanding under our financing arrangements and benchmark interest rates such as LIBOR, among other factors.
Net Investment Income
Our net investment income totaled$584 ($2.76 per share),$331 ($2.66 per share) and$410 ($3.16 per share) for the years endedDecember 31, 2021 , 2020 and 2019, respectively. The increase in net investment income during the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 can primarily be attributed to higher investment income during the year endedDecember 31, 2021 as discussed above. The decrease in net investment income for the year endedDecember 31, 2020 compared to the year endedDecember 31, 2019 can be attributed to lower investment income as discussed above. 60
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Net Realized Gains or Losses
Our net realized gains (losses) on investments, financial instruments and foreign currency for the years endedDecember 31, 2021 , 2020 and 2019 were as follows: Year Ended December 31, 2021 2020 2019 Net realized gain (loss) on investments(1)$ 171 $ (490 ) $ (81 ) Net realized gain (loss) on swap contracts - - (11 ) Net realized gain (loss) on foreign currency forward contracts 0 - 12 Net realized gain (loss) on foreign currency (7 )
(6 ) 2
Total net realized gain (loss)$ 164 $ (496 ) $ (78 )
(1) We sold investments and received principal repayments, respectively, of
during the year ended December, 31, 2020 and
year ended
Realized Losses from Extinguishment of Debt
During the years ended
Net Change in Unrealized Appreciation (Depreciation)
Our net change in unrealized appreciation (depreciation) on investments,
financial instruments and unrealized gain (loss) on foreign currency for the
years ended
Year
Ended
2021 2020 2019 Net change in unrealized appreciation (depreciation) on investments
$ 728
- - 16 Net change in unrealized appreciation (depreciation) on foreign currency forward contracts
12 (3 ) (2 )
Net change in unrealized gain (loss) on foreign currency 30 (16 ) (17 )
Total net change in unrealized appreciation (depreciation)
During the year endedDecember 31, 2021 , the net change in unrealized appreciation (depreciation) on our investments was driven primarily by$628 of appreciation resulting from the merger accounting associated with the 2021 Merger. During the year endedDecember 31, 2020 , the net change in unrealized appreciation (depreciation) on our investments was driven primarily by mark to market declines across the portfolio resulting from uncertainty related to the COVID-19 pandemic. During the year endedDecember 31, 2019 , the net change in unrealized appreciation (depreciation) on our investments was primarily driven by mark to market declines in certain debt investments.
Net Increase (Decrease) in Net Assets Resulting from Operations
For the years ended
This "Results of Operations" section should be read in conjunction with "COVID-19 Developments" above.
Financial Condition, Liquidity and Capital Resources
Overview
As ofDecember 31, 2021 , we had$377 in cash and foreign currency, which we or our wholly-owned financing subsidiaries held in custodial accounts, and$1,609 in borrowings available under our financing arrangements, subject to borrowing base and other limitations. As ofDecember 31, 2021 , we also had broadly syndicated investments and opportunistic investments that could be sold to create additional liquidity. As ofDecember 31, 2021 , we had unfunded debt investments with aggregate unfunded commitments of$1,724.1 , unfunded equity/other commitments of$576.9 and unfunded commitments of$350.2 of COPJV. We maintain sufficient cash on hand, available borrowings and liquid securities to fund such unfunded commitments should the need arise. 61
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We currently generate cash primarily from cash flows from fees, interest and dividends earned from our investments, as well as principal repayments and proceeds from sales of our investments. To seek to enhance our returns, we also employ leverage as market conditions permit and at the discretion of the Advisor, but in no event will leverage employed exceed the maximum amount permitted by the 1940 Act. Prior toJune 14, 2019 , in accordance with the 1940 Act, we were allowed to borrow amounts such that our asset coverage, calculated pursuant to the 1940 Act, was at least 200% after such borrowing. EffectiveJune 15, 2019 , our asset coverage requirement applicable to senior securities was reduced from 200% to 150%. As ofDecember 31, 2021 , the aggregate amount outstanding of the senior securities issued by us was$9.2 billion . As ofDecember 31, 2021 , our asset coverage was 184%. See "-Financing Arrangements." Prior to investing in securities of portfolio companies, we invest the cash received from fees, interest and dividends earned from our investments and principal repayments and proceeds from sales of our investments primarily in cash, cash equivalents, including money market funds,U.S. government securities, repurchase agreements and high-quality debt instruments maturing in one year or less from the time of investment, consistent with our BDC election and our election to be taxed as a RIC.
