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PORTFOLIO INVESTMENTS AND FAIR VALUE

9 Months Ended

Sep. 30, 2023

PORTFOLIO INVESTMENTS AND FAIR VALUE

PORTFOLIO INVESTMENTS AND FAIR VALUE

NOTE 6 — PORTFOLIO INVESTMENTS AND FAIR VALUE

In accordance with the authoritative guidance on fair value measurements and disclosures under U.S. GAAP, the Company discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The guidance establishes three levels of the fair value hierarchy as follows:

Level 1 — Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 — Quoted prices in markets that are not considered to be active or financial instruments for which significant inputs are observable, either directly or indirectly;

Level 3 — Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable.

The level of an asset or liability within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment by management.

The Company considers whether the volume and level of activity for the asset or liability have significantly decreased and identifies transactions that are not orderly in determining fair value. Accordingly, if the Company determines that either the volume and/or level of activity for an asset or liability has significantly decreased (from normal conditions for that asset or liability) or price quotations or observable inputs are not associated with orderly transactions, increased analysis and management judgment will be required to estimate fair value. Valuation techniques such as an income approach might be appropriate to supplement or replace a market approach in those circumstances.

At September 30, 2023, the Company had investments in 96 portfolio companies. The total cost and fair value of the investments were $941,679,195 and $886,338,148, respectively. The composition of our investments as of September 30, 2023 is as follows:


		Cost			Fair Value
Senior Secured – First Lien⁽¹⁾		$	818,753,394		$	793,131,815
Senior Secured – Second Lien			60,218,330			21,935,000
Unsecured Debt			5,922,437			5,675,605
Equity			56,785,034			65,595,728
Total Investments		$	941,679,195		$	886,338,148

(1)

Includes unitranche investments, which may combine characteristics of first lien senior secured, as well as second lien and/or subordinated loans. Our unitranche loans may expose us to certain risk associated with second lien and subordinated loans to the extent we invest in the “last-out” portion of the unitranche loans which account for 5.8% of our portfolio at fair value.

At December 31, 2022, the Company had investments in 85 portfolio companies. The total cost and fair value of the investments were $875,823,177 and $844,733,638, respectively. The composition of our investments as of December 31, 2022 was as follows:


		Cost			Fair Value
Senior Secured – First Lien⁽¹⁾		$	750,527,999		$	735,555,508
Senior Secured – Second Lien			69,989,477			45,304,300
Unsecured Debt			5,657,964			4,823,898
Equity			49,647,737			59,049,932
Total Investments		$	875,823,177		$	844,733,638

(1)

Includes unitranche investments, which may combine characteristics of first lien senior secured, as well as second lien and/or subordinated loans. Our unitranche loans may expose us to certain risk associated with second lien and subordinated loans to the extent we invest in the “last-out” portion of the unitranche loans which account for 3.1% of our portfolio at fair value.

The Company’s investment portfolio may contain loans that are in the form of lines of credit or revolving credit facilities, which require the Company to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of September 30, 2023 and December 31, 2022, the Company had 58 and 52 of such investments with aggregate unfunded commitments of $29,136,909 and $27,824,917, respectively. The Company maintains sufficient liquidity (through cash on hand and available borrowings under the Credit Facility) to fund such unfunded loan commitments should the need arise.

The aggregate gross unrealized appreciation and depreciation and the aggregate cost and fair value of the Company’s portfolio company securities as of September 30, 2023 and December 31, 2022 were as follows:


		September 30, 2023			December 31, 2022
Aggregate cost of portfolio company securities		$	941,679,195		$	875,823,177
Gross unrealized appreciation of portfolio company securities			35,791,279			28,927,746
Gross unrealized depreciation of portfolio company securities			(89,804,334)			(58,602,607)
Gross unrealized appreciation on foreign currency translations of portfolio company securities			5,881			—
Gross unrealized depreciation on foreign currency translations of portfolio company securities			(1,333,873)			(1,414,678)
Aggregate fair value of portfolio company securities		$	886,338,148		$	844,733,638

The fair values of our investments disaggregated into the three levels of the fair value hierarchy based upon the lowest level of significant input used in the valuation as of September 30, 2023 are as follows:


		Quoted Prices
		in Active
		Markets			Significant Other			Significant
		for Identical			Observable			Unobservable
		Securities			Inputs			Inputs
		(Level 1)			(Level 2)			(Level 3)			Total
Senior Secured – First Lien		$	—		$	—		$	793,131,815		$	793,131,815
Senior Secured – Second Lien			—			—			21,935,000			21,935,000
Unsecured Debt			—			—			5,675,605			5,675,605
Equity			—			—			65,595,728			65,595,728
Total Investments		$	—		$	—		$	886,338,148		$	886,338,148

The fair values of our investments disaggregated into the three levels of the fair value hierarchy based upon the lowest level of significant input used in the valuation as of December 31, 2022 are as follows:


		Quoted Prices
		in Active
		Markets			Significant Other			Significant
		for Identical			Observable			Unobservable
		Securities			Inputs			Inputs
		(Level 1)			(Level 2)			(Level 3)			Total
Senior Secured – First Lien		$	—		$	—		$	735,555,508		$	735,555,508
Senior Secured – Second Lien			—			—			45,304,300			45,304,300
Unsecured Debt			—			—			4,823,898			4,823,898
Equity			—			—			59,049,932			59,049,932
Total Investments		$	—		$	—		$	844,733,638		$	844,733,638

The aggregate values of Level 3 portfolio investments change during the nine months ended September 30, 2023 are as follows:


		Senior Secured			Senior Secured
		Loans-First			Loans-Second			Unsecured
		Lien			Lien			Debt			Equity			Total
Fair value at beginning of period		$	735,555,508		$	45,304,300		$	4,823,898		$	59,049,932		$	844,733,638
Purchases of investments			132,330,331			—			—			7,320,091			139,650,422
Payment-in-kind interest			2,268,148			—			464,382			—			2,732,530
Sales and redemptions			(68,327,719)			(9,882,105)			(211,627)			(840,267)			(79,261,718)
Realized (losses) gains			(870)			—			—			657,471			656,601
Change in unrealized (depreciation) appreciation included in earnings⁽¹⁾			(10,737,043)			(13,598,151)			587,234			(590,235)			(24,338,195)
Change in unrealized appreciation (depreciation) on foreign currency included in earnings			87,951			—			—			(1,264)			86,687
Amortization of premium and accretion of discount, net			1,955,509			110,956			11,718			—			2,078,183
Fair value at end of period		$	793,131,815		$	21,935,000		$	5,675,605		$	65,595,728		$	886,338,148

(1)	Includes reversal of positions during the nine months ended September 30, 2023.

There were no Level 3 transfers during the nine months ended September 30, 2023.

The aggregate values of Level 3 portfolio investments change during the year ended December 31, 2022 are as follows:


		Senior Secured			Senior Secured
		Loans-First			Loans-Second			Unsecured
		Lien			Lien			Debt			Equity			Total
Fair value at beginning of period		$	646,352,935		$	56,733,110		$	4,883,854		$	64,903,427		$	772,873,326
Purchases of investments			196,925,873			4,900,000			83,511			9,101,485			211,010,869
Payment-in-kind interest			826,816			—			530,361			—			1,357,177
Sales and redemptions			(98,160,329)			(10,809,276)			—			(18,873,195)			(127,842,800)
Realized (losses) gains			(3,929,334)			(4,109,525)			—			11,811,371			3,772,512
Change in unrealized depreciation included in earnings⁽¹⁾			(7,342,462)			(1,611,688)			(687,778)			(7,900,302)			(17,542,230)
Change in unrealized (depreciation) appreciation on foreign currency included in earnings			(1,421,824)			—			—			7,146			(1,414,678)
Amortization of premium and accretion of discount, net			2,303,833			201,679			13,950			—			2,519,462
Fair value at end of period		$	735,555,508		$	45,304,300		$	4,823,898		$	59,049,932		$	844,733,638

(1)	Includes reversal of positions during the twelve months ended December 31, 2022.

There were no Level 3 transfers during the twelve months ended December 31, 2022.

