SIXTH STREET SPECIALTY LENDING, INC. The information contained in this section should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. This discussion also should be read in conjunction with the "Cautionary Statement Regarding Forward-Looking Statements" set forth on page 3 of this Quarterly Report on Form 10-Q.
Overview
Sixth Street Specialty Lending, Inc. is aDelaware corporation formed onJuly 21, 2010 . The Adviser is our external manager. We have four wholly owned subsidiaries,TC Lending, LLC , aDelaware limited liability company, which holds aCalifornia finance lender and broker license,Sixth Street SL SPV, LLC , aDelaware limited liability company, in which we hold assets that were previously used to support our asset-backed credit facility,Sixth Street SL Holding, LLC , aDelaware limited liability company, in which we hold certain investments, andSixth Street Specialty Lending Sub, LLC , aCayman Islands limited liability company, in which we plan to hold certain investments.
We have elected to be regulated as a BDC under the 1940 Act and as a RIC under
the Code. We made our BDC election on
• the requirement to invest at least 70% of our assets in "qualifying assets";
• source of income limitations; • asset diversification requirements; and
• the requirement to distribute (or be treated as distributing) in each taxable
year at least 90% of our investment company taxable income and tax-exempt
interest for that taxable year.
Our shares are currently listed on the NYSE under the symbol "TSLX."
Our Investment Framework
We are a specialty finance company focused on lending to middle-market companies. Since we began our investment activities inJuly 2011 , throughSeptember 30, 2021 , we have originated approximately$17.5 billion aggregate principal amount of investments and retained approximately$7.7 billion aggregate principal amount of these investments on our balance sheet prior to any subsequent exits and repayments. We seek to generate current income primarily inU.S. -domiciled middle-market companies through direct originations of senior secured loans and, to a lesser extent, originations of mezzanine and unsecured loans and investments in corporate bonds and equity securities. By "middle-market companies," we mean companies that have annual EBITDA, which we believe is a useful proxy for cash flow, of$10 million to$250 million , although we may invest in larger or smaller companies on occasion. As ofSeptember 30, 2021 , our core portfolio companies, which exclude certain investments that fall outside of our typical borrower profile and represent 88.1% of our total investments based on fair value, had weighted average annual revenue of$108.6 million and weighted average annual EBITDA of$36.9 million . We invest in first-lien debt, second-lien debt, mezzanine and unsecured debt and equity and other investments. Our first-lien debt may include stand-alone first-lien loans; "last out" first-lien loans, which are loans that have a secondary priority behind super-senior "first out" first-lien loans; "unitranche" loans, which are loans that combine features of first-lien, second-lien and mezzanine debt, generally in a first-lien position; and secured corporate bonds with similar features to these categories of first-lien loans. Our second-lien debt may include secured loans, and, to a lesser extent, secured corporate bonds, with a secondary priority behind first-lien debt. The debt in which we invest typically is not rated by any rating agency, but if these instruments were rated, they would likely receive a rating of below investment grade (that is, below BBB- or Baa3 as defined byStandard & Poor's and Moody's Investors Services, respectively), which is often referred to as "junk."
The companies in which we invest use our capital to support organic growth,
acquisitions, market or product expansion and recapitalizations (including
restructurings). As of
As of
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--------------------------------------------------------------------------------Through our Adviser, we consider potential investments utilizing a four-tiered investment framework and against our existing portfolio as a whole:
Business and sector selection. We focus on companies with enterprise value between$50 million and$1 billion . When reviewing potential investments, we seek to invest in businesses with high marginal cash flow, recurring revenue streams and where we believe credit quality will improve over time. We look for portfolio companies that we think have a sustainable competitive advantage in growing industries or distressed situations. We also seek companies where our investment will have a low loan-to-value ratio. We currently do not limit our focus to any specific industry and we may invest in larger or smaller companies on occasion. We classify the industries of our portfolio companies by end-market (such as healthcare, and business services) and not by the products or services (such as software) directed to those end-markets.
As of
Investment Structuring. We focus on investing at the top of the capital structure and protecting that position. As ofSeptember 30, 2021 , approximately 92.5% of our portfolio was invested in secured debt, all of which are in first-lien debt investments. We carefully perform diligence and structure investments to include strong investor covenants. As a result, we structure investments with a view to creating opportunities for early intervention in the event of non-performance or stress. In addition, we seek to retain effective voting control in investments over the loans or particular class of securities in which we invest through maintaining affirmative voting positions or negotiating consent rights that allow us to retain a blocking position. We also aim for our loans to mature on a medium term, between two to six years after origination. For the three months endedSeptember 30, 2021 , the weighted average term on new investment commitments in new portfolio companies was 6.0 years. Deal Dynamics. We focus on, among other deal dynamics, direct origination of investments, where we identify and lead the investment transaction. A substantial majority of our portfolio investments are sourced through our direct or proprietary relationships. Risk Mitigation. We seek to mitigate non-credit-related risk on our returns in several ways, including call protection provisions to protect future interest income. As ofSeptember 30, 2021 , we had call protection on 83.5% of our debt investments based on fair value, with weighted average call prices of 107.2% for the first year, 104.4% for the second year and 101.4% for the third year, in each case from the date of the initial investment. As ofSeptember 30, 2021 , 98.9% of our debt investments based on fair value bore interest at floating rates (when including investment specific hedges), with 99.4% of these subject to interest rate floors, which we believe helps act as a portfolio-wide hedge against inflation.
Relationship with our Adviser and Sixth Street
Our Adviser is aDelaware limited liability company. Our Adviser acts as our investment adviser and administrator and is a registered investment adviser with theSEC under the Advisers Act. Our Adviser sources and manages our portfolio through a dedicated team of investment professionals predominately focused on us. Our Investment Team is led by our Chairman and Chief Executive Officer and our Adviser's Co-Chief Investment OfficerJoshua Easterly and our Adviser's Co-Chief Investment OfficerAlan Waxman , both of whom have substantial experience in credit origination, underwriting and asset management. Our investment decisions are made by our Investment Review Committee, which includes senior personnel of ourAdviser andSixth Street Partners, LLC , or "Sixth Street." Sixth Street is a global investment business with over$50 billion of assets under management as ofSeptember 30, 2021 . Sixth Street's core platforms includeSixth Street Specialty Lending , Sixth Street Specialty Lending Europe, which is aimed at European middle-market loan originations, Sixth Street TAO, which has the flexibility to invest across all of Sixth Street's private credit market investments, Sixth Street Opportunities, which focuses on actively managed opportunistic investments across the credit cycle, Sixth Street Credit Market Strategies, which is the firm's "public-side" credit investment platform focused on investment opportunities in broadly syndicated leveraged loan markets, Sixth Street Growth, which provides financing solutions to growing companies, Sixth Street Fundamental Strategies, which primarily invests in secondary credit, and Sixth Street Agriculture, which invests in niche agricultural opportunities. Sixth Street has a long-term oriented, highly flexible capital base that allows it to invest across industries, geographies, capital structures and asset classes. Sixth Street has extensive experience with highly complex, global public and private investments executed through primary originations, secondary market purchases and restructurings, and has a team of over 370 investment and operating professionals. As ofSeptember 30, 2021 , thirty-three (33) of these personnel are dedicated to our business, including twenty-five (25) investment professionals. 51
-------------------------------------------------------------------------------- Our Adviser consults with Sixth Street in connection with a substantial number of our investments.The Sixth Street platform provides us with a breadth of large and scalable investment resources. We believe we benefit from Sixth Street's market expertise, insights into industry, sector and macroeconomic trends and intensive due diligence capabilities, which help us discern market conditions that vary across industries and credit cycles, identify favorable investment opportunities and manage our portfolio of investments. Sixth Street and its affiliates will refer all middle-market loan origination activities for companies domiciled inthe United States to us and conduct those activities through us. The Adviser will determine whether it would be permissible, advisable or otherwise appropriate for us to pursue a particular investment opportunity allocated to us. OnDecember 16, 2014 , we were granted an exemptive order from theSEC that allows us to co-invest, subject to certain conditions and to the extent the size of an investment opportunity exceeds the amount our Adviser has independently determined is appropriate to invest, with certain of our affiliates (including affiliates of Sixth Street) in middle-market loan origination activities for companies domiciled inthe United States and certain "follow-on" investments in companies in which we have already co-invested pursuant to the order and remain invested. OnJanuary 16, 2020 , we filed a further application for co-investment exemptive relief with theSEC to better align our existing co-investment relief with more recentSEC exemptive orders. There can be no assurance when or if theSEC will grant a further order in response to our application. Until such time a new order is granted, we will continue to operate under the terms of our current exemptive order. We believe our ability to co-invest with Sixth Street affiliates is particularly useful where we identify larger capital commitments than otherwise would be appropriate for us. We expect that with the ability to co-invest with Sixth Street affiliates we will continue to be able to provide "one-stop" financing to a potential portfolio company in these circumstances, which may allow us to capture opportunities where we alone could not commit the full amount of required capital or would have to spend additional time to locate unaffiliated co-investors. Under the terms of the Investment Advisory Agreement and Administration Agreement, the Adviser's services are not exclusive, and the Adviser is free to furnish similar or other services to others, so long as its services to us are not impaired. Under the terms of the Investment Advisory Agreement, we will pay the Adviser the base management fee, or the Management Fee, and may also pay certain incentive fees, or the Incentive Fees. Under the terms of the Administration Agreement, the Adviser also provides administrative services to us. These services include providing office space, equipment and office services, maintaining financial records, preparing reports to stockholders and reports filed with theSEC , and managing the payment of expenses and the oversight of the performance of administrative and professional services rendered by others. Certain of these services are reimbursable to the Adviser under the terms of the Administration Agreement.
Key Components of Our Results of Operations
Investments
We focus primarily on the direct origination of loans to middle-market companies
domiciled in
Our level of investment activity (both the number of investments and the size of each investment) can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital generally available to middle-market companies, the level of merger and acquisition activity for such companies, the general economic environment and the competitive environment for the types of investments we make.
