Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2022

The Company’s investments were categorized in the fair value hierarchy described in Note 2. “Significant Accounting Policies,” as follows as of March 31, 2022 and December 31, 2021 (in thousands):


	As of March 31, 2022								As of December 31, 2021
Description	Level 1		Level 2		Level 3		Total		Level 1		Level 2		Level 3		Total
Senior Debt	$	—	$	—	$	152,542	$	152,542	$	—	$	—	$	152,542	$	152,542
Equity	—		—		316,112		316,112		—		—		303,455		303,455
Total investments	$	—	$	—	$	468,654	$	468,654	$	—	$	—	$	455,997	$	455,997

The ranges of unobservable inputs used in the fair value measurement of the Company’s Level 3 investments as of March 31, 2022 and December 31, 2021 were as follows (in thousands):

March 31, 2022

Asset Group

Fair Value

Valuation Techniques

Unobservable Inputs

Range

(Weighted Average)(1)

Impact to Valuation from an Increase in

Input(2)

Senior Debt

152,542

Discounted Cash Flow
Market Comparables
Transaction Method

Discount Rate
EBITDA Multiple
EBITDA Multiple

9.0% – 13.5% (11.3%)

5.0x – 14.3x (10.0x)

6.5x – 13.0x (10.5x)

Decrease
Increase
Increase

Equity

316,112

Discounted Cash Flow
Market Comparables
Transaction Method

Discount Rate
EBITDA Multiple
EBITDA Multiple

9.0% – 13.5% (11.3%)

5.0x – 14.3x (10.0x)

6.5x – 13.0x (10.5x)

Decrease
Increase
Increase

Total

468,654

December 31, 2021

Asset Group

Fair Value

Valuation Techniques

Unobservable Inputs

Range

(Weighted Average)(1)

Impact to Valuation from an Increase in

Input(2)

Senior Debt

130,042

Discounted Cash Flow
Market Comparables
Transaction Method

Discount Rate
EBITDA Multiple
EBITDA Multiple

8.5% – 13.0% (11.4%)

4.1x – 15.2x (8.9x)

6.0x – 12.5x (9.6x)

Decrease
Increase
Increase

22,500

Transaction Precedent

Transaction Price

N/A

Equity

256,695

Discounted Cash Flow
Market Comparables
Transaction Method

Discount Rate
EBITDA Multiple
EBITDA Multiple

8.5% – 13.0% (11.4%)

4.1x – 15.2x (8.9x)

6.0x – 12.5x (9.6x)

Decrease
Increase
Increase

46,760

Transaction Precedent

Transaction Price

N/A

Total

455,997

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 March 31, 2022 and December 31, 2021. 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 a reconciliation of investments for which Level 3 inputs were used in determining fair value for the three months ended March 31, 2022 and 2021 (in thousands):


	Three Months Ended March 31, 2022
	Senior Debt		Equity		Total
Fair value balance as of January 1, 2022	$	152,542	$	303,455	$	455,997
Additions	—		1,125		1,125
Return of capital(1)	—		(237)		(237)
Net change in unrealized appreciation(2)	—		11,769		11,769
Fair value balance as of March 31, 2022	$	152,542	$	316,112	$	468,654
Change in net unrealized appreciation on investments held as of March 31, 2022(2)	$	—	$	11,769	$	11,769


	Three Months Ended March 31, 2021
	Senior Debt		Equity		Total
Fair value balance as of January 1, 2021	$	78,042	$	153,155	$	231,197

Net change in unrealized appreciation(2)	—		13,912		13,912
Fair value balance as of March 31, 2021	$	78,042	$	167,067	$	245,109
Change in net unrealized appreciation on investments held as of March 31, 2021(2)	$	—	$	13,912	$	13,912

FOOTNOTES:

(1) Represents portion of distributions received which were accounted for as a return of capital. See Note 2. “Significant Accounting Policies” for information on the accounting treatment of distributions from portfolio companies.

(2) Included in net change in unrealized appreciation on investments in the condensed consolidated statements of operations

- 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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