This "Financial Condition, Liquidity and Capital Resources" section should be read in conjunction with "COVID-19 Developments" above.
Financing Arrangements
The following table presents summary information with respect to our outstanding
financing arrangements as of
As of December 31, 2021
Amount Amount
Arrangement Type of Arrangement Rate Outstanding Available Maturity Date
Ambler Credit Facility(2)(9) Revolving Credit Facility SOFR+2.15%(1) $ 150$ 50 November 22, 2025 Burholme Prime Brokerage Facility(2)(9) Prime Brokerage Facility L+1.25%(1) - - June 28, 2022 CCT Tokyo Funding Credit Facility(2) Revolving Credit Facility L+1.75%-2.00%(1)(3) 300 - January 2, 2025 Darby Creek Credit Facility(2)(9) Revolving Credit Facility L+1.85%(1) 250 - February 26, 2025 Dunlap Credit Facility(2)(9) Revolving Credit Facility L+1.85%(1) 485 15 February 26, 2025 Meadowbrook Run Credit Facility(2)(9) Revolving Credit Facility SOFR+2.05%(1) 300 - November 22, 2024 Senior Secured Revolving Credit L+1.75%-2.00%(1)(4) Facility(2) Revolving Credit Facility SONIA+0.0326%(1)(4) 2,647 (5) 1,544 (6) December 23, 2025 4.750% Notes due 2022(7) Unsecured Notes 4.75% 450 - May 15, 2022 4.625% Notes due 2024(7) Unsecured Notes 4.63% 400 - July 15, 2024 1.650% Notes due 2024(7) Unsecured Notes 1.65% 500 - October 12, 2024 4.125% Notes due 2025(7) Unsecured Notes 4.13% 470 - February 1, 2025 4.250% Notes due 2025(7)(9) Unsecured Notes 4.25% 475 - February 14, 2025 8.625% Notes due 2025(7) Unsecured Notes 8.63% 250 - May 15, 2025 3.400% Notes due 2026(7) Unsecured Notes 3.40% 1,000 - January 15, 2026 2.625% Notes due 2027(7) Unsecured Notes 2.63% 400 - January 15, 2027 3.125% Notes due 2028(7) Unsecured Notes 3.13% 750 - October 12, 2028 2019-1Notes(2)(8) Collateralized Loan Obligation L+1.85%-3.01%(1) 352 - January 15, 2031 Total$ 9,179 $ 1,609
(1) The benchmark rate is subject to a 0% floor.
(2) The carrying amount outstanding under the facility approximates its fair
value.
(3) The spread over the benchmark rate is determined by reference to the amount
outstanding under the facility.
(4) The spread over the benchmark rate is determined by reference to the ratio of
the value of the borrowing base to the aggregate amount of certain
outstanding indebtedness of the Company.
(5) Amount includes borrowing in Euros, Canadian dollars, pounds sterling and
Australian dollars. Euro balance outstanding of €260 has been converted to
reflect total
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amount outstanding in U.S. dollars. Canadian dollar balance outstanding of
CAD40 has been converted to U.S dollars at an exchange rate of CAD1.00 todollars. Pounds sterling balance outstanding of £130 has been converted to
reflect total amount outstanding in
outstanding of AUD116 has been converted to
of AUD1.00 to $0.73 as of December 31, 2021 to reflect total amount
outstanding in U.S. dollars.
(6) The amount available for borrowing under the Senior Secured Revolving Credit
Facility is reduced by any standby letters of credit issued under the Senior
Secured Revolving Credit Facility. As of December 31, 2021 , $9 of such
Letters of Credit have been issued.
(7) As of
notes, the 1.650% notes, the 4.125% notes, the 4.250% notes, the 8.625%
notes, the 3.400% notes, the 2.625% notes and the 3.125% was approximately
These valuations are considered Level 2 valuations within the fair value
hierarchy.
(8) As of
L+1.85%, $20.5 of Class A-2R notes outstanding at L+2.25%, $32.4 of
Class B-1R notes outstanding at L+2.60% and $17.4 of Class B-2R notes
outstanding at 3.011%.
