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SBA-GUARANTEED DEBENTURES

9 Months Ended

Sep. 30, 2024

NOTE 10 — SBA-GUARANTEED DEBENTURES

Due to the SBIC subsidiaries’ status as licensed SBICs, the Company has the ability to issue debentures guaranteed by the SBA at favorable interest rates. Under the regulations applicable to SBIC funds, a single licensee can have outstanding debentures guaranteed by the SBA subject to a regulatory leverage limit, up to two times the amount of “regulatory capital”, as such term is defined by the SBA. As of both September 30, 2024 and December 31, 2023, the SBIC subsidiary had $75,000,000 in regulatory capital, as such term is defined by the SBA, and $150,000,000 of SBA-guaranteed debentures outstanding.

As of both September 30, 2024 and December 31, 2023, the SBIC II subsidiary had $87,500,000 in regulatory capital. As of both September 30, 2024 and December 31, 2023, the SBIC II subsidiary had $175,000,000 of SBA-guaranteed debentures outstanding.

On August 12, 2014, the Company obtained exemptive relief from the SEC to permit it to exclude the debt of the SBIC subsidiaries guaranteed by the SBA from its asset coverage test under the 1940 Act. The exemptive relief provides the Company with increased flexibility under the asset coverage test by permitting it to borrow up to $325,000,000 more than it would otherwise be able to absent the receipt of this exemptive relief.

On a stand-alone basis, the SBIC subsidiaries held $498,662,380 and $485,152,670 in assets at September 30, 2024 and December 31, 2023, respectively, which accounted for approximately 52.7% and 53.4% of the Company’s total consolidated assets, respectively.

Debentures guaranteed by the SBA have fixed interest rates that equal prevailing 10-year U.S. Treasury Note rates plus a market spread and have a maturity of ten years with interest payable semi-annually. The principal amount of the debentures is not required to be paid before maturity, but may be pre-paid at any time with no prepayment penalty. SBA-guaranteed debentures drawn before October 1, 2019 incur upfront fees of 3.425%, which consists of a 1.00% commitment fee and a 2.425% issuance discount, which are amortized over the life of the SBA-guaranteed debentures. SBA-guaranteed debentures drawn after October 1, 2019 incur upfront fees of 3.435%, which consists of a 1.00% commitment fee and a 2.435% issuance discount, which are amortized over the life of the SBA-guaranteed debentures. Once pooled, which occurs in March and September of each applicable year, the SBA-guaranteed debentures bear interest at a fixed rate that is set to the current 10-year treasury rate plus a spread at each pooling date.

The following table summarizes the SBIC subsidiaries’ aggregate SBA-guaranteed debentures outstanding as of September 30, 2024:


Issuance Date	Licensee	Maturity Date	Debenture Amount		Interest Rate		SBA Annual Charge
October 14, 2014	SBIC I	March 1, 2025	$	6,500,000	2.52	%	0.36	%
October 17, 2014	SBIC I	March 1, 2025		6,500,000	2.52	%	0.36	%
December 24, 2014	SBIC I	March 1, 2025		3,250,000	2.52	%	0.36	%
June 29, 2015	SBIC I	September 1, 2025		9,750,000	2.83	%	0.36	%
October 22, 2015	SBIC I	March 1, 2026		6,500,000	2.51	%	0.36	%
October 22, 2015	SBIC I	March 1, 2026		1,500,000	2.51	%	0.74	%
November 10, 2015	SBIC I	March 1, 2026		8,800,000	2.51	%	0.74	%
November 18, 2015	SBIC I	March 1, 2026		1,500,000	2.51	%	0.74	%
November 25, 2015	SBIC I	March 1, 2026		8,800,000	2.51	%	0.74	%
December 16, 2015	SBIC I	March 1, 2026		2,200,000	2.51	%	0.74	%
December 29, 2015	SBIC I	March 1, 2026		9,700,000	2.51	%	0.74	%
November 28, 2017	SBIC I	March 1, 2028		25,000,000	3.19	%	0.22	%
April 27, 2018	SBIC I	September 1, 2028		40,000,000	3.55	%	0.22	%
July 30, 2018	SBIC I	September 1, 2028		17,500,000	3.55	%	0.22	%
September 25, 2018	SBIC I	March 1, 2029		2,500,000	3.11	%	0.22	%
Total SBIC I Subsidiary SBA-guaranteed Debentures			$	150,000,000