In addition, as part of our risk strategy on investments, we may reduce certain levels of investments through partial sales or syndication to additional investors.
Revenues
We generate revenues primarily in the form of interest income from the investments we hold. In addition, we may generate income from dividends on direct equity investments, capital gains on the sale of investments and various loan origination and other fees. Our debt investments typically have a term of two to six years, and, as ofSeptember 30, 2021 , 98.9% of these investments based on fair value bore interest at a floating rate (when including investment specific hedges), with 99.4% of these subject to interest rate floors. Interest on debt investments is generally payable quarterly or semiannually. Some of our debt investments provide for deferred interest payments or PIK interest. For the three and nine months endedSeptember 30, 2021 , 3.5% and 3.3%, respectively, of our total investment income was comprised of PIK interest. 52 -------------------------------------------------------------------------------- Changes in our net investment income are primarily driven by the spread between the payments we receive from our investments in our portfolio companies against our cost of funding, rather than by changes in interest rates. Our investment portfolio primarily consists of floating rate loans, and our credit facilities, 2022 Convertible Notes, 2023 Notes, 2024 Notes and 2026 Notes, after taking into account the effect of the interest rate swaps we have entered into in connection with these securities, all bear interest at floating rates. Macro trends in base interest rates like LIBOR or other alternate reference rates may affect our net investment income over the long term. However, because we generally originate loans to a small number of portfolio companies each quarter, and those investments also vary in size, our results in any given period-including the interest rate on investments that were sold or repaid in a period compared to the interest rate of new investments made during that period-often are idiosyncratic, and reflect the characteristics of the particular portfolio companies that we invested in or exited during the period and not necessarily any trends in our business. In addition to interest income, our net investment income is also driven by prepayment and other fees, which also can vary significantly from quarter to quarter. The level of prepayment fees is generally correlated to the movement in credit spreads and risk premiums, but also will vary based on corporate events that may take place at an individual portfolio company in a given period-e.g., merger and acquisition activity, initial public offerings and restructurings. As noted above, generally a small but varied number of portfolio companies may make prepayments in any quarter, meaning that changes in the amount of prepayment fees received can vary significantly between periods and can vary without regard to underlying credit trends. Loan origination fees, original issue discount and market discount or premium are capitalized, and we accrete or amortize such amounts as interest income using the effective interest method for term instruments and the straight-line method for revolving or delayed draw instruments. Repayments of our debt investments can reduce interest income from period to period. We record prepayment premiums on loans as interest income when earned. We also may generate revenue in the form of commitment, amendment, structuring, syndication or due diligence fees, fees for providing managerial assistance and consulting fees. The frequency or volume of these items of revenue may fluctuate significantly.
Dividend income on common equity investments is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.
Our portfolio activity also reflects the proceeds of sales of investments. We recognize realized gains or losses on investments based on the difference between the net proceeds from the disposition and the amortized cost basis of the investment without regard to unrealized gains or losses previously recognized. We record current period changes in fair value of investments that are measured at fair value as a component of the net change in unrealized gains (losses) on investments in the consolidated statements of operations.
Expenses
Our primary operating expenses include the payment of fees to our Adviser under the Investment Advisory Agreement, expenses reimbursable under the Administration Agreement and other operating costs described below. Additionally, we pay interest expense on our outstanding debt. We bear all other costs and expenses of our operations, administration and transactions, including those relating to:
• calculating individual asset values and our net asset value (including the
cost and expenses of any independent valuation firms);
• expenses, including travel expenses, incurred by the Adviser, or members of
our Investment Team, or payable to third parties, in respect of due diligence
on prospective portfolio companies and, if necessary, in respect of enforcing
our rights with respect to investments in existing portfolio companies;
• the costs of any public offerings of our common stock and other securities,
including registration and listing fees;
• the Management Fee and any Incentive Fee;
• certain costs and expenses relating to distributions paid on our shares;
• administration fees payable under our Administration Agreement;
• costs of preparing financial statements and maintaining books and records and
filing reports or other documents with the
and other reporting and compliance costs, and the compensation of
professionals responsible for the preparation of the foregoing, including the
allocable portion of the compensation of our Chief Compliance Officer, Chief
Financial Officer and other professionals who provide operational and
administrative services to us pursuant to the Administration Agreement (based
on the percentage of time those individuals devote, on an estimated basis, to
our business and affairs);
• debt service and other costs of borrowings or other financing arrangements;
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--------------------------------------------------------------------------------• the Adviser's allocable share of costs incurred in providing significant
managerial assistance to those portfolio companies that request it;
• amounts payable to third parties relating to, or associated with, making or
holding investments;
• transfer agent and custodial fees;
• costs of hedging;
• commissions and other compensation payable to brokers or dealers;
• taxes;
• Independent Director fees and expenses;
• the costs of any reports, proxy statements or other notices to our
stockholders (including printing and mailing costs), the costs of anystockholders' meetings and the compensation of investor relations personnel
responsible for the preparation of the foregoing and related matters;
• our fidelity bond;
• directors and officers/errors and omissions liability insurance, and any other
insurance premiums;
• indemnification payments;
• direct costs and expenses of administration, including audit, accounting,
consulting and legal costs; and
• all other expenses reasonably incurred by us in connection with making
investments and administering our business.
We expect that during periods of asset growth, our general and administrative expenses will be relatively stable or will decline as a percentage of total assets, and will increase as a percentage of total assets during periods of asset declines.
Leverage
While as a BDC the amount of leverage that we are permitted to use is limited in significant respects, we use leverage to increase our ability to make investments. The amount of leverage we use in any period depends on a variety of factors, including cash available for investing, the cost of financing and general economic and market conditions, however, under the 1940 Act, our total borrowings are limited so that our asset coverage ratio cannot fall below 150% immediately after any borrowing, as defined in the 1940 Act. In any period, our interest expense will depend largely on the extent of our borrowing and we expect interest expense will increase as we increase leverage over time within the limits of the 1940 Act. In addition, we may dedicate assets as collateral to financing facilities from time to time. OnOctober 8, 2018 , our stockholders approved the application of the minimum asset coverage ratio of 150% to us, as set forth in Section 61(a)(2) of the 1940 Act, as amended by the Small Business Credit Availability Act ("SBCAA"). As a result and subject to certain additional disclosure requirements, as ofOctober 9, 2018 , our minimum asset coverage ratio was reduced from 200% to 150%. In other words, pursuant to Section 61(a) of the 1940 Act, as amended by the SBCAA, we are permitted to increase our maximum debt-to-equity ratio from an effective level of one-to-one to two-to-one.
Market Trends
We believe trends in the middle-market lending environment, including the
limited availability of capital, strong demand for debt capital and specialized
lending requirements, are likely to continue to create favorable opportunities
for us to invest at attractive risk-adjusted rates.
The limited number of dedicated providers of capital to middle-market companies,
combined with increases in required capital levels for regulated financial
institutions, reduces the capacity of traditional lenders to serve middle-market
companies. We believe that the limited availability of capital creates a
significant opportunity for us to directly originate investments. We also
believe that the large amount of uninvested capital held by private equity firms
will continue to drive deal activity, which may in turn create additional demand
for debt capital.
The limited number of dedicated providers is further exacerbated by the
specialized due diligence and underwriting capabilities, as well as extensive
ongoing monitoring, required for middle-market lending. We believe middle-market
lending is generally more labor-intensive than lending to larger companies due
to smaller investment sizes and the lack of publicly available information on
these companies.
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-------------------------------------------------------------------------------- An imbalance between the supply of, and demand for, middle-market debt capital creates attractive pricing dynamics for investors such as BDCs. The negotiated nature of middle-market financings also generally provides for more favorable terms to the lenders, including stronger covenant and reporting packages, better call protection and lender-protective change of control provisions. We believe that BDCs have flexibility to develop loans that reflect each borrower's distinct situation, provide long-term relationships and a potential source for future capital, which renders BDCs, including us, attractive lenders. In late 2019 and early 2020, the novel coronavirus SARS-CoV-2 and related respiratory disease COVID-19 spread rapidly across the world, including tothe United States . This outbreak has led to, and for an unknown and potentially significant period of time will continue to lead to, disruptions in local, regional, national and global markets and economies affected thereby. To date, cross border commercial activity and market sentiment have been negatively impacted by the outbreak and government and other measures seeking to contain its spread. The federal government and theFederal Reserve , as well as foreign governments and central banks, have implemented significant fiscal and monetary policies in response to these disruptions, and additional government and regulatory responses may be possible. It is currently impossible to determine the scope of this or any future outbreak, how long any such outbreak and market disruption, volatility or uncertainty may last, the effect any governmental actions and changes in base interest rates will have or the full potential impact on us, our industry and our portfolio companies.
Portfolio and Investment Activity
As ofSeptember 30, 2021 , our portfolio based on fair value consisted of 92.5% first-lien debt investments, 0.7% mezzanine debt investments, and 6.8% equity and other investments. As ofDecember 31, 2020 , our portfolio based on fair value consisted of 95.6% first-lien debt investments, 0.2% second-lien debt investments, 0.5% mezzanine debt investments, and 3.7% equity and other investments. As ofSeptember 30, 2021 andDecember 31, 2020 , our weighted average total yield of debt and income-producing securities at fair value (which includes interest income and amortization of fees and discounts) was 9.9% and 10.0%, respectively, and our weighted average total yield of debt and income-producing securities at amortized cost (which includes interest income and amortization of fees and discounts) was 10.2% and 10.2%, respectively.
