Fair Value Measurements

6 Months Ended

Jun. 30, 2024

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements

Investments

The Company values all investments in accordance with ASC Topic 820. ASC Topic 820 requires enhanced disclosures about assets and liabilities that are measured and reported at fair value. As defined in ASC Topic 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the assets or liabilities or market and the assets’ or liabilities’ complexity.

ASC Topic 820 establishes a hierarchical disclosure framework which prioritizes and ranks the level of market price observability of inputs used in measuring investments at fair value. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

Based on the observability of the inputs used in the valuation techniques, the Company is required to provide disclosures on fair value measurements according to the fair value hierarchy. The fair value hierarchy ranks the observability of the inputs used to determine fair values. Investments carried at fair value are classified and disclosed in one of the following three categories:

•Level 1 – Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities at the measurement date.

•Level 2 – Valuations based on inputs other than quoted prices in active markets, including quoted prices for similar assets or liabilities, which are either directly or indirectly observable.

•Level 3 – Valuations based on inputs that are unobservable and significant to the overall fair value measurement. This includes situations where there is little, if any, market activity for the assets or liabilities. The inputs into the determination of fair value are based upon the best information available and may require significant management judgment or estimation.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an asset’s or liability’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 asset or liability.

For periods prior to September 30, 2022, the Board determined the fair value of the Company’s investments. On September 30, 2022, pursuant to SEC Rule 2a-5 of the 1940 Act, the Board designated MC Advisors as the Company’s valuation designee (the “Valuation Designee”). The Board is responsible for oversight of the Valuation Designee. The Valuation Designee has established a valuation committee to determine in good faith the fair value of the Company’s investments, based on input of the Valuation Designee’s management and personnel and independent valuation firms which are engaged at the direction of the valuation committee to assist in the valuation of certain portfolio investments lacking a readily available market quotation. The valuation committee determines fair values pursuant to a valuation policy approved by the Board and pursuant to a consistently applied valuation process.

With respect to investments for which market quotations are not readily available, the Valuation Designee undertakes a multi-step valuation process each quarter, as described below:

•the quarterly valuation process begins with each portfolio company or investment being initially evaluated and rated by the investment professionals of the Valuation Designee responsible for the credit monitoring of the portfolio investment;

•the Valuation Designee engages an independent valuation firm to conduct independent appraisals of a selection of investments for which market quotations are not readily available. The Valuation Designee will consult with an independent valuation firm relative to each portfolio company at least once in every calendar year, but the independent appraisals are generally received quarterly for each investment;

•to the extent an independent valuation firm is not engaged to conduct an investment appraisal on an investment for which market quotations are not readily available, the investment will be valued by the Valuation Designee;

•preliminary valuation conclusions are then documented and discussed with the valuation committee of the Valuation Designee;

•the valuation conclusions are approved by the valuation committee of the Valuation Designee; and

•a report prepared by the Valuation Designee is presented to the Board quarterly to allow the Board to perform its oversight duties of the valuation process and the Valuation Designee.

The accompanying consolidated schedules of investments held by the Company consist primarily of private debt instruments (“Level 3 debt”). The Valuation Designee generally uses the income approach to determine fair value for Level 3 debt where market quotations are not readily available, as long as it is appropriate. If there is deterioration in credit quality or a debt investment is in workout status, the Valuation Designee may consider other factors in determining the fair value, including the value attributable to the debt investment from the enterprise value of the portfolio company or the proceeds that would be received in a liquidation analysis. This liquidation analysis may include probability weighting of alternative outcomes. The Valuation Designee generally considers the Company’s Level 3 debt to be performing if the borrower is not in default, the borrower is remitting payments in a timely manner; the loan is in covenant compliance or is otherwise not deemed to be impaired. In determining the fair value of the performing Level 3 debt, the Valuation Designee considers fluctuations in current interest rates, the trends in yields of debt instruments with similar credit ratings, financial condition of the borrower, economic conditions and other relevant factors, both qualitative and quantitative. In the event that a Level 3 debt instrument is not performing, as defined above, the Valuation Designee will evaluate the value of the collateral utilizing the same framework described above for a performing loan to determine the value of the Level 3 debt instrument.

Under the income approach, discounted cash flow models are utilized to determine the present value of the future cash flow streams of its debt investments, based on future interest and principal payments as set forth in the associated loan agreements. In determining fair value under the income approach, the Valuation Designee also considers the following factors: applicable market yields and leverage levels, recent transactions, credit quality, prepayment penalties, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, and changes in the interest rate environment and the credit markets that generally may affect the price at which similar investments may be made.

