Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active public markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about what market participants would use in pricing an asset or liability.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, a financial instrument’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the financial instrument.

A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in or out of the Level 3 category as of the beginning of the quarter in which the reclassifications occur. During the nine months ended September 30, 2022 and year ended December 31, 2021, there were no changes in the observability of valuation inputs that would have resulted in a reclassification of assets between any levels.

Fair value for each investment is derived using a combination of valuation methodologies that, in the judgment of the Investment Committee are most relevant to such investment, including, without limitation, being based on one or more of the following: (i) market prices obtained from market makers for which the Investment Committee has deemed there to be enough breadth (number of quotes) and depth (firm bids) to be indicative of fair value, (ii) the price paid or realized in a completed transaction or binding offer received in an arm’s-length transaction, (iii) a discounted cash flow analysis, (iv) the guideline public company method, (v) the similar transaction method or (vi) the option pricing method.

The following table presents investments (as shown on the consolidated schedule of investments) that were measured at fair value as of September 30, 2022:

(1)

The Company’s equity investment in STRS JV is measured using the net asset value per share as a practical expedient for fair value, and thus has not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated statements of assets and liabilities.

The Company’s forward currency contracts, which were valued at $10 as of September 30, 2022, are characterized in Level 2 of the hierarchy.

The following table presents investments (as shown on the consolidated schedule of investments) that were measured at fair value as of December 31, 2021:


	Level 1		Level 2		Level 3		Total
First lien secured loans	$	—	$	—	$	697,232	$	697,232
Second lien secured loans		—		—		23,650		23,650
Subordinated Note to STRS JV		—		—		167		167
Subordinated Note to STRS JV		—		—		60,000		60,000
Equity (excluding STRS JV)		—		—		22,552		22,552
Equity in STRS JV⁽¹⁾		—		—		—		15,607
Total investments	$	—	$	—	$	803,601	$	819,208

(1)

The following table presents the changes in investments measured at fair value using Level 3 inputs for the three and nine months ended September 30, 2022:


	First Lien		Second Lien				Subordinated
	Secured		Secured		Subordinated		Notes to STRS				Total
Three months ended September 30, 2022	Loans		Loans		Notes		JV		Equity		Investments
Fair value, beginning of period	$	614,859	$	22,063	$	167	$	80,000	$	27,111	$	744,200
Funding of investments		52,893		—		—		—		408		53,301
Non-cash interest income		594		3		—		—		—		597
Accretion of discount		1,039		21		—		—		—		1,060
Proceeds from paydowns and sales		(48,549)		—		—		—		(1,011)		(49,560)
Conversions		—		—		—		—		—		—
Realized gains (losses)		45		—		—		—		154		199
Net unrealized (depreciation) appreciation		(4,936)		(1,704)		—		—		(669)		(7,309)
Fair value, end of period	$	615,945	$	20,383	$	167	$	80,000	$	25,993	$	742,488
Change in unrealized appreciation (depreciation) on investments still held as of September 30, 2022	$	(4,689)	$	(1,702)	$	—	$	—	$	(384)	$	(6,775)


	First Lien		Second Lien				Subordinated
	Secured		Secured		Subordinated		Notes to STRS				Total
Nine months ended September 30, 2022	Loans		Loans		Notes		JV		Equity		Investments
Fair value, beginning of period	$	697,232	$	23,650	$	167	$	60,000	$	22,552	$	803,601
Funding of investments		222,667		—		—		20,000		1,085		243,752
Non-cash interest income		1,548		5		—		—		—		1,553
Accretion of discount (premium)		3,972		64		—		—		—		4,036
Proceeds from paydowns and sales		(293,935)		—		—		—		(2,862)		(296,797)
Conversions		(4,060)		—		—		—		4,060		—
Realized gains (losses)		(16,994)		(1,024)		—		—		1,919		(16,099)
Net unrealized (depreciation) appreciation		5,515		(2,312)		—		—		(761)		2,442
Fair value, end of period	$	615,945	$	20,383	$	167	$	80,000	$	25,993	$	742,488
Change in unrealized appreciation (depreciation) on investments still held as of September 30, 2022	$	(6,691)	$	(3,336)	$	—	$	—	$	(600)	$	(10,627)