As of
For the three months ended
For the three months endedSeptember 30, 2020 , the principal amount of new investments funded was$332.3 million in twelve new portfolio companies and four existing portfolio companies. For this period, we had$253.1 million aggregate principal amount in exits and repayments. 55 -------------------------------------------------------------------------------- Our investment activity for the three months endedSeptember 30, 2021 and 2020 is presented below (information presented herein is at par value unless otherwise indicated). Three Months Ended ($ in millions) September 30, 2021 September 30, 2020 New investment commitments: Gross originations $ 572.4 $ 1,385.3 Less: Syndications/sell downs 467.0 949.8 Total new investment commitments $ 105.4 $ 435.5 Principal amount of investments funded: First-lien $ 65.1 $ 324.2 Second-lien - - Mezzanine - - Equity and other 0.3 8.1 Total $ 65.4 $ 332.3 Principal amount of investments sold or repaid: First-lien $ 277.6 $ 247.6 Second-lien 5.8 - Mezzanine - - Equity and other 0.3 5.5 Total $ 283.7 $ 253.1
Number of new investment commitments in
new portfolio companies 1 12
Average new investment commitment amount in
new portfolio companies $ 75.0 $ 34.8
Weighted average term for new investment
commitments in new portfolio companies
(in years) 6.0 3.8
Percentage of new debt investment commitments
at floating rates 100.0 % 100.0 %
Percentage of new debt investment commitments
at fixed rates - -
Weighted average interest rate of new
investment commitments 10.7 % 10.3 %
Weighted average spread over LIBOR of new
floating rate investment commitments 10.6 % 10.1 %
Weighted average interest rate on investments
fully sold or paid down 9.0 % 9.6 % As ofSeptember 30, 2021 andDecember 31, 2020 , our investments consisted of the following: September 30, 2021 December 31, 2020 ($ in millions) Fair Value Amortized Cost Fair Value Amortized Cost First-lien debt investments$ 2,226.1 $ 2,180.1 $ 2,196.9 $ 2,165.1 Second-lien debt investments - - 5.0 5.0 Mezzanine debt investments 16.4 7.2 11.0 8.2 Equity and other investments 164.0 111.1 86.0 80.7 Total$ 2,406.5 $ 2,298.4 $ 2,298.9 $ 2,259.0 56
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The following tables show the fair value and amortized cost of our performing
and non-accrual investments as of
September 30, 2021 December 31, 2020
($ in millions) Fair Value Percentage Fair Value Percentage
Performing $ 2,406.4 100.0 % $ 2,277.3 99.1 %
Non-accrual (1) 0.1 0.0 21.6 0.9
Total $ 2,406.5 100.0 % $ 2,298.9 100.0 %
September 30, 2021 December 31, 2020($ in millions) Amortized Cost Percentage Amortized Cost Percentage Performing$ 2,296.4 99.9 %$ 2,233.7 98.9 % Non-accrual (1) 2.0 0.1 25.3 1.1 Total$ 2,298.4 100.0 %$ 2,259.0 100.0 %
(1) Loans are generally placed on non-accrual status when principal or interest
payments are past due 30 days or more or when management has reasonable doubt
that the borrower will pay principal or interest in full. Accrued and unpaid
interest is generally reversed when a loan is placed on non-accrual status.
Non-accrual loans are restored to accrual status when past due principal and
interest has been paid and, in management's judgment, the borrower is likely
to make principal and interest payments in the future. Management may
determine to not place a loan on non-accrual status if, notwithstanding any
failure to pay, the loan has sufficient collateral value and is in the
process of collection.
The weighted average yields and interest rates of our performing debt
investments at fair value as of
September 30, 2021 December 31, 2020
Weighted average total yield of debt and income
producing securities (1) 9.9 % 10.0 %
Weighted average interest rate of debt and income
producing securities 9.4 % 9.5 %
Weighted average spread over LIBOR of all floating
rate investments (2) 9.3 % 9.3 %
(1) Weighted average total portfolio yield at fair value was 9.3% at
(2) Includes fixed rate investments for which we entered into interest rate swap
agreements to swap to floating rates.
The Adviser monitors our portfolio companies on an ongoing basis. The Adviser monitors the financial trends of each portfolio company to determine if it is meeting its business plans and to assess the appropriate course of action for each company. The Adviser has a number of methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:
• assessment of success of the portfolio company in adhering to its business
plan and compliance with covenants;
• periodic and regular contact with portfolio company management and, if
appropriate, the financial or strategic sponsor, to discuss financial
position, requirements and accomplishments;
• comparisons to other companies in the industry;
• attendance at, and participation in, board meetings; and
• review of monthly and quarterly financial statements and financial projections
for portfolio companies.
As part of the monitoring process, the Adviser regularly assesses the risk profile of each of our investments and, on a quarterly basis, grades each investment on a risk scale of 1 to 5. Risk assessment is not standardized in our industry and our risk assessment may not be comparable to ones used by our competitors. Our assessment is based on the following categories:
• An investment is rated 1 if, in the opinion of the Adviser, it is performing
as agreed and there are no concerns about the portfolio company's performance
or ability to meet covenant requirements. For these investments, the Adviser
generally prepares monthly reports on investment performance and intensive
quarterly asset reviews.
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• An investment is rated 2 if it is performing as agreed, but, in the opinion of
the Adviser, there may be concerns about the company's operating performance
or trends in the industry. For these investments, in addition to monthly
reports and quarterly asset reviews, the Adviser also researches any areas of
concern with the objective of early intervention with the portfolio company.
• An investment will be assigned a rating of 3 if it is paying its obligations
to us as agreed but a material covenant violation is expected. For these
investments, in addition to monthly reports and quarterly asset reviews, the
Adviser also adds the investment to its "watch list" and researches any areas
of concern with the objective of early intervention with the portfolio
company.
• An investment will be assigned a rating of 4 if a material covenant has been
violated, but the company is making its scheduled payments on its obligations
to us. For these investments, the Adviser generally prepares a bi-monthly
asset review email and generally has monthly meetings with the portfolio
company's senior management. For investments where there have been material
defaults, including bankruptcy filings, failures to achieve financial
performance requirements or failure to maintain liquidity or loan-to-value
requirements, the Adviser often will take immediate action to protect its
position. These remedies may include negotiating for additional collateral,
modifying investment terms or structure, or payment of amendment and waiver
fees.
• A rating of 5 indicates an investment is in default on its interest and/or
principal payments. For these investments, our Adviser reviews the investments
on a bi-monthly basis and, where possible, pursues workouts that achieve an
early resolution to avoid further deterioration of our investment. The Adviser
retains legal counsel and takes actions to preserve our rights, which may
include working with the portfolio company to have the default cured, to have
the investment restructured or to have the investment repaid through a
consensual workout.
The following table shows the distribution of our investments on the 1 to 5 investment performance rating scale at fair value as ofSeptember 30, 2021 andDecember 31, 2020 . Investment performance ratings are accurate only as of those dates and may change due to subsequent developments relating to a portfolio company's business or financial condition, market conditions or developments, and other factors. September 30, 2021 December 31, 2020 Investment Investments at Investments
at
Performance Fair Value Percentage of Fair Value
Percentage of
Rating ($ in millions) Total Portfolio ($ in millions) Total Portfolio
1 $ 2,192.2 91.1 % $ 1,996.5 86.8 %
2 129.7 5.4 244.1 10.7
3 84.5 3.5 36.7 1.6
4 - - - -
5 0.1 (1) 0.0 21.6 (1) 0.9
Total $ 2,406.5 100.0 % $ 2,298.9 100.0 %
(1) Includes investments with an amortized cost of
fair value as of September 30, 2021 and December 31, 2020 was $0 .
Results of Operations
Operating results for the three and nine months ended September 30, 2021 and
2020 were as follows:
Three Months Ended Nine Months Ended
($ in millions) September 30, 2021
$ 71.2 $ 71.3 $ 200.3 $ 207.8
Less: Net expenses 34.6 28.2 103.4 89.6
Net investment income before income
taxes 36.6 43.1 96.9 118.2
Less: Income taxes, including excise
taxes 0.1 2.0 0.7 4.0
Net investment income 36.5 41.1 96.2 114.2
Net realized gains (losses) (1) (10.5 ) 11.0 6.1 8.1
Net change in unrealized gains (1) 29.0 29.8 67.7 2.3
Net increase in net assets resulting
from operations $ 55.0 $ 81.9 $ 170.0 $ 124.6
(1) Includes foreign exchange hedging activity.
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Investment Income
Three Months Ended Nine Months Ended
($ in millions) September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020
Interest from investments $ 68.6 $ 62.8 $ 192.5 $ 189.1
Dividend income 0.8 0.4 2.6 1.3
Other income 1.8 8.1 5.2 17.4
Total investment income $ 71.2 $ 71.3 $ 200.3 $ 207.8
Interest from investments, which includes amortization of upfront fees and
prepayment fees, increased from $62.8 million for the three months ended
September 30, 2020 to $68.6 million for the three months ended September 30,
2021 . The increase in interest from investments was primarily the result of an
increase in prepayment fees related to paydowns, and an increase in interest
earned due to a larger average portfolio size for the period ended September 30,
2021 compared to the same period in 2020. Accelerated amortization of upfront
fees, which were primarily from unscheduled paydowns, increased from $3.5
million for the three months ended September 30, 2020 to $3.6 million for the
three months ended September 30, 2021 . Prepayment fees increased from $5.8
million for the three months ended September 30, 2020 to $6.3 million for the
three months ended September 30, 2021 . Accelerated amortization of upfront fees
and prepayment fees primarily resulted from full paydowns on five portfolio
investments, partial paydowns on three portfolio investments and earning
prepayment fees on seven portfolio investments during the three months ended
September 30, 2020 . Accelerated amortization of upfront fees and prepayment fees
primarily resulted from full paydowns on six portfolio investments, a partial
paydown on one portfolio investment, and earning prepayment fees on five
portfolio investments during the three months ended September 30, 2021 . Other
income decreased from $8.1 million for the three months ended September 30, 2020
to $1.8 million for the three months ended September 30, 2021 , primarily due to
decreased amendment and other fees during the three months ended September 30,
2021 compared to the same period in 2020.