The following is a summary of geographical concentration of our investment portfolio as of September 30, 2023:


								% of Total
		Cost			Fair Value			Investments
California		$	198,435,914		$	184,402,328		20.79	%
Texas			201,784,259			177,626,821		20.03	%
Florida			92,485,850			91,929,779		10.36	%
Pennsylvania			48,566,621			48,739,983		5.50	%
Illinois			58,569,341			48,563,654		5.48	%
Arizona			44,824,896			47,215,376		5.33	%
Ohio			33,229,064			35,678,523		4.03	%
Wisconsin			27,419,166			25,307,562		2.86	%
Washington			24,330,488			24,469,868		2.76	%
South Carolina			23,788,284			23,542,129		2.66	%
Colorado			20,000,928			19,434,544		2.19	%
Georgia			10,180,988			18,885,059		2.13	%
Maryland			16,709,852			16,680,941		1.88	%
District of Columbia			13,903,415			14,946,569		1.69	%
Indiana			14,223,073			14,507,297		1.64	%
North Carolina			13,228,185			13,872,575		1.57	%
New Jersey			11,207,366			11,664,087		1.32	%
Michigan			10,680,111			10,680,110		1.20	%
Massachusetts			10,167,365			10,539,949		1.19	%
Tennessee			9,385,167			9,274,348		1.05	%
Missouri			9,006,651			8,998,049		1.02	%
Idaho			8,874,557			8,945,557		1.01	%
Canada			8,708,104			8,766,484		0.99	%
New York			5,458,393			5,654,248		0.64	%
Minnesota			5,826,223			5,587,569		0.63	%
United Kingdom			20,684,934			424,739		0.05	%
		$	941,679,195		$	886,338,148		100.00	%

The following is a summary of geographical concentration of our investment portfolio as of December 31, 2022:


								% of Total
								Investments
		Cost			Fair Value			at fair value
Texas		$	191,422,143		$	171,165,597		20.26	%
California			167,833,384			165,340,017		19.57	%
Florida			60,593,839			59,421,775		7.03	%
Illinois			64,421,998			53,218,615		6.30	%
Arizona			43,129,283			44,277,625		5.24	%
Pennsylvania			42,899,504			41,889,344		4.96	%
Ohio			34,223,452			37,333,236		4.42	%
Washington			28,978,375			28,480,471		3.37	%
New Jersey			25,395,054			25,140,343		2.98	%
Wisconsin			27,533,402			24,271,761		2.87	%
District of Columbia			17,236,556			21,124,347		2.50	%
Georgia			10,919,642			19,692,757		2.33	%
South Carolina			19,089,373			18,654,782		2.21	%
Maryland			16,824,077			16,576,554		1.96	%
Minnesota			16,972,086			15,952,072		1.89	%
United Kingdom			20,530,087			14,445,481		1.71	%
Colorado			15,204,934			14,295,470		1.69	%
Indiana			14,346,082			14,245,432		1.69	%
Canada			13,333,737			13,266,669		1.57	%
North Carolina			10,461,551			10,649,232		1.26	%
Massachusetts			10,215,356			10,527,659		1.25	%
Idaho			9,873,093			9,863,103		1.17	%
Missouri			9,142,111			9,656,287		1.14	%
New York			5,096,152			5,096,008		0.61	%
Michigan			147,906			149,001		0.02	%
		$	875,823,177		$	844,733,638		100.00	%

The following is a summary of industry concentration of our investment portfolio as of September 30, 2023:


								% of Total
		Cost			Fair Value			Investments
Services: Business		$	194,990,932		$	205,918,323		23.24	%
Healthcare & Pharmaceuticals			101,206,823			103,092,547		11.63	%
Consumer Goods: Durable			58,800,939			53,974,812		6.09	%
High Tech Industries			51,932,243			51,454,412		5.81	%
Consumer Goods: Non-Durable			53,777,908			47,396,634		5.35	%
Beverage, Food, & Tobacco			43,077,877			44,406,932		5.01	%
Software			40,113,229			40,956,717		4.62	%
Media: Advertising, Printing & Publishing			38,356,963			39,217,942		4.42	%
Capital Equipment			37,303,170			38,576,803		4.35	%
Services: Consumer			50,310,688			32,337,514		3.65	%
Construction & Building			30,622,390			30,577,354		3.45	%
Aerospace & Defense			47,005,893			24,062,870		2.71	%
Environmental Industries			35,547,983			23,613,946		2.66	%
Media: Broadcasting & Subscription			17,988,173			20,946,799		2.36	%
Transportation & Logistics			16,689,791			17,185,165		1.94	%
Chemicals, Plastics, & Rubber			18,354,804			17,040,958		1.92	%
Metals & Mining			16,612,448			16,585,405		1.87	%
Retail			14,919,849			14,805,752		1.67	%
Containers, Packaging, & Glass			17,382,901			14,651,952		1.65	%
Automotive			11,137,278			11,250,000		1.27	%
Utilities: Oil & Gas			9,937,449			10,000,000		1.13	%
Education			10,269,911			9,183,346		1.04	%
Media: Diversified & Production			5,649,003			5,741,030		0.65	%
Finance			1,554,039			5,555,214		0.63	%
FIRE: Real Estate			16,946,623			5,406,899		0.61	%
Energy: Oil & Gas			1,189,888			1,516,860		0.17	%
Hotel, Gaming, & Leisure			-			881,962		0.10	%
Total		$	941,679,195		$	886,338,148		100.00	%