Under the market approach, the enterprise value methodology is typically utilized to determine the fair value of an investment. There is no one methodology to estimate enterprise value and, in fact, for any one portfolio company, enterprise value is generally best expressed as a range of values, from which the Valuation Designee derives a single estimate of enterprise value. In estimating the enterprise value of a portfolio company, the Valuation Designee analyzes various factors consistent with industry practice, including but not limited to original transaction multiples, the portfolio company’s historical and projected financial results, applicable market trading and transaction comparables, applicable market yields and leverage levels, the nature and realizable value of any collateral, the markets in which the portfolio company does business, and comparisons of financial ratios of peer companies that are public. Typically, the enterprise values of private companies are based on multiples of earnings before interest, income taxes, depreciation and amortization (“EBITDA”), cash flows, net income, revenues, or in limited cases, book value.

In addition, for certain investments, the Valuation Designee may base its valuation on indicative bid and ask prices provided by an independent third-party pricing service. Bid prices reflect the highest price that the Company and others may be willing to pay. Ask prices represent the lowest price that the Company and others may be willing to accept. The Valuation Designee generally uses the midpoint of the bid/ask range as its best estimate of fair value of such investment.

As of June 30, 2024, the Valuation Designee determined, in good faith, the fair value of the Company’s portfolio investments in accordance with GAAP and the Company’s valuation procedures based on the facts and circumstances known by the Company at that time, or reasonably expected to be known at that time.

Foreign Currency Forward Contracts

The valuation for the Company’s foreign currency forward contracts is based on the difference between the exchange rate associated with the forward contract and the exchange rate at the current period end. Foreign currency forward contracts are categorized as Level 2 in the fair value hierarchy.

Fair Value Disclosures

The following tables present fair value measurements of investments and foreign currency forward contracts, by major class according to the fair value hierarchy:

	Fair Value Measurements
June 30, 2024	Level 1		Level 2		Level 3		Total
Senior secured loans	$	—	$	—	$	2,906,171	$	2,906,171
Unitranche secured loans	—		—		168,253		168,253
Junior secured loans	—		—		154,998		154,998
Equity securities	166		—		157,553		157,719
Total investments	$	166	$	—	$	3,386,975	$	3,387,141
Foreign currency forward contracts asset (liability)	$	—	$	(1,406)	$	—	$	(1,406)

	Fair Value Measurements
December 31, 2023	Level 1		Level 2		Level 3		Total
Senior secured loans	$	—	$	—	$	2,171,243	$	2,171,243
Unitranche secured loans	—		—		184,853		184,853
Junior secured loans	—		—		87,986		87,986
Equity securities	23		—		84,062		84,085
Total investments	$	23	$	—	$	2,528,144	$	2,528,167
Foreign currency forward contracts asset (liability)	$	—	$	(3,087)	$	—	$	(3,087)

Senior secured loans, unitranche secured loans and junior secured loans are collateralized by tangible and intangible assets of the borrowers. These investments include loans to entities that have some level of challenge in obtaining financing from other, more conventional institutions, such as a bank. Interest rates on these loans are either fixed or floating and are based on current market conditions and credit ratings of the borrower. Excluding loans on non-accrual, the contractual interest rates on the loans ranged from 7.50% to 21.32% at June 30, 2024 and 7.50% to 21.34% at December 31, 2023. The maturity dates on the loans outstanding at June 30, 2024 range between July 2024 and June 2031.

The following tables provide a reconciliation of the beginning and ending balances for investments at fair value that use Level 3 inputs for the three and six months ended June 30, 2024:

	Investments
	Senior secured loans		Unitranche secured loans		Junior secured loans		Equity securities		Total investments
Balance as of March 31, 2024	$	2,432,957	$	174,337	$	102,443	$	104,299	$	2,814,036
Net realized gain (loss) on investments	221		—		—		(1)		220
Net change in unrealized gain (loss) on investments	3,530		(653)		(6,757)		1,500		(2,380)
Purchases of investments and other adjustments to cost (1)	607,868		1,235		47,108		48,737		704,948
Proceeds from principal payments and sales of investments (2)	(123,094)		(6,666)		(73)		(16)		(129,849)
Reclassifications (3)	(15,311)		—		12,277		3,034		—
Balance as of June 30, 2024	$	2,906,171	$	168,253	$	154,998	$	157,553	$	3,386,975