Interest from investments, which includes amortization of upfront fees and
prepayment fees, increased from $189.1 million for the nine months ended
September 30, 2020 to $192.5 million for the nine months ended September 30,
2021 . The increase in interest from investments was primarily a result of an
increase in interest earned due to a larger average portfolio size for the
period ended September 30, 2021 compared to the same period in 2020 offset by a
decrease in accelerated amortization of upfront fees and prepayment fees related
to paydowns. Accelerated amortization of upfront fees from unscheduled paydowns
decreased from $11.9 million for the nine months ended September 30, 2020 to
$9.2 million for the nine months ended September 30, 2021 . Prepayment fees
decreased from $19.6 million for the nine months ended September 30, 2020 to
$11.1 million for the nine months ended September 30, 2021 . Accelerated
amortization of upfront fees and prepayment fees primarily resulted from full
paydowns on eleven portfolio investments, partial paydowns on seven portfolio
investments, partial realizations of two portfolio investments and earning
prepayment fees on thirteen portfolio investments during the nine months ended
September 30, 2020 and full paydowns on eleven portfolio investments, partial
paydowns on three portfolio investments, realizations on two portfolio
investments and earning prepayment fees on ten portfolio investments during the
nine months ended September 30, 2021 . Other income decreased from $17.4 million
for the nine months ended September 30, 2020 to $5.2 million for the nine months
ended September 30, 2021 , primarily due to decreased amendment and other fees
earned during the nine months ended September 30, 2021 compared to the same
period in 2020.
Expenses
Operating expenses for the three and nine months endedSeptember 30, 2021 and 2020 were as follows: Three Months Ended Nine Months Ended ($ in millions)September 30, 2021
$ 9.9 $ 8.4 $ 29.0 $ 31.2
Management fees (net of waivers) 9.5 7.8 27.5 23.7
Incentive fees related to pre-incentive
fee net investment
income (net of waivers) 8.5 8.7 23.3 24.2
Incentive fees related to
realized/unrealized capital gains 3.4 - 13.5 -
Professional fees 1.6 1.6 4.8 5.2
Directors fees 0.2 0.2 0.6 0.6
Other general and administrative 1.5 1.5 4.7 4.7
Net Expenses $ 34.6 $ 28.2 $ 103.4 $ 89.6
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Interest Interest expense, including other debt financing expenses, increased from$8.4 million for the three months endedSeptember 30, 2020 to$9.9 million for the three months endedSeptember 30, 2021 . This increase was primarily due to an increase in the average debt outstanding from$1,006.9 million for the three months endedSeptember 30, 2020 to$1,240.8 million for the three months endedSeptember 30, 2021 , which was partially offset by a decrease in the average interest rate on our debt outstanding from the three months endedSeptember 30, 2020 to the three months endedSeptember 30, 2021 . The average interest rate on our debt outstanding decreased from 2.4% for three months endedSeptember 30, 2020 to 2.3% for the three months endedSeptember 30, 2021 primarily due to changes in LIBOR rates. Interest expense, including other debt financing expenses, decreased from$31.2 million for the nine months endedSeptember 30, 2020 to$29.0 million for the nine months endedSeptember 30, 2021 . This decrease was primarily due to a decrease in the average interest rate on our debt outstanding from 3.2% for the nine months endedSeptember 30, 2020 to 2.3% for the nine months endedSeptember 30, 2021 . Management Fees Management Fees (gross of waivers) increased from$7.8 million for the three months endedSeptember 30, 2020 to$9.5 million for the three months endedSeptember 30, 2021 due to an increase in average assets for the three months endedSeptember 30, 2021 compared to the same period in 2020. Management Fees (net of waivers) increased from$7.8 million for the three months endedSeptember 30, 2020 to$9.5 million for the three months endedSeptember 30, 2021 . The Adviser waived Management Fees of less than$0.1 million for the three months endedSeptember 30, 2021 pursuant to the Leverage Waiver. The Advisers did not waive any management fees for the three months endedSeptember 30, 2020 . Management Fees (gross of waivers) increased from$23.7 million for the nine months endedSeptember 30, 2020 to$27.7 million for the nine months endedSeptember 30, 2021 due to an increase in average assets for the nine months endedSeptember 30, 2021 compared to the same period in 2020. Management Fees (net of waivers) increased from$23.7 million for the nine months endedSeptember 30, 2020 to$27.5 million for the nine months endedSeptember 30, 2021 . The Adviser waived Management Fees of$0.2 million for the nine months endedSeptember 30, 2021 pursuant to the Leverage Waiver. The Adviser did not waive any Management Fees for the nine months endedSeptember 30, 2020 .
Incentive Fees
Incentive Fees related to pre-Incentive Fee net investment income decreased from$8.7 million for the three months endedSeptember 30, 2020 to$8.5 million for the three months endedSeptember 30, 2021 . This decrease resulted from a decrease in other income resulting from lower amendment and other fees for the three months endedSeptember 30, 2021 . The Adviser did not waive any Incentive Fees related to pre-Incentive Fee net investment income for the three months endedSeptember 30, 2021 or 2020. There were no Incentive Fees accrued related to net capital gains for the three months endedSeptember 30, 2020 and$3.4 million of Incentive Fees were accrued for the three months endedSeptember 30, 2021 related to cumulative unrealized capital gains in excess of cumulative net realized capital gains less cumulative unrealized losses and capital gains incentive fees paid inception to date. Incentive Fees related to pre-Incentive Fee net investment income decreased from$24.2 million for the nine months endedSeptember 30, 2020 to$23.3 million for the nine months endedSeptember 30, 2021 . This decrease resulted from a decrease in other income resulting from lower amendment and other fees for the nine months endedSeptember 30, 2021 . The Adviser did not waive any Incentive Fees related to pre-Incentive Fee net investment income for the nine months endedSeptember 30, 2021 or 2020. There were no Incentive Fees accrued related to net capital gains for the nine months endedSeptember 30, 2020 and$13.5 million of Incentive Fees were accrued for the nine months endedSeptember 30, 2021 related to cumulative unrealized capital gains in excess of cumulative net realized capital gains less cumulative unrealized losses and capital gains incentive fees paid inception to date.
Professional Fees and Other General and Administrative Expenses
Professional fees remained constant at$1.6 million for the three months endedSeptember 30, 2021 and 2020. Other general and administrative expenses remained constant at$1.5 million for the three months endedSeptember 30, 2021 and 2020. Professional fees decreased from$5.2 million for the nine months endedSeptember 30, 2020 to$4.8 million for the nine months endedSeptember 30, 2021 primarily due to lower legal fees. Other general and administrative expenses remained constant at$4.7 million for the nine months endedSeptember 30, 2021 and 2020. 60
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Income Taxes, Including Excise Taxes
We have elected to be treated as a RIC under Subchapter M of the Code, and we intend to operate in a manner so as to continue to qualify for the tax treatment applicable to RICs. To qualify as a RIC, we must, among other things, distribute to our stockholders in each taxable year generally at least 90% of our investment company taxable income, as defined by the Code, and net tax-exempt income for that taxable year. To maintain our RIC status, we, among other things, have made and intend to continue to make the requisite distributions to our stockholders, which generally relieve us from corporate-levelU.S. federal income taxes. Depending on the level of taxable income earned in a tax year, we can be expected to carry forward taxable income (including net capital gains, if any) in excess of current year dividend distributions from the current tax year into the next tax year and pay a nondeductible 4%U.S. federal excise tax on such taxable income, as required. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such income, we accrue excise tax on estimated excess taxable income. For the three and nine months endedSeptember 30, 2021 , we recorded a net expense of$0.1 million and$0.7 million , respectively, forU.S. federal excise tax and other taxes. For the three and nine months endedSeptember 30, 2020 , we recorded a net expense of$2.0 million and$4.0 million , respectively, forU.S. federal excise tax and other taxes.
Net Realized and Unrealized Gains and Losses
The following table summarizes our net realized and unrealized gains (losses)
for the three and nine months ended
Three Months Ended Nine Months Ended
($ in millions) September 30, 2021
$ (10.5 ) $ 11.1 $ 6.1 $ 7.5
Net realized gains on extinguishment of
debt - - - 0.7
Net realized gains (losses) on foreign
currency transactions (0.0 ) 0.0 (0.0 ) (0.0 )
Net realized losses on foreign currency
investments (0.0 ) (1.3 ) (0.0 ) (1.1 )
Net realized gains (losses) on foreign
currency borrowings (0.0 ) 1.2 (0.0 ) 1.0
Net Realized Gains (Losses) $ (10.5 ) $ 11.0 $ 6.1 $ 8.1
Change in unrealized gains on
investments $ 45.6 $ 44.5 $ 97.4 $ 41.1
Change in unrealized losses on
investments (18.8 ) (8.7 ) (29.2 ) (47.8 )
Net Change in Unrealized Gains (Losses)
on
Investments $ 26.8 $ 35.8 $ 68.2 $ (6.7 )
Unrealized gains (losses) on foreign
currency borrowings 3.7 (4.5 ) 4.3 0.8
Unrealized gains (losses) on foreign
currency cash - (0.0 ) - 0.0
Unrealized gains (losses) on interest
rate swaps (1.5 ) (1.5 ) (4.8 ) 8.2
Net Change in Unrealized Gains (Losses)
on Foreign
Currency Transactions and Interest
Rate Swaps $ 2.2 $ (6.0 ) $ (0.5 ) $ 9.0
Net Change in Unrealized Gains (Losses) $ 29.0 $ 29.8 $ 67.7 $ 2.3
For the three and nine months ended September 30, 2021 , we had net realized
losses on investments of $10.5 million and net realized gains on investments of
$6.1 million respectively, primarily driven by one investment and four
investments, respectively. For the three and nine months ended September 30,
2021 , we had net realized losses of less than $0.1 million on foreign currency
transactions, primarily as a result of translating foreign currency related to
our non-USD denominated investments. For the three and nine months ended
September 30, 2021 , we had net realized losses of less than $0.1 million , on
foreign currency investments. For the three and nine months ended September 30,
2021 , we had net realized losses of less than $0.1 million , on foreign currency
borrowings. The net realized losses on foreign currency borrowings were a result
of payments on our revolving credit facility.