(9) As of
notes and credit facilities, and FSKR's wholly-owned special purpose
financing subsidiaries became wholly-owned special purpose financing
subsidiaries of the Company, in each case, as a result of the consummation of
the 2021 Merger.
See Note 9 to our consolidated financial statements included herein for additional information regarding our financing arrangements.
RIC Status and Distributions
We have elected to be subject to tax as a RIC under Subchapter M of the Code. In order to qualify for RIC tax treatment, we must, among other things, make distributions of an amount at least equal to 90% of our investment company taxable income, determined without regard to any deduction for distributions paid, each tax year. As long as the distributions are declared by the later of the fifteenth day of the ninth month following the close of a tax year or the due date of the tax return for such tax year, including extensions, distributions paid up to twelve months after the current tax year can be carried back to the prior tax year for determining the distributions paid in such tax year. We intend to make sufficient distributions to our stockholders to qualify for and maintain our RIC tax status each tax year. We are also subject to a 4% nondeductible federal excise tax on certain undistributed income unless we make distributions in a timely manner to our stockholders generally of an amount at least equal to the sum of (1) 98% of our net ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gain net income, which is the excess of capital gains in excess of capital losses, or "capital gain net income" (adjusted for certain ordinary losses), for the one-year period endingOctober 31 of that calendar year and (3) any net ordinary income and capital gain net income for the preceding years that were not distributed during such years and on which we paid noU.S. federal income tax. Any distribution declared by us during October, November or December of any calendar year, payable to stockholders of record on a specified date in such a month and actually paid during January of the following calendar year, will be treated as if it had been paid by us, as well as received by our stockholders, onDecember 31 of the calendar year in which the distribution was declared. We can offer no assurance that we will achieve results that will permit us to pay any cash distributions. If we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings. Subject to applicable legal restrictions and the sole discretion of our board of directors, we intend to authorize, declare and pay regular cash distributions on a quarterly basis. We will calculate each stockholder's specific distribution amount for the period using record and declaration dates and each stockholder's distributions will begin to accrue on the date that shares of our common stock are issued to such stockholder. From time to time, we may also pay special interim distributions in the form of cash or shares of our common stock at the discretion of our board of directors. During certain periods, our distributions may exceed our earnings. As a result, it is possible that a portion of the distributions we make may represent a return of capital. A return of capital generally is a return of a stockholder's investment rather than a return of earnings or gains derived from our investment activities. Each year a statement on Form 1099-DIV identifying the sources of the distributions will be mailed to our stockholders. No portion of the distributions paid during the tax years endedDecember 31, 2021 , 2020 or 2019 represented a return of capital. 63
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We intend to continue to make our regular distributions in the form of cash, out of assets legally available for distribution, except for those stockholders who receive their distributions in the form of shares of our common stock under our distribution reinvestment plan. Any distributions reinvested under the plan will nevertheless remain taxable to aU.S. stockholder. The following table reflects the cash distributions per share that we have declared on our common stock during the years endedDecember 31, 2021 , 2020 and 2019: Distribution For the Year Ended December 31, Per Share(1) Amount 2019$ 3.04000 $ 393 2020$ 2.56000 $ 318 2021$ 2.47000 $ 511
(1) The amount of each per share distribution has been retroactively adjusted to
reflect the Reverse Stock Split as discussed in Note 3 to our unaudited
consolidated financial statements included herein.
See Note 5 to our consolidated financial statements contained in this annual report on Form 10-K for additional information regarding our distributions, including a reconciliation of our GAAP-basis net investment income to our tax-basis net investment income for the years endedDecember 31, 2021 , 2020 and 2019. Recent Developments OnJanuary 18, 2022 , the Company entered into the Eleventh Supplemental Indenture in connection with the 3.250% Notes. For additional discussion of the 3.250 % Notes, see Note 14 to our consolidated financial statements included herein.