The following table presents the changes in investments measured at fair value using Level 3 inputs for the three and nine months ended September 30, 2021:


	First Lien		Second Lien				Subordinated
	Secured		Secured		Subordinated		Notes to STRS				Total
Three months ended September 30, 2021	Loans		Loans		Notes		JV		Equity		Investments
Fair value, beginning of period	$	562,837	$	29,714	$	—	$	49,809	$	16,033	$	658,393
Funding of investments		135,497		—		167		7,488		2,278		145,430
Non-cash interest income		173		1		—		—		—		174
Accretion of discount		2,115		29		—		—		—		2,144
Proceeds from paydowns and sales		(133,361)		—		—		—		—		(133,361)
Realized gains		120		—		—		—		(11)		109
Net unrealized (depreciation) appreciation		(2,385)		(82)		—		—		1,888		(579)
Fair value, end of period	$	564,996	$	29,662	$	167	$	57,297	$	20,188	$	672,310
Change in unrealized appreciation (depreciation) on investments still held as of September 30, 2021	$	216	$	112	$	—	$	—	$	2,931	$	3,259


	First Lien		Second Lien				Subordinated
	Secured		Secured		Subordinated		Notes to STRS				Total
Nine months ended September 30, 2021	Loans		Loans		Notes		JV		Equity		Investments
Fair value, beginning of period	$	588,580	$	27,596	$	—	$	41,073	$	23,319	$	680,568
Funding of investments		310,749		14,550		498		16,224		2,938		344,959
Non-cash interest income		857		3		—		—		—		860
Accretion of discount		5,549		125		—		—		(25)		5,649
Proceeds from paydowns and sales		(341,177)		(12,670)		(331)		—		(9,442)		(363,620)
Realized losses		8,288		—		—		—		(574)		7,714
Net unrealized (depreciation) appreciation		(7,850)		58		—		—		3,972		(3,820)
Fair value, end of period	$	564,996	$	29,662	$	167	$	57,297	$	20,188	$	672,310
Change in unrealized appreciation (depreciation) on investments still held as of September 30, 2021	$	1,516	$	113	$	—	$	—	$	3,211	$	4,840

The significant unobservable inputs used in the fair value measurement of the Company’s investments are the discount rate, market quotes and exit multiples. An increase or decrease in the discount rate in isolation would result in significantly lower or higher fair value measurement, respectively. An increase or decrease in the market quote for an investment would in isolation result in significantly higher or lower fair value measurement, respectively. An increase or decrease in the exit multiple would in isolation result in significantly higher or lower fair value measurement, respectively. As the fair value of a debt investment diverges from par, which would generally be the case for non-accrual loans, the fair value measurement of that investment is more susceptible to volatility from changes in exit multiples as a significant unobservable input.

Quantitative information about Level 3 fair value measurements is as follows:


	Fair Value as of		Valuation	Unobservable	Range
Investment Type	September 30, 2022		Techniques	Inputs	(Weighted Average)⁽¹⁾
First lien secured loans	$	406,569	Discounted cash flows	Discount rate	7.5% – 19.9% (12.4%)
		37,014	Recent transaction	Transaction price	82.0 – 99.1 (91.8)
		111,055	Discounted cash flows and Recent transaction	Discount rate	7.6% – 13.5% (12.6%)
				Transaction price	92.4 – 100.0 (97.9)
		30,790	Discounted cash flows and Market quote	Discount Rate	10.5% – 11.8% (11.4%)
				Market Quote	85.2 – 95.1 (90.7)
		30,517	Expected repayment	Transaction price	100.0
	$	615,945

Second lien secured loans	$	3,274	Discounted cash flows	Discount rate	17.4%
		4,912	Discounted cash flows and Recent transaction	Transaction price	98.6
				Discount rate	12.2%
		12,197	Discounted cash flows and Market quote	Discount Rate	18.2%
				Market Quote	77.8
	$	20,383

Subordinated Notes	$	80,000	Enterprise value	–	–
		167	Discounted cash flows	Discount Rate	4.1%
	$	80,167