For the three months ended September 30, 2021 , we had $45.6 million in
unrealized gains on 32 portfolio company investments, which was offset by $18.8
million in unrealized losses on 38 portfolio company investments. Unrealized
gains resulted from an increase in fair value, primarily due to tightening of
credit spreads and positive portfolio company specific developments. Unrealized
losses primarily resulted from the unwind of prior period unrealized gains due
to realizations and negative portfolio company specific developments. For the
nine months ended September 30, 2021 , we had $97.4 million in unrealized gains
on 48 portfolio company
61
-------------------------------------------------------------------------------- investments, which was offset by$29.2 million in unrealized losses on 29 portfolio company investments. Unrealized gains resulted from an increase in fair value, primarily due to tightening of credit spreads and positive portfolio company specific developments. Unrealized losses primarily resulted from the unwind of prior period unrealized gains due to realizations and negative portfolio company specific developments. For the three and nine months endedSeptember 30, 2021 , we had unrealized gains on foreign currency borrowings of$3.7 million and$4.3 million , respectively, as a result of fluctuations in the AUD, CAD and EUR exchange rates. For the three and nine months endedSeptember 30, 2021 , we had unrealized losses on interest rate swaps of$1.5 million and$4.8 million , respectively, due to fluctuations in interest rates and the periodic settlement of interest rate swaps. For the three and nine months endedSeptember 30, 2020 , we had net realized gains on investments of$11.1 million and$7.5 million , respectively, primarily driven by one investment. For the three and nine months endedSeptember 30, 2020 , we had net realized gains of zero and$0.7 million , respectively, on extinguishment of debt, as a result of our repurchases of our debt securities. For the three and nine months endedSeptember 30, 2020 , we had net realized gains of less than$0.1 million on foreign currency transactions and unrealized losses of less than$0.1 million on foreign currency transactions, respectively, primarily as a result of translating foreign currency related to our non-USD denominated investments. For the three and nine months endedSeptember 30, 2020 , we had net realized losses of$1.3 million and$1.1 million , respectively, on foreign currency investments. For the three and nine months endedSeptember 30, 2020 , we had net realized gains of$1.2 million and$1.0 million , respectively, on foreign currency borrowings. The net realized losses on foreign currency borrowings were a result of payments on our revolving credit facility. For the three months endedSeptember 30, 2020 , we had$44.5 million in unrealized gains on 58 portfolio company investments, which was offset by$8.7 million in unrealized losses on 13 portfolio company investments. Unrealized gains resulted from an increase in fair value, primarily due to tightening of credit spreads and positive portfolio company specific adjustments. Unrealized losses primarily resulted from the unwind of prior period unrealized gains due to realizations and negative credit-related adjustments. For the nine months endedSeptember 30, 2020 , we had$41.1 million in unrealized gains on 48 portfolio company investments, which was offset by$47.8 million in unrealized losses on 34 portfolio company investments. Unrealized gains resulted from an increase in fair value, primarily due to positive investment-related adjustments. Unrealized losses primarily resulted from a widening spread environment. For the three and nine months endedSeptember 30, 2020 , we had unrealized losses on foreign currency borrowings of$4.5 million and unrealized gains on foreign currency borrowings of$0.8 million , respectively, as a result of fluctuations in the AUD, CAD and EUR exchange rates. For the three and nine months endedSeptember 30, 2020 , we had unrealized losses on foreign currency cash of less than$0.1 and unrealized gains of less than$0.0 million , respectively. For the three and nine months endedSeptember 30, 2020 , we had unrealized losses on interest rate swaps of$1.5 million and unrealized gains on interest rate swaps of$8.2 million , respectively, due to fluctuations in interest rates and the periodic settlement of interest rate swaps.
Realized Gross Internal Rate of Return
Since we began investing in 2011 throughSeptember 30, 2021 , weighted by capital invested, our exited investments have generated an average realized gross internal rate of return to us of 19.1% (based on total capital invested of$5.4 billion and total proceeds from these exited investments of$6.8 billion ). Ninety-two percent of these exited investments resulted in a realized gross internal rate of return to us of 10% or greater. Gross IRR, with respect to an investment, is calculated based on the dates that we invested capital and dates we received distributions, regardless of when we made distributions to our stockholders. Initial investments are assumed to occur at time zero, and all cash flows are deemed to occur on the fifteenth of each month in which they occur. Gross IRR reflects historical results relating to our past performance and is not necessarily indicative of our future results. In addition, gross IRR does not reflect the effect of Management Fees, expenses, Incentive Fees or taxes borne, or to be borne, by us or our stockholders, and would be lower if it did.
Average gross IRR is the average of the gross IRR for each of our exited investments (each calculated as described above), weighted by the total capital invested for each of those investments.
Average gross IRR on our exited investments reflects only invested and realized
cash amounts as described above, and does not reflect any unrealized gains or
losses in our portfolio.
62
-------------------------------------------------------------------------------- Internal rate of return, or IRR, is a measure of our discounted cash flows (inflows and outflows). Specifically, IRR is the discount rate at which the net present value of all cash flows is equal to zero. That is, IRR is the discount rate at which the present value of total capital invested in each of our investments is equal to the present value of all realized returns from that investment. Our IRR calculations are unaudited. Capital invested, with respect to an investment, represents the aggregate cost basis allocable to the realized or unrealized portion of the investment, net of any upfront fees paid at closing for the term loan portion of the investment. Capital invested also includes realized losses on hedging activity, with respect to an investment, which represents any inception-to-date realized losses on foreign currency forward contracts allocable to the investment, if any. Realized returns, with respect to an investment, represents the total cash received with respect to each investment, including all amortization payments, interest, dividends, prepayment fees, upfront fees (except upfront fees paid at closing for the term loan portion of an investment), administrative fees, agent fees, amendment fees, accrued interest, and other fees and proceeds. Realized returns also include realized gains on hedging activity, with respect to an investment, which represents any inception-to-date realized gains on foreign currency forward contracts allocable to the investment, if any.
Interest Rate and Foreign Currency Hedging
We use interest rate swaps to hedge our fixed rate debt and certain fixed rate investments. We have designated certain interest rate swaps to be in a hedge accounting relationship. See Note 2 for additional disclosure regarding our accounting for derivative instruments designated in a hedge accounting relationship. See Note 5 for additional disclosure regarding these derivative instruments and the interest payments paid and received. See Note 7 for additional disclosure regarding the carrying value of our debt. Our current approach to hedging the foreign currency exposure in our non-U.S. dollar denominated investments is primarily to borrow the par amount in local currency under our Revolving Credit Facility to fund these investments. For the three and nine months endedSeptember 30, 2021 , we incurred$3.7 million and$4.3 million of unrealized gains, respectively, on the translation of our non-U.S. dollar denominated debt intoU.S. dollars; such amounts approximate the corresponding unrealized gains and losses on the translation of our non-U.S. dollar denominated investments intoU.S. dollars for the three and nine months endedSeptember 30, 2021 . For the three and nine months endedSeptember 30, 2020 , we incurred$4.5 million of unrealized losses and$0.8 million of unrealized gains, respectively, on the translation of our non-U.S. dollar denominated debt intoU.S. dollars; such amounts approximate the corresponding unrealized gains and losses on the translation of our non-U.S. dollar denominated investments intoU.S. dollars for the three and nine months endedSeptember 30, 2020 . See Note 2 for additional disclosure regarding our accounting for foreign currency. See Note 7 for additional disclosure regarding the amounts of outstanding debt denominated in each foreign currency atSeptember 30, 2021 . See our consolidated schedule of investments for additional disclosure regarding the foreign currency amounts (in both par and fair value) of our non-U.S. dollar denominated investments.
Financial Condition, Liquidity and Capital Resources
Our liquidity and capital resources are derived primarily from proceeds from equity issuances, advances from our credit facilities, and cash flows from operations. The primary uses of our cash and cash equivalents are:
• investments in portfolio companies and other investments and to comply with
certain portfolio diversification requirements;
• the cost of operations (including paying our Adviser);
• debt service, repayment, and other financing costs; and
• cash dividends to the holders of our shares.
We intend to continue to generate cash primarily from cash flows from
operations, future borrowings and future offerings of securities. We may from
time to time enter into additional debt facilities, increase the size of
existing facilities or issue debt securities. Any such incurrence or issuance
would be subject to prevailing market conditions, our liquidity requirements,
contractual and regulatory restrictions and other factors. In accordance with
the 1940 Act, with certain limited exceptions, we are only allowed to incur
borrowings, issue debt securities or issue preferred stock if immediately after
the borrowing or issuance the ratio of total assets (less total liabilities
other than indebtedness) to total indebtedness plus preferred stock, is at least
150%. For more information, see "Key Components of Our Results of Operations -
Leverage" above. As of September 30, 2021 and December 31, 2020 , our asset
coverage ratio was 211.6% and 204.5%, respectively. We carefully consider our
unfunded commitments for the purpose of planning our capital resources and
ongoing liquidity, including our financial leverage. Further, we maintain
sufficient borrowing capacity
63
--------------------------------------------------------------------------------within the 150% asset coverage limitation under the 1940 Act and the asset coverage limitation under our credit facilities to cover any outstanding unfunded commitments we are required to fund.