Issuance Date	Licensee	Maturity Date	Debenture Amount		Interest Rate		SBA Annual Charge
October 17, 2019	SBIC II	March 1, 2030	$	6,000,000	2.08	%	0.09	%
November 15, 2019	SBIC II	March 1, 2030		5,000,000	2.08	%	0.09	%
December 17, 2020	SBIC II	March 1, 2031		9,000,000	1.67	%	0.09	%
December 17, 2020	SBIC II	March 1, 2031		6,500,000	1.67	%	0.27	%
February 16, 2021	SBIC II	March 1, 2031		13,500,000	1.67	%	0.27	%
February 26, 2021	SBIC II	March 1, 2031		10,000,000	1.67	%	0.27	%
March 2, 2021	SBIC II	March 1, 2031		10,000,000	1.67	%	0.27	%
April 21, 2021	SBIC II	September 1, 2031		10,000,000	1.30	%	0.27	%
May 14, 2021	SBIC II	September 1, 2031		6,700,000	1.30	%	0.27	%
May 28, 2021	SBIC II	September 1, 2031		7,300,000	1.30	%	0.27	%
July 23, 2021	SBIC II	September 1, 2031		16,000,000	1.30	%	0.27	%
February 25, 2022	SBIC II	March 1, 2032		10,000,000	2.94	%	0.27	%
March 29, 2022	SBIC II	September 1, 2032		10,000,000	4.26	%	0.27	%
April 1, 2022	SBIC II	September 1, 2032		6,670,000	4.26	%	0.27	%
April 12, 2022	SBIC II	September 1, 2032		6,665,000	4.26	%	0.27	%
April 21, 2022	SBIC II	September 1, 2032		6,665,000	4.26	%	0.27	%
June 30, 2022	SBIC II	September 1, 2032		3,600,000	4.26	%	0.27	%
July 28, 2022	SBIC II	September 1, 2032		6,400,000	4.26	%	0.27	%
September 9, 2022	SBIC II	March 1, 2033		6,000,000	5.17	%	0.27	%
November 9, 2022	SBIC II	March 1, 2033		7,600,000	5.17	%	0.27	%
August 8, 2023	SBIC II	September 1, 2033		9,120,000	5.69	%	0.27	%
September 19, 2023	SBIC II	March 1, 2034		2,280,000	5.04	%	0.27	%
Total SBIC II Subsidiary SBA-guaranteed Debentures			$	175,000,000
Total SBA-guaranteed Debentures			$	325,000,000

As of September 30, 2024 and December 31, 2023, the SBA-guaranteed debentures would be deemed to be Level 3, as defined in Note 6 to the consolidated financial statements contained herein.

As of both September 30, 2024 and December 31, 2023, the Company has incurred $11,148,750 in financing costs related to the SBA-guaranteed debentures since receiving its licenses, which were recorded as prepaid loan fees are being amortized over the life of the debentures. As of September 30, 2024 and December 31, 2023, $3,941,879 and $4,726,642 of prepaid financing costs had yet to be amortized, respectively. These prepaid loan fees are presented on the Consolidated Statements of Assets and Liabilities as a deduction from the debt liability.

The following is a summary of the SBA-guaranteed debentures, net of prepaid loan fees:


	September 30, 2024		December 31, 2023
SBA-guaranteed Debentures payable	$	325,000,000	$	325,000,000
Prepaid loan fees		(3,941,879)		(4,726,642)
SBA-guaranteed Debentures, net of prepaid loan fees	$	321,058,121	$	320,273,358

The following table summarizes the interest expense and amortized fees on the SBA-guaranteed debentures for the three and nine months ended September 30, 2024 and 2023:


	For the three months ended						For the nine months ended
	September 30, 2024			September 30, 2023			September 30, 2024			September 30, 2023
Interest expense	$	2,637,331		$	2,559,727		$	7,860,045		$	7,403,454
Debenture fee amortization		234,704			313,889			784,763			938,247
Total interest and financing expenses	$	2,872,035		$	2,873,616		$	8,644,808		$	8,341,701
Weighted average interest rate		3.2	%		3.1	%		3.2	%		3.1	%
Effective interest rate (including fee amortization)		3.5	%		3.5	%		3.6	%		3.5	%
Average debt outstanding	$	325,000,000		$	323,017,391		$	325,000,000		$	316,773,626
Cash paid for interest	$	5,268,363		$	4,965,850		$	10,470,211		$	9,646,849