The following is a summary of industry concentration of our investment portfolio as of December 31, 2022:


								% of Total
								Investments
		Cost			Fair Value			at fair value
Services: Business		$	207,234,534		$	218,866,572		25.91	%
Healthcare & Pharmaceuticals			86,469,854			88,103,319		10.43	%
Media: Advertising, Printing & Publishing			52,830,447			52,525,839		6.22	%
Consumer Goods: Non-Durable			54,683,102			51,280,593		6.07	%
Consumer Goods: Durable			45,601,928			44,529,176		5.27	%
Aerospace & Defense			48,137,394			39,526,086		4.68	%
Software			37,582,855			37,975,255		4.50	%
Capital Equipment			33,538,647			33,801,951		4.00	%
Beverage, Food, & Tobacco			34,000,918			32,755,054		3.88	%
Construction & Building			26,948,135			26,406,849		3.13	%
Environmental Industries			27,771,798			26,247,936		3.11	%
Services: Consumer			43,302,101			24,616,706		2.92	%
Media: Broadcasting & Subscription			18,615,052			21,445,307		2.54	%
Chemicals, Plastics, & Rubber			18,487,206			17,903,999		2.12	%
Transportation & Logistics			16,768,763			17,161,972		2.03	%
Metals & Mining			16,708,750			16,464,001		1.95	%
Containers, Packaging, & Glass			17,436,600			13,977,250		1.65	%
Retail			13,303,536			13,217,256		1.56	%
High Tech Industries			14,126,954			12,648,347		1.50	%
Automotive			11,252,581			11,342,751		1.34	%
Education			11,057,921			10,498,760		1.24	%
Utilities: Oil & Gas			9,921,469			9,800,000		1.16	%
Energy: Oil & Gas			7,314,230			7,355,074		0.87	%
FIRE: Real Estate			15,642,093			5,866,397		0.69	%
Media: Diversified & Production			5,517,409			5,534,710		0.66	%
Finance			1,568,900			4,082,579		0.48	%
Hotel, Gaming, & Leisure			—			799,899		0.09	%
		$	875,823,177		$	844,733,638		100.00	%

The following provides quantitative information about Level 3 fair value measurements as of September 30, 2023:


Description:		Fair Value			Valuation Technique		Unobservable Inputs		Range (Average)⁽¹⁾⁽³⁾
First lien debt		$	793,131,815		Income/Market		HY credit spreads,		-3.40% to 7.20% (-0.43%)
					approach⁽²⁾		Risk free rates		0.00% to 3.97% (0.98%)
							Market multiples		5.0x to 17.0x (10.5x)⁽⁴⁾

Second lien debt		$	21,935,000		Income/Market		HY credit spreads,		-0.74% to 7.97% (1.56%)
					approach⁽²⁾		Risk free rates		0.27% to 1.13% (0.57%)
							Market multiples		5.7x to 10.8x (7.8x)⁽⁴⁾

Unsecured debt		$	5,675,605		Income/Market		HY credit spreads,		4.57% to 4.57% (4.57%)
					approach⁽²⁾		Risk free rates		4.39% to 4.39% (4.39%)
							Market multiples		9.3x to 9.3x (9.3x)⁽⁴⁾

Equity investments		$	65,595,728		Market approach⁽⁵⁾		Underwriting multiple/
							EBITDA Multiple		1.4x to 24.4x (12.5x)
Total Long Term Level 3 Investments		$	886,338,148

(1)	Weighted average based on fair value as of September 30, 2023.

(2)	Included but not limited to (a) the market approach, which is used to determine sufficient enterprise value, and (b) the income approach which is based on discounting future cash flows using an appropriate market yield.