Cash and cash equivalents as ofSeptember 30, 2021 , taken together with cash available under our credit facilities, is expected to be sufficient for our investing activities and to conduct our operations in the near term. As ofSeptember 30, 2021 , we had approximately$1.3 billion of availability on our Revolving Credit Facility, subject to asset coverage limitations. As ofSeptember 30, 2021 , we had$18.3 million in cash and cash equivalents, including$12.8 million of restricted cash, an increase of$5.0 million fromDecember 31, 2020 . During the nine months endedSeptember 30, 2021 , we provided$75.9 million in cash from operating activities as a result of repayments and proceeds from investments of$522.0 million and an increase in net assets resulting from operations of$170.0 million which was partially offset by funding portfolio investments of$531.8 million , and other operating activity of$84.3 million . Lastly, cash used in financing activities was$70.9 million during the period due to paydowns on our Revolving Credit Facility of$928.9 million , dividends paid of$162.9 million , and deferred financing costs of$8.0 million , which was partially offset by borrowings of$943.0 million (including net proceeds of$293.7 million from the issuance of our 2026 Notes), and proceeds from the issuance of common stock, net of offering and underwriting costs, of$85.9 million . As ofSeptember 30, 2021 , we had$12.8 million of restricted cash pledged as collateral under our interest rate swap agreements, an increase of$2.0 million fromDecember 31, 2020 primarily due to increases in the notional amount and fair value of our swaps. Equity OnFebruary 23, 2021 , we issued a total of 4,000,000 shares of commons stock at$21.30 per share. Net of underwriting fees and offering costs, we received total cash proceeds of$84.9 million . Subsequent to the offering we issued an additional 49,689 shares inMarch 2021 pursuant to the overallotment option granted to underwriters and received, net of underwriting fees, total cash proceeds of$1.0 million . During the nine months endedSeptember 30, 2021 and 2020, we also issued 1,115,079 and 1,310,513 shares of our common stock, respectively, to investors who have not opted out of our dividend reinvestment plan for proceeds of$23.4 million and$21.2 million , respectively. OnOctober 15, 2021 , we issued 254,691 shares of our common stock through our dividend reinvestment plan for proceeds of$5.6 million , which is not reflected in the number of shares issued for the nine months endedSeptember 30, 2021 in this section or the consolidated financial statements for the three and nine months endedSeptember 30, 2021 . OnAugust 4, 2015 , our Board authorized us to acquire up to$50 million in aggregate of our common stock from time to time over an initial six month period, and has continued to authorize the refreshment of the$50 million amount authorized under and extension of the stock repurchase program prior to its expiration since that time, most recently as ofNovember 2, 2021 . The amount and timing of stock repurchases under the program may vary depending on market conditions, and no assurance can be given that any particular amount of common stock will be repurchased. During the nine months endedSeptember 30, 2020 , we repurchased 206,964 shares at a weighted average price per share of$14.17 inclusive of commissions, for a total cost of$2.9 million . No shares were repurchased during the nine months endedSeptember 30, 2021 . Debt Debt obligations consisted of the following as ofSeptember 30, 2021 andDecember 31, 2020 : September 30, 2021 Aggregate Principal Outstanding Amount Carrying ($ in millions) Amount Committed Principal Available (1) Value (2)(3)
Revolving Credit Facility $ 1,510.0$ 184.2 $ 1,325.8 $ 171.7 2022 Convertible Notes 142.8 142.8 - 142.2 2023 Notes 150.0 150.0 - 149.1 2024 Notes 347.5 347.5 - 352.7 2026 Notes 300.0 300.0 - 287.4 Total Debt $ 2,450.3$ 1,124.5 $ 1,325.8 $ 1,103.1 64
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(1) The amount available may be subject to limitations related to the borrowing
base under the Revolving Credit Facility and asset coverage requirements.
(2) The carrying values of the Revolving Credit Facility, 2022 Convertible Notes,
2023 Notes, 2024 Notes and 2026 Notes are presented net of deferred financing
costs and original issue discounts of
million,
(3) The carrying values of the 2024 Notes and 2026 Notes are presented inclusive
of an incremental
represents an adjustment in the carrying values of the 2024 Notes and 2026
Notes, each resulting from a hedge accounting relationship.
December 31, 2020
Aggregate Principal Outstanding Amount Carrying
($ in millions) Amount Committed Principal Available (1) Value (2)(3)Revolving Credit Facility $ 1,335.0$ 472.3 $ 862.7$ 461.5 2022 Convertible Notes 142.8 142.8 - 141.3 2023 Notes 150.0 150.0 - 148.7 2024 Notes 347.5 347.5 - 358.9 Total Debt $ 1,975.3$ 1,112.6 $ 862.7$ 1,110.4
(1) The amount available may be subject to limitations related to the borrowing
base under the Revolving Credit Facility and asset coverage requirements.
(2) The carrying values of the Revolving Credit Facility, 2022 Convertible Notes,
2023 Notes, and 2024 Notes are presented net of deferred financing costs and
original issue discounts of
(3) The carrying value of the 2024 Notes is presented net of an incremental
million, which represents an adjustment in the carrying value of the 2024
Notes resulting from a hedge accounting relationship.
As of
Revolving Credit Facility
OnAugust 23, 2012 , we entered into a senior secured revolving credit agreement withTruist Bank (as successor by merger toSunTrust Bank ), as administrative agent, andJ.P. Morgan Chase Bank, N.A ., as syndication agent, and certain other lenders (as amended and restated, the "Revolving Credit Facility"). As ofDecember 31, 2020 , aggregate commitments under the facility were$1.335 billion . Pursuant to an amendment to the Revolving Credit Facility dated as ofFebruary 5, 2021 (the "Tenth Amendment"), the aggregate commitments under the facility were increased to$1.485 billion . The facility includes an uncommitted accordion feature that allows us, under certain circumstances, to increase the size of the facility to up to$2.0 billion . OnSeptember 30, 2021 , in accordance with the accordion feature the aggregate commitments under the facility were increased to$1.510 billion . Pursuant to the Tenth Amendment, with respect to$1.390 billion in commitments, the revolving period, during which period we, subject to certain conditions, may make borrowings under the facility, was extended fromJanuary 31, 2024 toFebruary 4, 2025 and the stated maturity date was extended fromJanuary 31, 2025 toFebruary 4, 2026 . Subsequent to the Tenth Amendment, onApril 12, 2021 an additional$70.0 million of existing commitments were extended to these revolving period and stated maturity dates. OnSeptember 30, 2021 , the aggregate commitments under the facility increased an additional$25.0 million in accordance with the accordion feature. As a result,$1.485 billion of total commitments are subject to these revolving period and stated maturity dates. For the remaining$25.0 million of commitments, the revolving period endsJanuary 31, 2024 and the stated maturity isJanuary 31, 2025 . We may borrow amounts inU.S. dollars or certain other permitted currencies. As ofSeptember 30, 2021 , we had outstanding debt denominated in Australian Dollars (AUD) of 51.2 million, Canadian Dollars (CAD) of 74.2 million, and Euro (EUR) of 33.1 million on our Revolving Credit Facility, included in the Outstanding Principal amount in the table above. The Revolving Credit Facility also provides for the issuance of letters of credit up to an aggregate amount of$75.0 million . As ofSeptember 30, 2021 andDecember 31, 2020 , we had no outstanding letters of credit issued through the Revolving Credit Facility. The amount available for borrowing under the Revolving Credit Facility is reduced by any letters of credit issued through the Revolving Credit Facility. Amounts drawn under the Revolving Credit Facility, including amounts drawn in respect of letters of credit, bear interest at either LIBOR plus a margin of either 1.75% or 1.875%, or the base rate plus a margin of either 0.75% or 0.875%, in each case, based on the 65 -------------------------------------------------------------------------------- total amount of the borrowing base relative to the sum of the total commitments (or, if greater, the total exposure) under the Revolving Credit Facility plus certain other designated secured debt. We may elect either the LIBOR or base rate at the time of drawdown, and loans may be converted from one rate to another at any time, subject to certain conditions. We also pay a fee of 0.375% on undrawn amounts and, in respect of each undrawn letter of credit, a fee and interest rate equal to the then applicable margin while the letter of credit is outstanding. The Revolving Credit Facility is guaranteed bySixth Street SL SPV, LLC ,TC Lending, LLC andSixth Street SL Holding, LLC . The Revolving Credit Facility is secured by a perfected first-priority security interest in substantially all the portfolio investments held by us and each guarantor. Proceeds from borrowings may be used for general corporate purposes, including the funding of portfolio investments.
The Revolving Credit Facility includes customary events of default, as well as customary covenants, including restrictions on certain distributions and financial covenants. The financial covenants require:
• an asset coverage ratio of no less than 1.5 to 1 on the last day of any fiscal
quarter;
• a liquidity test under which we must not maintain cash and liquid investments
of less than 10% of the covered debt amount for more than 30 consecutive
business days under circumstances where our adjusted covered debt balance is
greater than 90% of our adjusted borrowing base under the facility;
• stockholders' equity of at least
the sale of equity interests after
• minimum asset coverage ratio of no less than 2 to 1 with respect to (i) the
consolidated assets of the Company and the subsidiary guarantors (including
certain limitations on the contribution of equity in financing subsidiaries)
to (ii) the secured debt of the Company and its subsidiary guarantors plus
unsecured senior securities of the Company and its subsidiary guarantors that
mature within 90 days of the date of determination (the "Obligor Asset
Coverage Ratio"); and
• minimum consolidated assets of the Company and the subsidiary guarantors
(including certain limitations on the contribution of equity in financing
subsidiaries), less total secured debt of the Company and the subsidiary
guarantors, of at least
The Revolving Credit Facility also contains certain additional concentration limits in connection with the calculation of the borrowing base, based on the Obligor Asset Coverage Ratio. Net proceeds received from the Company's common stock issuance inFebruary 2021 and net proceeds received from the issuance of the 2026 Notes were used to pay down borrowings on the Revolving Credit Facility.