Preferred Equity	$	2,217	Discounted cash flows	Discount rate	24.3% – 25.5% (24.4%)
				EBITDA Multiple	9.0x
		816	Discounted cash flows and Enterprise value	Discount Rate	17.0%
				EBITDA Multiple	3.6x - 8.5x (6.1x)
				Discount for lack of marketability	15.0%
		853	Enterprise value	Discount Rate	11.7%
	$	3,886

Common Equity	$	1,614	Discounted cash flows	Discount rate	19.3% – 21.3% (21.1%)
				EBITDA Multiple	7.5x
		9,523	Discounted cash flows and Enterprise value	Discount Rate	12.0% – 19.4% (18.1%)
				EBITDA Multiple	4.8 - 12.1 (9.3x)
		361	Enterprise value	EBITDA Multiple	13.3x - 17.1x (15.2x)
				Discount for lack of marketability	10.0%
		219	Collateral value and Recent transaction	Transaction price	$1.30 per share
				EBITDA Multiple	8.0x
				Discount for lack of marketability	15.0%
		2,471	Collateral value	EBITDA Multiple	6.0x – 10.0x (8.0x)
				Discount for lack of marketability	15.0%
		400	Recent transaction	Transaction price	$1.00 per share
		1,264	Recent transaction and Enterprise value	Transaction price	$10.0 - 1,000.0 (482.4 per share)
				EBITDA Multiple	5.0x – 12.3x (8.8x)
				Discount for lack of marketability	15.0%
	$	15,852

Warrant		3,823	Discounted cash flows and Option-pricing method	Discount rate	19.3%
				EBITDA multiple	10.2x
				Discount for lack of marketability	15.0%
		2,432	Discounted cash flows	Discount Rate	0.5%
				EBITDA Multiple	0.3x
				Volatility	0.0%
				Discount for lack of marketability	0.4%
	$	6,255
Total Level 3 Investments	$	742,488

(1)	Unobservable inputs were weighted by the relative fair value of the investments.


	Fair Value as of			Valuation	Unobservable	Range
Investment Type		December 31, 2021		Techniques	Inputs	(Weighted Average)⁽¹⁾
First lien secured loans		$	358,921	Discounted cash flows	Discount rate	4.5% – 21.8% (9.8%)
					Exit EBITDA multiple	5.5x – 15.0x (8.3x)
			209,892	Recent transaction	Transaction price	94.5 – 99.1 (97.9)
			113,808	Discounted cash flows and Recent transaction	Discount rate	7.2% – 10.3% (8.6%)
					Transaction price	97.5 – 98.8 (98.4)
					Exit EBITDA multiple	7.0x – 11.0x (9.5x)
			7,542	Guideline public companies	LTM EBITDA multiple	5.1x
			7,069	Expected repayment	-	-
		$	697,232

Second lien secured loans		$	18,725	Discounted cash flows	Discount rate	11.5% – 22.3% (14.2%)
					Exit EBITDA multiple	6.5x – 8.5x (8.0x)
			4,925	Recent transaction	Transaction price	98.5
		$	23,650

Subordinated Notes		$	60,000	Enterprise value	-	-
			167	Recent transaction	Transaction price	100.0
		$	60,167

Preferred Equity		$	1,018	Similar transactions	LTM EBITDA multiple	9.7x
					Discount for lack of marketability	15.0%
			786	Discounted cash flows and Guideline public companies	Discount Rate	17.3%
					Exit EBITDA Multiple	11.0x
					LTM EBITDA Multiple	7.9x
					NFY EBITDA Multiple	7.5x
					Discount for lack of marketability	10.0%
			1,007	Recent transaction	Transaction price	$1.00 – $56.30 ($47.13) per share
		$	2,811

Common Equity		$	3,602	Discounted cash flows	Discount rate	13.0% – 22.7% (15.0%)
					Exit EBITDA Multiple	8.6x – 10.0x (9.6x)
					Discount for lack of marketability	10.0% – 15.0% (10.3%)
			8,124	Discounted cash flows, Guideline public companies and Expected repayment	Discount rate	14.0% – 19.0% (18.2%)
					Exit EBITDA Multiple	8.0x – 11.0x (10.5x)
					NFY EBITDA Multiple	8.6x – 10.8x (8.9x)
					Discount for lack of marketability	10.0%
					Transaction price	$1.00 per share
			2,052	Similar transactions	LTM EBITDA Multiple	6.0x – 13.4x (10.5x)
			1,502	Recent transaction	Transaction price	$1.00 – $1,000.00 ($289.95) per share
		$	15,280