Critical Accounting Policies and Estimates
Our financial statements are prepared in conformity with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming the estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. Understanding our accounting policies and the extent to which we use management judgment and estimates in applying these policies is integral to understanding our financial statements. We describe our most significant accounting policies in "Note 2. Summary of Significant Accounting Policies" in our consolidated financial statements. Critical accounting policies are those that require the application of management's most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as necessary based on changing conditions. We have identified one of our accounting policies, valuation of portfolio investments, specifically the valuation of Level 3 investments, as critical because it involves significant judgments and assumptions about highly complex and inherently uncertain matters, and the use of reasonably different estimates and assumptions could have a material impact on our reported results of operations or financial condition. As we execute our operating plans, we will describe additional critical accounting policies in the notes to our future financial statements in addition to those discussed below.
Valuation of Portfolio Investments
We determine the net asset value of our investment portfolio each quarter.
Securities are valued at fair value as determined in good faith by our board of
directors. In connection with that determination, the Advisor provides our board
of directors with portfolio company valuations which are based on relevant
inputs, including, but not limited to, indicative dealer quotes, values of like
securities, recent portfolio company financial statements and forecasts, and
valuations prepared by independent third-party valuation services.
ASC Topic 820 issued by the FASB clarifies the definition of fair value and
requires companies to expand their disclosure about the use of fair value to
measure assets and liabilities in interim and annual periods subsequent to
initial recognition. ASC Topic 820 defines fair value as the price that would be
received from the sale of an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. ASC Topic 820
also establishes a three-tier fair value hierarchy, which prioritizes the inputs
used in measuring fair value. These tiers include: Level 1, defined as
observable inputs such as quoted prices in active markets; Level 2, which
includes inputs such as quoted prices for similar securities in active markets
and quoted prices for identical securities where there is little or no activity
in the market; and Level 3, defined as unobservable inputs for which little or
no market data exists, therefore requiring an entity to develop its own
assumptions.
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With respect to investments for which market quotations are not readily available, we undertake a multi-step valuation process each quarter, as described below:
• our quarterly fair valuation process begins by the Advisor providing
financial and operating information with respect to each portfolio
company or investment to our independent third-party valuation service
providers;
• our independent third-party valuation service providers review this
information, along with other public and private information, and provide
the Advisor with a valuation range for each portfolio company or
investment;
• the Advisor then discusses the independent third-party valuation service
providers' valuation ranges and provides the valuation committee of the
board of directors, or the valuation committee, with a valuation
recommendation for each investment, along with supporting materials;
• preliminary valuations are then discussed with the valuation committee;
• our valuation committee reviews the preliminary valuations and the
Advisor, together with our independent third-party valuation serviceproviders and, if applicable, supplements the preliminary valuations to
reflect any comments provided by the valuation committee;
• following the completion of its review, our valuation committeerecommends that our board of directors approves the fair valuations
determined by the valuation committee; and
• our board of directors discusses the valuations and determines the fair
value of each such investment in our portfolio in good faith based on
various statistical and other factors, including the input and
recommendation of the Advisor, the valuation committee and our
independent third-party valuation service providers.
Determination of fair value involves subjective judgments and estimates.
Accordingly, the notes to our consolidated financial statements refer to the
uncertainty with respect to the possible effect of such valuations and any
change in such valuations on our consolidated financial statements. In making
its determination of fair value, our board of directors may use any approved
independent third-party pricing or valuation services. However, our board of
directors is not required to determine fair value in accordance with the
valuation provided by any single source, and may use any relevant data,
including information obtained from the Advisor or any approved independent
third-party valuation or pricing service that our board of directors deems to be
reliable in determining fair value under the circumstances. Below is a
description of factors that the Advisor, any approved independent third-party
valuation services and our board of directors may consider when determining the
fair value of our investments.
Valuation of fixed income investments, such as loans and debt securities,
depends upon a number of factors, including prevailing interest rates for like
securities, expected volatility in future interest rates, call features, put
features and other relevant terms of the debt. For investments without readily
available market prices, we may incorporate these factors into discounted cash
flow models to arrive at fair value. Other factors that may be considered
include the borrower's ability to adequately service its debt, the fair market
value of the borrower in relation to the face amount of its outstanding debt and
the quality of collateral securing our debt investments.
For convertible debt securities, fair value generally approximates the fair
value of the debt plus the fair value of an option to purchase the underlying
security (i.e., the security into which the debt may convert) at the conversion
price. To value such an option, a standard option pricing model may be used.