(3)

The Company calculates the price of the loan by discounting future cash flows, which include forecasted future BSBY, LIBOR, SOFR, or SONIA rates based on the published forward curve at the valuation date, using an appropriate yield calculated as of the valuation date. This yield is calculated based on the loan’s yield at the original investment and is adjusted as of the valuation date based on: changes in comparable credit spreads, changes in risk free interest rates (per swap rates), and changes in credit quality (via an estimated shadow rating). Significant movements in any of these factors could result in a significantly lower or higher fair value measurement. As an example, the “Range (Average)” for first lien debt instruments in the table above indicates that the change in the HY spreads between the date a loan closed and the valuation date ranged from -3.40% (-340 basis points) to 7.20% (720 basis points). The average of all changes was -0.43% (-43 basis points).

(4)	Median of LTM (last twelve months) EBITDA multiples of comparable companies.

(5)

The primary significant unobservable input used in the fair value measurement of the Company’s equity investments is the EBITDA multiple (the “Multiple”). Significant increases (decreases) in the Multiple in isolation could result in a significantly higher (lower) fair value measurement. To determine the Multiple for the market approach, the Company considers current market trading and/or transaction multiple, portfolio company performance (financial ratios) relative to public and private peer companies and leverage levels, among other factors. Changes in one or more of these factors can have a similar directional change on other factors in determining the appropriate Multiple to use in the market approach.

The following provides quantitative information about Level 3 fair value measurements as of December 31, 2022:



Description:		Fair Value			Valuation Technique		Unobservable Inputs		Range (Average)⁽¹⁾⁽³⁾
First lien debt		$	735,555,508		Income/Market		HY credit spreads,		-2.29% to 6.53% (1.52%)
					approach⁽²⁾		Risk free rates		-1.43% to 4.31% (2.31%)
							Market multiples		4.5x to 19.3x (10.1x)⁽⁴⁾

Second lien debt		$	45,304,300		Income/Market		HY credit spreads,		-0.17% to 5.18% (2.39%)
					approach⁽²⁾		Risk free rates		-0.02% to 3.91% (1.94%)
							Market multiples		5.6x to 15.1x (11.4x)⁽⁴⁾

Unsecured debt		$	4,823,898		Income/Market		HY credit spreads,		7.97% to 7.97% 7.97%)
					approach⁽²⁾		Risk free rates		3.63% to 3.63% (3.63%)
							Market multiples		9.1x to 9.1x (9.1x)⁽⁴⁾

Equity investments		$	59,049,932		Market approach⁽⁵⁾		Underwriting multiple/
							EBITDA Multiple		1.3x to 24.8x (11.7x)
Total Long Term Level 3 Investments		$	844,733,638

(1)	Weighted average based on fair value as of December 31, 2022.

(2)	Inclusive of but not limited to (a) the market approach, which is used to determine sufficient enterprise value, and (b) the income approach which is based on discounting future cash flows using an appropriate market yield.

(3)

The Company calculates the price of the loan by discounting future cash flows, which include forecasted future LIBOR rates based on the published forward LIBOR curve at the valuation date, using an appropriate yield calculated as of the valuation date. This yield is calculated based on the loan’s yield at the original investment and is adjusted as of the valuation date based on: changes in comparable credit spreads, changes in risk free interest rates (per swap rates), and changes in credit quality (via an estimated shadow rating). Significant movements in any of these factors would result in a significantly lower or higher fair value measurement. As an example, the “Range (Average)” for a first lien debt instruments in the table above indicates that the change in the HY spreads between the date a loan closed and the valuation date ranged from -2.29% (-229 basis points) to 6.53% (653 basis points). The average of all changes was 1.52% (152 basis points).

(4)	Median of LTM (last twelve months) EBITDA multiples of comparable companies.

(5)

The primary significant unobservable input used in the fair value measurement of the Company’s equity investments is the EBITDA multiple (the “Multiple”). Significant increases (decreases) in the Multiple in isolation would result in a significantly higher (lower) fair value measurement. To determine the Multiple for the market approach, the Company considers current market trading and/or transaction multiple, portfolio company performance (financial ratios) relative to public and private peer companies and leverage levels, among other factors. Changes in one or more of these factors can have a similar directional change on other factors in determining the appropriate Multiple to use in the market approach.

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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