Fair Value Measurement

3 Months Ended

Mar. 31, 2024

FAIR VALUE MEASUREMENT

The fair value of a financial instrument is the amount that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price).

The fair value hierarchy under ASC 820 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 levels used for classifying investments are not necessarily an indication of the risk associated with investing in these securities. The three levels of the fair value hierarchy are as follows:

Basis of Fair Value Measurement

Level 1 – Inputs to the valuation methodology are quoted prices available in active markets for identical instruments as of the reporting date. The types of financial instruments included in Level 1 include unrestricted securities, including equities and derivatives, listed in active markets.

Level 2 – Inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date. The types of financial instruments in this category include less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities and certain over-the-counter derivatives where the fair value is based on observable inputs.

Level 3 – Inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category include investments in privately held entities and certain over-the-counter derivatives where the fair value is based on unobservable inputs.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Note 2 “Significant Accounting Policies” should be read in conjunction with the information outlined below.

The table below presents the valuation techniques and the nature of significant inputs generally used in determining the fair value of Level 2 and Level 3 Instruments.


Level 2 Instruments		Valuation Techniques and Significant Inputs
Equity and Fixed Income		The types of instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency include commercial paper, most government agency obligations, most corporate debt securities, certain mortgage-backed securities, certain bank loans, less liquid publicly listed equities, certain state and municipal obligations, certain money market instruments and certain loan commitments. Valuations of Level 2 Equity and Fixed Income instruments can be verified to quoted prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency. Consideration is given to the nature of the quotations (e.g. indicative or firm) and the relationship of recent market activity to the prices provided from alternative pricing sources.

Derivative Contracts		Over-the-counter (“OTC”) derivatives (both centrally cleared and bilateral) are valued using market transactions and other market evidence whenever possible, including market-based inputs to models, calibration to market-clearing transactions, broker or dealer quotations, or other alternative pricing sources with reasonable levels of price transparency. Where models are used, the selection of a particular model to value an OTC derivative depends upon the contractual terms of, and specific risks inherent in, the instrument, as well as the availability of pricing information in the market. The Company generally uses similar models to value similar instruments. Valuation models require a variety of inputs, including contractual terms, market prices, yield curves, credit curves, measures of volatility, voluntary and involuntary prepayment rates, loss severity rates and correlations of such inputs. For OTC derivatives that trade in liquid markets, model inputs can generally be verified and model selection does not involve significant management judgment. OTC derivatives are classified within Level 2 of the fair value hierarchy when significant inputs are corroborated by market evidence.


Level 3 Instruments		Valuation Techniques and Significant Inputs
Bank Loans, Corporate Debt, and Other Debt Obligations		Valuations are generally based on discounted cash flow techniques, for which the significant inputs are the amount and timing of expected future cash flows, market yields and recovery assumptions. The significant inputs are generally determined based on relative value analyses, which incorporate comparisons both to credit default swaps that reference the same underlying credit risk and to other debt instruments for the same issuer for which observable prices or broker quotes are available. Other valuation methodologies are used as appropriate including market comparables, transactions in similar instruments and recovery/liquidation analysis.

Equity		Recent third-party investments or pending transactions are considered to be the best evidence for any change in fair value. When these are not available, the following valuation methodologies are used, as appropriate and available (i) Transactions in similar instruments; (ii) Discounted cash flow techniques; (iii) Third party appraisals; and (iv) Industry multiples and public comparables. Evidence includes recent or pending reorganizations (for example, merger proposals, tender offers and debt restructurings) and significant changes in financial metrics, including (i) Current financial performance as compared to projected performance; (ii) Capitalization rates and multiples; and (iii) Market yields implied by transactions of similar or related assets.

The tables below present the ranges of significant unobservable inputs used to value the Company’s Level 3 assets as of March 31, 2024 and December 31, 2023. These ranges represent the significant unobservable inputs that were used in the valuation of each type of instrument, but they do not represent a range of values for any one instrument. For example, the lowest discount rate in 1st Lien/Senior Secured Debt is appropriate for valuing that specific debt investment, but may not be appropriate for valuing any other debt investments in this asset class. Accordingly, the ranges of inputs presented below do not represent uncertainty in, or possible ranges of, fair value measurements of the Company’s Level 3 assets.