2022 Convertible Notes
InFebruary 2017 , we issued in a private offering$115 million aggregate principal amount convertible notes dueAugust 2022 (the "2022 Convertible Notes"). The 2022 Convertible Notes were issued in a private placement only to qualified institutional buyers pursuant to Rule 144A under the Securities Act. The 2022 Convertible Notes are unsecured, and bear interest at a rate of 4.50% per year, payable semiannually. The 2022 Convertible Notes will mature onAugust 1, 2022 . In certain circumstances, the 2022 Convertible Notes will be convertible into cash, shares of our common stock or a combination of cash and shares of our common stock, at our election, at an initial conversion rate of 46.8516 shares of common stock per$1,000 principal amount of 2022 Convertible Notes, which is equivalent to an initial conversion price of approximately$21.34 per share of our common stock, subject to customary anti-dilution adjustments. As ofSeptember 30, 2021 , the estimated adjusted conversion price was approximately$18.53 per share of common stock. The sale of the 2022 Convertible Notes generated net proceeds of approximately$111.2 million . We used the net proceeds of the offering to pay down debt under the Revolving Credit Facility. In connection with the offering of 2022 Convertible Notes, we entered into an interest rate swap to align the interest rates of our liabilities with our investment portfolio, which consists of predominately floating rate loans. The notional amount of the interest rate swap is$115.0 million , which matures onAugust 1, 2022 , matching the maturity date of the 2022 Convertible Notes. As a result of the swaps, our effective interest rate on the original issuance of 2022 Convertible Notes is three-month LIBOR plus 2.37%. 66 -------------------------------------------------------------------------------- InJune 2018 , we issued an additional$57.5 million aggregate principal amount of 2022 Convertible Notes. The additional 2022 Convertible Notes were issued with identical terms, and are fungible with and are part of a single series with the previously outstanding$115 million aggregate principal amount of our 2022 Convertible Notes issued inFebruary 2017 . In connection with the reopening of the 2022 Convertible Notes, we entered into interest rate swaps to align the interest rates of its liabilities with its investment portfolio, which consists of predominately floating rate loans. The notional amount of the two interest rates swaps is$50.0 million and$7.5 million , which matures onAugust 1, 2022 , matching the maturity date of the 2022 Convertible Notes. As a result of the additional swaps, our effective interest rate on the additional 2022 Convertible Notes is approximately three-month LIBOR plus 1.60%. During the year endedDecember 31, 2020 , we repurchased on the open market and extinguished$29.7 million in aggregate principal amount of the 2022 Convertible Notes for$29.5 million . These repurchases resulted in a gain on extinguishment of debt of less than$0.7 million . This gain is included in the extinguishment of debt in the accompanying consolidated statements of operations. In connection with the repurchases of the 2022 Convertible Notes, we entered into floating-to-fixed interest rate swaps with an aggregate notional amount equal to the amount of 2022 Convertible Notes repurchased, which had the effect of reducing the notional exposure of the fixed-to-floating interest rate swaps, which were entered into in connection with the issuance of the 2022 Convertible Notes, to match the remaining principal amount of the 2022 Convertible Notes outstanding. As a result of the swaps, our effective interest rate on the outstanding 2022 Convertible Notes is three-month LIBOR plus 2.11% (on a weighted-average basis). Holders may convert their 2022 Convertible Notes at their option at any time prior toFebruary 1, 2022 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending onJune 30, 2017 (and only during such calendar quarter), if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the "measurement period") in which the trading price (as defined in the indenture governing the 2022 Convertible Notes) per$1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; or (3) upon the occurrence of specified corporate events. On or afterFebruary 1, 2022 until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert their notes at any time, regardless of the occurrence or nonoccurrence of any of the foregoing circumstances. OnSeptember 30, 2021 , we notified the trustee and holders of the 2022 Convertible Notes that the terms of one of the conversion features had been met and the notes were eligible for conversion at the option of the holders. The notes remained convertible untilOctober 12, 2021 . During this period$42.8 million aggregate principal amount of notes were surrendered for conversion and we elected combination settlement. The settlement of the converted notes is expected to occur after the 40 day observation period described in the notes indenture. The 2022 Convertible Notes are our unsecured obligations and rank senior in right of payment to our future indebtedness that is expressly subordinated in right of payment to the 2022 Convertible Notes; equal in right of payment to our existing and future indebtedness that is not so subordinated; effectively junior in right of payment to any of our secured indebtedness (including unsecured indebtedness that we later secure) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by our subsidiaries, financing vehicles or similar facilities. The indenture governing the 2022 Convertible Notes contains certain covenants, including covenants requiring us to comply with the applicable asset coverage ratio requirement under the 1940 Act and to provide financial information to the holders of the 2022 Convertible Notes under certain circumstances. These covenants are subject to important limitations and exceptions that are described in the indenture governing the 2022 Convertible Notes. As ofSeptember 30, 2021 , we were in compliance with the terms of the indenture governing the 2022 Convertible Notes. The 2022 Convertible Notes are accounted for in accordance with ASC Topic 470-20. Upon conversion of any of the 2022 Convertible Notes, we currently intend to pay the outstanding principal amount in cash and, to the extent that the conversion value exceeds the principal amount, we have the option to pay in cash or shares of our common stock (or a combination of cash and shares) in respect of the excess amount, subject to the requirements of the indenture governing the 2022 Convertible Notes. We have determined that the embedded conversion options in the 2022 Convertible Notes are not required to be separately accounted for as a derivative underU.S. GAAP. In accounting for the 2022 Convertible Notes, we estimated at the time of issuance separate debt and equity components of the 2022 Convertible Notes. A discount equal to the equity components of the 2022 Convertible Notes was recorded in "additional paid-in capital" in the accompanying consolidated balance sheet. Additionally, the issuance costs associated with the 2022 Convertible Notes were allocated to the debt and equity components in proportion to the allocation of the proceeds and accounted for as deferred financing costs and equity issuance costs, respectively. During the period endedMarch 31, 2021 , we early adopted ASU 2020-06 and in accordance with this guidance reclassed the remaining unamortized discount on the 2022 Convertible Notes from the carrying value of the instrument to "additional paid-in capital" in the accompanying consolidated balance sheet. 67 --------------------------------------------------------------------------------
The average daily closing price of our common stock for the three and nine
months ended
2023 Notes InJanuary 2018 , we issued$150.0 million aggregate principal amount of unsecured notes that mature onJanuary 22, 2023 (the "2023 Notes"). The principal amount of the 2023 Notes is payable at maturity. The 2023 Notes bear interest at a rate of 4.50% per year, payable semi-annually commencing onJuly 22, 2018 , and may be redeemed in whole or in part at our option at any time at par plus a "make whole" premium. Total proceeds from the issuance of the 2023 Notes, net of underwriting discounts and offering costs, were$146.9 million . We used the net proceeds of the 2023 Notes to repay outstanding indebtedness under the Revolving Credit Facility. In connection with the 2023 Notes offering, we entered into an interest rate swap to align the interest rates of our liabilities with our investment portfolio, which consists of predominately floating rate loans. The notional amount of the interest rate swap is$150.0 million , which matures onJanuary 22, 2023 , matching the maturity date of the 2023 Notes. As a result of the swap, our effective interest rate on the 2023 Notes is three-month LIBOR plus 1.99%.
2024 Notes
InNovember 2019 , we issued$300.0 million aggregate principal amount of unsecured notes that mature onNovember 1, 2024 (the "2024 Notes"). The principal amount of the 2024 Notes is payable at maturity. The 2024 Notes bear interest at a rate of 3.875% per year, payable semi-annually commencing onMay 1, 2020 , and may be redeemed in whole or in part at our option at any time at par plus a "make whole" premium. Total proceeds from the issuance of the 2024 Notes, net of underwriting discounts, offering costs and original issue discount were$292.9 million . We used the net proceeds of the 2024 Notes to repay outstanding indebtedness under the Revolving Credit Facility. OnFebruary 5, 2020 , we issued an additional$50.0 million aggregate principal amount of unsecured notes that mature onNovember 1, 2024 . The additional 2024 Notes are a further issuance of, fungible with, rank equally in right of payment with and have the same terms (other than the issue date and the public offering price) as the initial issuance of 2024 Notes. Total proceeds from the issuance of the additional 2024 Notes, net of underwriting discounts, offering costs and original issue premium were$50.1 million . We used the net proceeds of the 2024 Notes to repay outstanding indebtedness under the Revolving Credit Facility. In connection with the 2024 Notes offering and reopening of the 2024 Notes, we entered into interest rate swaps to align the interest rates of our liabilities with our investment portfolio, which consists of predominately floating rate loans. The notional amount of the two interest rates swaps is$300.0 million and$50.0 million , respectively, which matures onNovember 1, 2024 , matching the maturity date of the 2024 Notes. As a result of the swaps, our effective interest rate on the 2024 Notes is three-month LIBOR plus 2.28% (on a weighted average basis). During the year endedDecember 31, 2020 , we repurchased on the open market and extinguished$2.5 million in aggregate principal amount of the 2024 Notes for$2.4 million . These repurchases resulted in a gain on extinguishment of debt of less than$0.1 million . This gain is included in the extinguishment of debt in the accompanying consolidated statements of operations. In connection with the repurchase of the 2024 Notes, we entered into a floating-to-fixed interest rate swap with a notional amount equal to the amount of 2024 Notes repurchased, which had the effect of reducing the notional exposure of the fixed-to-floating interest rate swaps, which were entered into in connection with the issuance of the 2024 Notes, to match the remaining principal amount of the 2024 Notes outstanding. As a result of the swap, our effective interest rate on the outstanding 2024 Notes is three-month LIBOR plus 2.28% (on a weighted average basis). 2026 Notes OnFebruary 3, 2021 , we issued$300.0 million aggregate principal amount of unsecured notes that mature onAugust 1, 2026 (the "2026 Notes"). The principal amount of the 2026 Notes is payable at maturity. The 2026 Notes bear interest at a rate of 2.50% per year, payable semi-annually commencing onAugust 1, 2021 , and may be redeemed in whole or in part at our option at any time at par plus a "make whole" premium. Total proceeds from the issuance of the 2026 Notes, net of underwriting discounts, offering costs and original issue discount were$293.7 million . We used the net proceeds of the 2026 Notes to repay outstanding indebtedness under the Revolving Credit Facility. In connection with the issuance of the 2026 Notes, we entered into an interest rate swap to align the interest rates of our liabilities with our investment portfolio, which consists of predominately floating rate loans. The notional amount of the interest rate swap is 68 --------------------------------------------------------------------------------$300.0 million , which matures onAugust 1, 2026 , matching the maturity date of the 2026 Notes. As a result of the swap, our effective interest rate on the 2026 Notes is three-month LIBOR plus 1.91%.
