Fair Value of Financial Instruments

The Company’s investments were categorized in the fair value hierarchy described in Note 2. “Significant Accounting Policies,” as follows as of December 31, 2019 and 2018:



	As of December 31, 2019								As of December 31, 2018
Description	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Senior Debt	$	—	$	—	$	48,167,603	$	48,167,603	$	—	$	—	$	30,700,000	$	30,700,000
Equity	—		—		96,027,397		96,027,397		—		—		51,800,000		51,800,000
Total investments	$	—	$	—	$	144,195,000	$	144,195,000	$	—	$	—	$	82,500,000	$	82,500,000

The ranges of unobservable inputs used in the fair value measurement of the Company’s Level 3 investments as of December 31, 2019 and December 31, 2018 were as follows:

December 31, 2019

Asset Group

Fair Value

Valuation Techniques

Unobservable Inputs

Range

(Weighted Average)⁽¹⁾

Impact to Valuation from an Increase in

Input ⁽²⁾

Senior Debt

44,814,338

Discounted Cash Flow
Market Comparables
Transaction Method

Discount Rate
EBITDA Multiple
EBITDA Multiple

9.0% - 14.0% (10.3%)
7.8x – 14.3x (12.3x)
8.0x – 14.5x (12.2x)

Decrease
Increase
Increase

3,353,265

Transaction Precedent

Transaction Price

N/A

Equity

89,380,662

Discounted Cash Flow
Market Comparables
Transaction Method

Discount Rate
EBITDA Multiple
EBITDA Multiple

9.0% - 14.0% (10.3%)
7.8x – 14.3x (12.3x)
8.0x – 14.5x (12.2x)

Decrease
Increase
Increase

6,646,735

Transaction Precedent

Transaction Price

N/A

Total

144,195,000

December 31, 2018

Asset Group

Fair Value

Valuation Techniques

Unobservable Inputs

Range

(Weighted Average)⁽¹⁾

Impact to Valuation from an Increase in

Input ⁽²⁾

Senior Debt

30,700,000

Discounted Cash Flow
Market Comparables
Transaction Method

Discount Rate
EBITDA Multiple
EBITDA Multiple

10.5% - 13.5% (11.4%)
7.9x – 12.2x (10.9x)
8.0x – 12.0x (10.8x)

Decrease
Increase
Increase

Equity

51,800,000

Discounted Cash Flow
Market Comparables
Transaction Method

Discount Rate
EBITDA Multiple
EBITDA Multiple

10.5% - 13.5% (11.4%)
7.9x – 12.2x (10.9x)
8.0x – 12.0x (10.8x)

Decrease
Increase
Increase

Total

82,500,000

FOOTNOTES:


⁽¹⁾	Discount rates are relative to the enterprise value of the portfolio companies and are not the market yields on the associated debt investments. Unobservable inputs were weighted by the relative fair value of the investments.


⁽²⁾	This column represents the directional change in the fair value of the Level 3 investments that would result from an increase to the corresponding unobservable input. A decrease to the input would have the opposite effect. Significant changes in these inputs in isolation could result in significantly higher or lower fair value measurements.

The preceding tables include the significant unobservable inputs as they relate to the Company’s determination of fair values for its investments categorized within Level 3 as of December 31, 2019 and 2018. In addition to the techniques and inputs noted in the tables above, according to the Company’s valuation policy, the Company may also use other valuation techniques and methodologies when determining the fair value estimates for the Company’s investments. Any significant increases or decreases in the unobservable inputs would result in significant increases or decreases in the fair value of the Company’s investments.

Investments that do not have a readily available market value are valued utilizing a market approach, an income approach (i.e. discounted cash flow approach), a transaction approach, or a combination of such approaches, as appropriate. The market approach uses prices, including third party indicative broker quotes, and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The transaction approach uses pricing indications derived from recent precedent merger and acquisition transactions involving comparable target companies. The income approach uses valuation techniques to convert future amounts (for example, cash flows or earnings) that are discounted based on a required or expected discount rate to derive a present value amount range. The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors the Company may take into account to determine the fair value of its investments include, as relevant: available current market data, including an assessment of the credit quality of the security’s issuer, relevant and applicable market trading and transaction comparables, applicable market yields and multiples, illiquidity discounts, security covenants, call protection provisions, information rights, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, data derived from merger and acquisition activities for comparable companies, and enterprise values, among other factors.

The following tables provide reconciliation of investments for which Level 3 inputs were used in determining fair value for the year ended December 31, 2019 and for the period from February 7, 2018 (commencement of operations) through December 31, 2018:



	Year Ended December 31, 2019
	Senior Debt		Equity		Total
Fair value balance as of January 1, 2019	$	30,700,000	$	51,800,000	$	82,500,000
Additions	17,467,603		39,032,397		56,500,000
Net change in unrealized appreciation ⁽¹⁾	—		5,195,000		5,195,000
Fair value balance as of December 31, 2019	$	48,167,603	$	96,027,397	$	144,195,000
Change in net unrealized appreciation in investments held as of December 31, 2019 ⁽¹⁾	$	—	$	5,195,000	$	5,195,000



	Period from February 7, 2018 (Commencement of Operations) to December 31, 2018
	Senior Debt		Equity		Total
Fair value balance as of February 7, 2018	$	—	$	—	$	—
Additions	30,700,000		46,074,339		76,774,339
Net change in unrealized appreciation ⁽¹⁾	—		5,725,661		5,725,661
Fair value balance as of December 31, 2018	$	30,700,000	$	51,800,000	$	82,500,000
Change in net unrealized appreciation in investments held as of December 31, 2018 ⁽¹⁾	$	—	$	5,725,661	$	5,725,661

FOOTNOTE:


⁽¹⁾	Included in net change in unrealized appreciation on investments in the consolidated statements of operations.