Level 3 Instruments	Fair Value(1)(2)		Valuation Techniques(3)	Significant Unobservable Inputs	Range of Significant Unobservable Inputs(4)	Weighted Average(5)
As of March 31, 2024
Bank Loans, Corporate Debt, and Other Debt Obligations
1st Lien/Senior Secured Debt	$	2,905,289	Discounted cash flows	Discount Rate	8.7% - 52.4%	12.4%
	$	901	Collateral analysis	Recovery Rate	—	23.0%
	$	52,252	Comparable multiples	EV/Revenue	0.4x - 2.8x	2.0x
1st Lien/Last-Out Unitranche	$	149,087	Discounted cash flows	Discount Rate	8.7% - 12.9%	12.2%
2nd Lien/Senior Secured Debt	$	27,538	Discounted cash flows	Discount Rate	17.5% - 20.5%	19.3%
	$	6,098	Comparable multiples	EV/EBITDA(6)	8.6x - 9.5x	9.2x
Unsecured Debt	$	19,123	Discounted cash flows	Discount Rate	17.3% - 20.8%	19.1%
	$	276	Comparable multiples	EV/EBITDA(6)	—	7.5x
	$	1,151	Comparable multiples	EV/Revenue	—	0.3x
Equity
Preferred Stock	$	13,307	Comparable multiples	EV/EBITDA(6)	10.0x - 31.2x	31.0x
	$	24,695	Comparable multiples	EV/Revenue	4.0x - 5.7x	4.6x
Common Stock	$	5,396	Discounted cash flows	Discount Rate	—	29.6%
	$	16,877	Comparable multiples	EV/EBITDA(6)	3.5x - 17.5x	9.0x
	$	4,030	Comparable multiples	EV/Revenue	—	14.7x
Warrants	$	247	Comparable multiples	EV/Revenue	—	4.0x
As of December 31, 2023
Bank Loans, Corporate Debt, and Other Debt Obligations
1st Lien/Senior Secured Debt	$	2,744,907	Discounted cash flows	Discount Rate	8.8% - 31.8%	11.6%
	$	40,591	Comparable multiples	EV/EBITDA(6)	—	10.0x
	$	1,073	Collateral analysis	Recovery Rate	—	27.4%
	$	58,157	Comparable multiples	EV/Revenue	0.4x - 2.7x	1.8x
1st Lien/Last-Out Unitranche	$	125,245	Discounted cash flows	Discount Rate	8.9% - 12.6%	12.3%
2nd Lien/Senior Secured Debt	$	50,052	Discounted cash flows	Discount Rate	12.4% - 16.9%	13.3%
	$	1,701	Comparable multiples	EV/EBITDA(6)	—	8.3x
	$	14,809	Comparable multiples	EV/Revenue	—	0.3x
Unsecured Debt	$	17,905	Discounted cash flows	Discount Rate	15.8% - 20.3%	18.7%
	$	255	Comparable multiples	EV/EBITDA(6)	—	8.9x
	$	9,154	Comparable multiples	EV/Revenue	—	0.4x
Equity
Preferred Stock	$	12,846	Comparable multiples	EV/EBITDA(6)	13.7x - 31.2x	31.1x
	$	24,450	Comparable multiples	EV/Revenue	4.0x - 4.1x	4.0x
Common Stock	$	9,518	Discounted cash flows	Discount Rate	16.8% - 29.7%	24.9%
	$	16,950	Comparable multiples	EV/EBITDA(6)	3.8x - 17.5x	9.2x
	$	4,043	Comparable multiples	EV/Revenue	—	14.8x
Warrants	$	244	Comparable multiples	EV/Revenue	—	4.0x

(1)

As of March 31, 2024, included within the fair value of Level 3 assets of $3,377,068 is an amount of $150,801 for which the Investment Adviser did not develop the unobservable inputs (examples include single source broker quotations, third party pricing, and prior transactions). The income approach was used in the determination of fair value for $3,101,037 or 93.6% of Level 3 bank loans, corporate debt, and other debt obligations.

(2)

As of December 31, 2023, included within the fair value of Level 3 assets of $3,343,635 is an amount of $211,735 for which the Investment Adviser did not develop the unobservable inputs (examples include single source broker quotations, third party pricing, and prior transactions). The income approach was used in the determination of fair value for $2,938,109 or 89.7% of Level 3 bank loans, corporate debt, and other debt obligations.

(3)

The fair value of any one instrument may be determined using multiple valuation techniques. For example, market comparable and discounted cash flows may be used together to determine fair value. Therefore, the Level 3 balance encompasses both of these techniques.

(4)

The range for an asset category consisting of a single investment, if any, is not meaningful and therefore has been excluded.

(5)

Weighted average for an asset category consisting of multiple investments is calculated by weighting the significant unobservable input by the relative fair value of the investment. Weighted average for an asset category consisting of a single investment represents the significant unobservable input used in the fair value of the investment.

(6)

Enterprise value of portfolio company as a multiple of earnings before interest, taxes, depreciation and amortization (“EBITDA”).

As noted above, the income and market approaches were used in the determination of fair value of certain Level 3 assets as of March 31, 2024 and December 31, 2023. The significant unobservable inputs used in the income approach are the discount rate or market yield used to discount the estimated future cash flows expected to be received from the underlying investment, which include both future principal and interest payments. An increase in the discount rate or market yield would result in a decrease in the fair value. Included in the consideration and selection of discount rates or market yields is risk of default, rating of the investment, call provisions and comparable company investments. The significant unobservable inputs used in the market approach are based on market comparable transactions and market multiples of publicly traded comparable companies. Increases or decreases in market comparable transactions or market multiples would result in an increase or decrease, in the fair value.