Off-Balance Sheet Arrangements
Portfolio Company Commitments
From time to time, we may enter into commitments to fund investments. We incorporate these commitments into our assessment of our liquidity position. Our senior secured revolving loan commitments are generally available on a borrower's demand and may remain outstanding until the maturity date of the applicable loan. Our senior secured term loan commitments are generally available on a borrower's demand and, once drawn, generally have the same remaining term as the associated loan agreement. Undrawn senior secured term loan commitments generally have a shorter availability period than the term of the associated loan agreement. As ofSeptember 30, 2021 andDecember 31, 2020 , we had the following commitments to fund investments in current portfolio companies: ($ in millions) September 30, 2021 December 31, 2020 Alpha Midco, Inc. - Delayed Draw $ 5.0 $ 5.0 American Achievement, Corp. - Revolver 2.4 - AvidXchange, Inc. - Delayed Draw 4.4 4.6 Axonify, Inc. - Delayed Draw 7.7 - Biohaven Pharmaceuticals, Inc. - Delayed Draw 12.5 22.5 Clinicient, Inc. - Revolver 1.6 1.6 DaySmart Holdings, LLC - Delayed Draw 5.3 11.2Destiny Solutions Parent Holding Company - Delayed Draw 11.7 - ExtraHop Networks, Inc. - Delayed Draw 26.2 - Factor Systems, Inc. - Delayed Draw - 13.3 ForeScout Technologies, Inc. - Revolver 0.5 0.5 G Treasury SS, LLC - Delayed Draw 6.2 2.8 Ibis Intermediate Co. - Delayed Draw 6.3 - Integration Appliance, Inc. - Revolver - 1.3 IntelePeer Holdings, Inc. - Delayed Draw 3.0 2.9 InvMetrics Holdings, Inc. - Revolver 1.9 1.9 IRGSE Holding Corp. - Revolver 0.3 0.1 Kyriba Corp. - Delayed Draw 3.1 3.0 Kyriba Corp. - Revolver 0.0 0.0 Lexipol, LLC - Delayed Draw - 0.2 Lithium Technologies, LLC - Revolver 3.2 2.0 Lucidworks, Inc. - Revolver 3.3 3.3 Netwrix Corp. - Delayed Draw 5.4 16.5 Netwrix Corp. - Revolver 2.8 2.7 Nintex Global, Ltd. - Revolver 0.9 0.9 PageUp People, Ltd. - Revolver 3.6 3.9 Passport Labs, Inc. - Delayed Draw 5.6 - Passport Labs, Inc. - Revolver 2.8 - PayScale Holdings, Inc. - Delayed Draw - 7.7 PrimeRevenue, Inc. - Delayed Draw 0.2 0.6 PrimeRevenue, Inc. - Revolver 6.3 6.3 ReliaQuest Holdings, LLC - Delayed Draw 24.0 29.3 ReliaQuest Holdings, LLC - Revolver 2.8 2.8 ResMan, LLC - Delayed Draw - 7.4 ResMan, LLC - Revolver - 2.0 Sprinklr - Delayed Draw Convertible Note - 3.8 Valant Medical Solutions, Inc. - Delayed Draw 1.4 2.0 Valant Medical Solutions, Inc. - Revolver 0.5 0.5Verdad Resources Intermediate Holdings, LLC - Delayed Draw 15.6 15.6 WideOrbit, Inc. - Revolver 4.8 4.8 Workwell Acquisition Co. - Delayed Draw 10.0 10.0 Total Portfolio Company Commitments (1)(2) $ 191.3 $ 192.8 69
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(1) Represents the full amount of our commitments to fund investments on such
date. Commitments may be subject to limitations on borrowings set forth in
the agreements between us and the applicable portfolio company. As a result,
portfolio companies may not be eligible to borrow the full commitment amount
on such date.
(2) Our estimate of the fair value of the current investments in these portfolio
companies includes an analysis of the fair value of any unfunded commitments.
Other Commitments and Contingencies
As of
We have certain contracts under which we have material future commitments. Under the Investment Advisory Agreement, our Adviser provides us with investment advisory and management services. For these services, we pay the Management Fee and the Incentive Fee. Under the Administration Agreement, our Adviser furnishes us with office facilities and equipment, provides us clerical, bookkeeping and record keeping services at such facilities and provides us with other administrative services necessary to conduct our day-to-day operations. We reimburse our Adviser or its affiliates for the allocable portion (subject to the review and approval of our Board) of expenses incurred by it in performing its obligations under the Administration Agreement, and the fees and expenses associated with performing compliance functions. Such reimbursable amounts include the allocable portion of the compensation of our Chief Compliance Officer, Chief Financial Officer and other professionals who provide operational and administrative services to us pursuant to the Administration Agreement. We reimburse the Adviser (or its affiliates) for the allocable portion of the compensation paid by the Adviser (or its affiliates) to such individuals based on a percentage of time those individuals devote, on an estimated basis, to our business and affairs. We may also reimburse the Adviser or its affiliates for the allocable portion of overhead expenses (including rent, office equipment and utilities) attributable thereto. Our Adviser also offers on our behalf significant managerial assistance to those portfolio companies to which we are required to offer to provide such assistance. Contractual Obligations A summary of our contractual payment obligations as ofSeptember 30, 2021 is as follows: Payments Due by Period Less than ($ in millions) Total 1 year 1-3 years 3-5 years After 5 years Revolving Credit Facility$ 184.2 $ - $ -$ 184.2 $ - 2022 Convertible Notes 142.8 142.8 - - - 2023 Notes 150.0 - 150.0 - - 2024 Notes 347.5 - - 347.5 - 2026 Notes 300.0 - - 300.0 -
Total Contractual Obligations
-
In addition to the contractual payment obligations in the tables above, we also
have commitments to fund investments and to pledge assets as collateral under
the terms of our derivatives agreements.
Distributions
We have elected and qualified to be treated forU.S. federal income tax purposes as a RIC under subchapter M of the Code. To maintain our RIC status, we must distribute (or be treated as distributing) in each taxable year dividends for tax purposes equal to at least 90 percent of the sum of our:
• investment company taxable income (which is generally our ordinary income plus
the excess of realized net short-term capital gains over realized net
long-term capital losses), determined without regard to the deduction for
dividends paid, for such taxable year; and
• net tax-exempt interest income (which is the excess of our gross tax-exempt
interest income over certain disallowed deductions) for such taxable year.
As a RIC, we (but not our stockholders) generally will not be subject toU.S. federal income tax on investment company taxable income and net capital gains that we distribute to our stockholders. 70 -------------------------------------------------------------------------------- We intend to distribute annually all or substantially all of such income. To the extent that we retain our net capital gains or any investment company taxable income, we generally will be subject to corporate-levelU.S. federal income tax. We may choose to retain our net capital gains or any investment company taxable income, and pay theU.S. federal excise tax described below. Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4%U.S. federal excise tax payable by us. To avoid this tax, we must distribute (or be treated as distributing) during each calendar year an amount at least equal to the sum of:
• 98% of our net ordinary income excluding certain ordinary gains or losses for
that calendar year;
• 98.2% of our capital gain net income, adjusted for certain ordinary gains and
losses, recognized for the twelve-month period ending on
calendar year; and
• 100% of any income or gains recognized, but not distributed, in preceding
years.
While we intend to distribute any income and capital gains in the manner necessary to minimize imposition of the 4%U.S. federal excise tax, sufficient amounts of our taxable income and capital gains may not be distributed to avoid entirely the imposition of this tax. In that event, we will be liable for this tax only on the amount by which we do not meet the foregoing distribution requirement. We intend to pay quarterly dividends to our stockholders out of assets legally available for distribution. All dividends will be paid at the discretion of our Board and will depend on our earnings, financial condition, maintenance of our RIC status, compliance with applicable BDC regulations and such other factors as our Board may deem relevant from time to time. To the extent our current taxable earnings for a year fall below the total amount of our distributions for that year, a portion of those distributions may be deemed a return of capital to our stockholders forU.S. federal income tax purposes. Thus, the source of a distribution to our stockholders may be the original capital invested by the stockholder rather than our income or gains. Stockholders should read any written disclosure carefully and should not assume that the source of any distribution is our ordinary income or gains. We have adopted an "opt out" dividend reinvestment plan for our common stockholders. As a result, if we declare a cash dividend or other distribution, each stockholder that has not "opted out" of our dividend reinvestment plan will have their dividends or distributions automatically reinvested in additional shares of our common stock rather than receiving cash dividends. Stockholders who receive distributions in the form of shares of common stock will be subject to the sameU.S. federal, state and local tax consequences as if they received cash distributions. Related-Party Transactions
We have entered into a number of business relationships with affiliated or related parties, including the following:
• the Investment Advisory Agreement; • the Administration Agreement; and
• an ongoing agreement with an affiliate of
alia, the parties' respective ownership of and rights to use the "Sixth
Street" and "TPG" trademarks and certain variations thereof.
Critical Accounting Policies
The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Changes in the economic environment, financial markets, and any other parameters used in determining such estimates could cause actual results to differ. Our critical accounting policies, including those relating to the valuation of our investment portfolio, are described in our Annual Report on Form 10-K for the year endedDecember 31, 2020 , filed with theSEC onFebruary 17, 2021 , and elsewhere in our filings with theSEC . 71
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