Our equity interests in portfolio companies for which there is no liquid public
market are valued at fair value. Our board of directors, in its determination of
fair value, may consider various factors, such as multiples of EBITDA, cash
flows, net income, revenues or, in limited instances, book value or liquidation
value. All of these factors may be subject to adjustments based upon the
particular circumstances of a portfolio company or our actual investment
position. For example, adjustments to EBITDA may take into account compensation
to previous owners or acquisition, recapitalization, restructuring or other
related items.
The Advisor, any approved independent third-party valuation services and our
board of directors may also consider private merger and acquisition statistics,
public trading multiples discounted for illiquidity and other factors,
valuations implied by third-party investments in the portfolio companies or
industry practices in determining fair value. The Advisor, any approved
independent third-party valuation services and our board of directors may also
consider the size and scope of a portfolio company and its specific strengths
and weaknesses, and may apply discounts or premiums, where and as appropriate,
due to the higher (or lower) financial risk and/or the smaller size of portfolio
companies relative to comparable firms, as well as such other factors as
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our board of directors, in consultation with the Advisor and any approved independent third-party valuation services, if applicable, may consider relevant in assessing fair value. Generally, the value of our equity interests in public companies for which market quotations are readily available is based upon the most recent closing public market price. Portfolio securities that carry certain restrictions on sale are typically valued at a discount from the public market value of the security. When we receive warrants or other equity securities at nominal or no additional cost in connection with an investment in a debt security, the cost basis in the investment will be allocated between the debt securities and any such warrants or other equity securities received at the time of origination. Our board of directors subsequently values these warrants or other equity securities received at their fair value. The fair values of our investments are determined in good faith by our board of directors. Our board of directors is responsible for the valuation of our portfolio investments at fair value as determined in good faith pursuant to our valuation policy and consistently applied valuation process. Our board of directors has delegated day-to-day responsibility for implementing our valuation policy to the Advisor, and has authorized the Advisor to utilize independent third-party valuation and pricing services that have been approved by our board of directors. The valuation committee is responsible for overseeing the Advisor's implementation of the valuation process.
See Note 8 to our consolidated financial statements included herein for additional information regarding the fair value of our financial instruments.
Merger Accounting
OnJune 16, 2021 , we completed the 2021 Merger. Pursuant to the 2020 Merger Agreement, Merger Sub merged with and into FSKR, with FSKR continuing as the surviving company and as a wholly-owned subsidiary of the Company, or the First Merger, and, immediately thereafter, FSKR merged with and into the Company, with the Company continuing as the surviving company. The 2021 Merger was considered a tax-free reorganization. The 2021 Merger was accounted for in accordance with the asset acquisition method of accounting as detailed in Accounting Standards Codification 805-50, Business Combinations-Related Issues. The fair value of the consideration paid by the Company in the 2021 Merger was allocated to the assets acquired and liabilities assumed based on their relative fair values as of the date of acquisition and did not give rise to goodwill.
See Note 13 to our unaudited financial statements included herein for additional information regarding the 2021 Merger.
Contractual Obligations
We have entered into agreements with the Advisor to provide us with investment advisory and administrative services. Payments for investment advisory services under the investment advisory agreement are equal to (a) an annual base management fee based on the average weekly value of our gross assets (excluding cash and cash equivalents) and (b) an incentive fee based on our performance. The Advisor is reimbursed for administrative expenses incurred on our behalf. See Note 4 to our consolidated financial statements included herein for a discussion of these agreements and for the amount of fees and expenses accrued under these agreements during the years endedDecember 31, 2021 , 2020 and 2019. 66
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Recently Issued Accounting Standards
InMarch 2020 , the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848)," which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate ("LIBOR") or another reference rate expected to be discontinued because of reference rate reform. InJanuary 2021 , the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848), which expanded the scope of Topic 848 to include derivative instruments impacted by discounting transition. ASU 2020-04 and ASU 2021-01 are effective for all entities throughDecember 31, 2022 . The expedients and exceptions provided by the amendments do not apply to contract modifications and hedging relationships entered into or evaluated afterDecember 31, 2022 , except for hedging transactions as ofDecember 31, 2022 , that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The Company is currently evaluating the impact of the adoption of ASU 2020-04 and 2021-01 on its consolidated financial statements.
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