The following is a summary of the Company’s assets categorized within the fair value hierarchy:


	March 31, 2024										December 31, 2023
Assets	Level 1		Level 2			Level 3		Total			Level 1		Level 2			Level 3		Total
1st Lien/Senior Secured Debt	$	—	$	62,848		$	3,099,816	$	3,162,664		$	—	$	70,504		$	3,036,965	$	3,107,469
1st Lien/Last-Out Unitranche		—		—			158,514		158,514			—		—			144,743		144,743
2nd Lien/Senior Secured Debt		—		—			33,636		33,636			—		—			66,562		66,562
Unsecured Debt		—		—			20,550		20,550			—		—			27,314		27,314
Preferred Stock		—		—			38,002		38,002			—		—			37,296		37,296
Common Stock		198		—			26,303		26,501			190		—			30,511		30,701
Warrants		—		—			247		247			—		—			244		244
Affiliated Money Market Fund		499		—			—		499			—		—			—		—
Total Assets	$	697	$	62,848		$	3,377,068	$	3,440,613		$	190	$	70,504		$	3,343,635	$	3,414,329
Unrealized appreciation (depreciation) on foreign currency forward contracts	$	—	$	(581	)	$	—	$	(581	)	$	—	$	(726	)	$	—	$	(726	)

The below table presents a summary of changes in fair value of Level 3 assets by investment type:


	Beginning Balance		Purchases (1)		Net Realized Gain (Loss)			Net Change in Unrealized Appreciation (Depreciation)			Sales and Settlements(2)			Net Amortization of Premium/ Discount			Transfers In(3)		Transfers Out(3)			Ending Balance		Net Change in Unrealized Appreciation (Depreciation) for assets still held
For the Three Months Ended March 31, 2024
1st Lien/Senior Secured Debt	$	3,036,965	$	194,044	$	(17,646	)	$	3,536		$	(129,587	)	$	5,103		$	35,222	$	(27,821	)	$	3,099,816	$	(7,715	)
1st Lien/Last-Out Unitranche		144,743		12,908		—			767			(103	)		199			—		—			158,514		767
2nd Lien/Senior Secured Debt		66,562		5,060		—			1,042			(40,129	)		1,101			—		—			33,636		1,999
Unsecured Debt		27,314		1,596		—			(8,010	)		—			(350	)		—		—			20,550		(8,010	)
Preferred Stock		37,296		124		—			582			—			—			—		—			38,002		582
Common Stock		30,511		—		658			(779	)		(4,087	)		—			—		—			26,303		(86	)
Warrants		244		—		—			3			—			—			—		—			247		3
Total Assets	$	3,343,635	$	213,732	$	(16,988	)	$	(2,859	)	$	(173,906	)	$	6,053		$	35,222	$	(27,821	)	$	3,377,068	$	(12,460	)
For the Three Months Ended March 31, 2023
1st Lien/Senior Secured Debt	$	3,050,929	$	49,657	$	5		$	(13,252	)	$	(30,037	)	$	4,541		$	—	$	(34,201	)	$	3,027,642	$	(14,587	)
1st Lien/Last-Out Unitranche		116,230		588		—			(1,336	)		(103	)		305			—		—			115,684		(1,336	)
2nd Lien/Senior Secured Debt		89,573		491		(35,383	)		32,575			—			233			—		—			87,489		(2,808	)
Unsecured Debt		7,630		598		—			(78	)		—			3			—		—			8,153		(78	)
Preferred Stock		42,377		—		—			2,510			—			—			—		—			44,887		2,510
Common Stock		34,497		—		(883	)		2,043			—			—			—		—			35,657		1,160
Warrants		611		—		—			(374	)		—			—			—		—			237		(374	)
Total Assets	$	3,341,847	$	51,334	$	(36,261	)	$	22,088		$	(30,140	)	$	5,082		$	—	$	(34,201	)	$	3,319,749	$	(15,513	)

(1)

Purchases may include PIK, securities received in corporate actions and restructurings.

(2)

Sales and Settlements may include securities delivered in corporate actions and restructuring of investments.

(3)

Transfers in (out) of Level 3 are due to a decrease (increase) in the quantity and reliability of broker quotes obtained by the Investment Adviser.

Debt Not Carried at Fair Value

Fair value is estimated by discounting remaining payments using applicable current market rates, which take into account changes in the Company’s marketplace credit ratings, or market quotes, if available. If the Company’s debt obligations were carried at fair value, the fair value and level would have been as follows:


		As of
	Level	March 31, 2024		December 31, 2023
Revolving Credit Facility	3	$	583,822	$	972,241
2025 Notes	2	$	353,988	$	352,800
2026 Notes	2	$	475,750	$	476,450
2027 Notes	2	$	403,920	$	—

- Definition

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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