Warrant			4,461	Discounted cash flows and Option-pricing method	Discount rate	22.7% – 29.5% (29.2%)
					Exit EBITDA multiple	5.5x – 8.6x (5.9x)
					Volatility	3.5% – 8.7% (3.6%)
					Discount for lack of marketability	15.0%
		$	4,461

Total Level 3 Investments		$	803,601

(1)	Unobservable inputs were weighted by the relative fair value of the investments.

Valuation of investments may be determined by weighting various valuation techniques. Significant judgment is required in selecting the assumptions used to determine the fair values of these investments. The valuation methods

selected for a particular investment are based on the circumstances and on the sufficiency of data available to measure fair value. If more than one valuation method is used to measure fair value, the results are evaluated and weighted, as appropriate, considering the reasonableness of the range indicated by those results. A fair value measurement is the point within that range that is most representative of fair value in the circumstances.

The availability of observable inputs can vary depending on the financial instrument and is affected by a wide variety of factors, including, for example, the nature of the instrument, whether the instrument is traded on an active exchange or in the secondary market and the current market conditions. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires a greater degree of judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for financial instruments classified as Level 3.

The determination of fair value using the selected methodologies takes into consideration a range of factors including the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public and private exchanges for comparable securities, current and projected operating performance and financing transactions subsequent to the acquisition of the investment, compliance with agreed upon terms and covenants, and assessment of credit ratings of an underlying borrower. These valuation methodologies involve a significant degree of judgment to be exercised.

As it relates to investments which do not have an active public market, there is no single standard for determining the estimated fair value. Valuations of privately held investments are inherently uncertain, and they may fluctuate over short periods of time and may be based on estimates. The determination of fair value may differ materially from the values that would have been used if a ready market for these investments existed.

In some cases, fair value for such investments is best expressed as a range of values derived utilizing different methodologies from which a single estimate may then be determined. Consequently, fair value for each investment may be derived using a combination of valuation methodologies that, in the judgment of the investment professionals, are most relevant to such investment. The selected valuation methodologies for a particular investment are consistently applied on each measurement date. However, a change in a valuation methodology or its application from one measurement date to another is possible if the change results in a measurement that is equally or more representative of fair value in the circumstances.

The following table presents the principal amount and fair value of the Company’s borrowings as of September 30, 2022 and December 31, 2021. The fair value of the Credit Facility (as defined in Note 6) was estimated by discounting remaining payments using applicable market rates or market quotes for similar instruments at the measurement date, if available. As of September 30, 2022, the Credit Facility approximates its carrying value as the outstanding balance is callable at carrying value. The fair value of the Company’s 6.00% private notes due 2023 (the “6.000% 2023 Notes”), the 5.375% private notes due 2025 (the “5.375% 2025 Notes”), the 5.375% private notes due 2026 (the “5.375% 2026 Notes”), the 4.00% notes due 2026 (the “4.000% 2026 Notes”), the 5.625% private notes due 2027 (the “5.625% 2027 Notes”), and the 4.25% private notes due 2028 (the “4.250% 2028 Notes”) were estimated using discounted future cash flows to the valuation date.


		As of September 30, 2022				As of December 31, 2021
	Fair	Principal Amount				Principal Amount
	Value Level	Outstanding		Fair Value		Outstanding		Fair Value
JPM Credit Facility	3	$	246,101	$	243,552	$	291,637	$	302,147
6.000% 2023 Notes	3		30,000		29,860		30,000		31,802
5.375% 2025 Notes	3		40,000		37,355		40,000		40,687
5.375% 2026 Notes	3		10,000		9,089		10,000		10,091
4.000% 2026 Notes	3		75,000		67,132		75,000		74,957
5.625% 2027 Notes	3		10,000		8,983		10,000		10,097
4.250% 2028 Notes	3		25,000		21,642		25,000		24,861
		$	436,101	$	417,613	$	481,637	$	494,642