	Investments
	Senior secured loans		Unitranche secured loans		Junior secured loans		Equity securities		Total investments
Balance as of December 31, 2023	$	2,171,243	$	184,853	$	87,986	$	84,062	$	2,528,144
Net realized gain (loss) on investments	221		—		—		3		224
Net change in unrealized gain (loss) on investments	10,815		74		(3,423)		(2,254)		5,212
Purchases of investments and other adjustments to cost (1)	948,674		3,673		62,167		59,224		1,073,738
Proceeds from principal payments and sales of investments (2)	(198,881)		(20,347)		(347)		(635)		(220,210)
Reclassifications (3)	(25,901)		—		8,615		17,286		—
Transfers in (out) of Level 3 (4)	—		—		—		(133)		(133)
Balance as of June 30, 2024	$	2,906,171	$	168,253	$	154,998	$	157,553	$	3,386,975

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(1)Includes purchases of new investments, effects of refinancing and restructurings, premium and discount accretion and amortization and PIK interest.

(2)Represents net proceeds from investments sold and principal paydowns received.

(3)Represents non-cash reclassification of investment type due to a restructuring.

(4)Represents non-cash transfers between fair value categories.

The following tables provide a reconciliation of the beginning and ending balances for investments at fair value that use Level 3 inputs for the three and six months ended June 30, 2023:

	Investments
	Senior secured loans		Unitranche secured loans		Junior secured loans		Equity securities		Total investments
Balance as of March 31, 2023	$	1,320,148	$	128,380	$	44,633	$	50,697	$	1,543,858
Net realized gain (loss) on investments	(1,604)		—		—		—		(1,604)
Net change in unrealized gain (loss) on investments	527		311		(1,088)		(2,539)		(2,789)
Purchases of investments and other adjustments to cost (1)	254,104		993		1,931		13,667		270,695
Proceeds from principal payments and sales of investments (2)	(41,663)		(285)		(3,362)		(108)		(45,418)
Reclassifications (3)	(2,076)		—		2,076		—		—
Balance as of June 30, 2023	$	1,529,436	$	129,399	$	44,190	$	61,717	$	1,764,742

	Investments
	Senior secured loans		Unitranche secured loans		Junior secured loans		Equity securities		Total investments
Balance as of December 31, 2022	$	1,250,788	$	127,378	$	44,469	$	46,327	$	1,468,962
Net realized gain (loss) on investments	(1,609)		—		—		949		(660)
Net change in unrealized gain (loss) on investments	4,265		576		(1,004)		(2,038)		1,799
Purchases of investments and other adjustments to cost (1)	351,354		1,883		4,050		17,549		374,836
Proceeds from principal payments and sales of investments (2)	(73,286)		(438)		(5,401)		(1,070)		(80,195)
Reclassifications (3)	(2,076)		—		2,076		—		—
Balance as of June 30, 2023	$	1,529,436	$	129,399	$	44,190	$	61,717	$	1,764,742

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(1)Includes purchases of new investments, effects of refinancing and restructurings, premium and discount accretion and amortization and PIK interest.

(2)Represents net proceeds from investments sold and principal paydowns received.

(3)Represents non-cash reclassification of investment type due to a restructuring.

The total net change in unrealized gain (loss) on investments included on the consolidated statements of operations for the three and six months ended June 30, 2024, attributable to Level 3 investments still held at June 30, 2024, was ($9,543) and ($3,922), respectively. The total net change in unrealized gain (loss) on investments included on the consolidated statements of operations for the three and six months ended June 30, 2023, attributable to Level 3 investments still held at June 30, 2023, was ($3,956) and $2,000, respectively. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in or out of Level 3 as of the beginning of the period in which the reclassifications occur. During the three and six months ended June 30, 2024, zero and one investment transferred from Level 3 to Level 1 as a result of a restructuring, respectively. There were no transfers among Levels 1, 2 and 3 during the three and six months ended June 30, 2023.

Significant Unobservable Inputs

ASC Topic 820 requires disclosure of quantitative information about the significant unobservable inputs used in the valuation of assets and liabilities classified as Level 3 within the fair value hierarchy. Disclosure of this information is not required in circumstances where a valuation (unadjusted) is obtained from a third-party pricing service and the information regarding the unobservable inputs is not reasonably available to the Company and as such, the disclosures provided below exclude those investments valued in that manner. The tables below are not intended to be all-inclusive, but rather to provide information on significant unobservable inputs and valuation techniques used by the Valuation Designee.

The following tables present quantitative information about the valuation techniques and significant unobservable inputs of the Company's Level 3 investments as of June 30, 2024 and December 31, 2023:

	Fair Value			Valuation Technique	Unobservable Input	Weighted Average Mean (1)		Range
								Minimum		Maximum
Assets:
Senior secured loans	$	1,933,882		Discounted cash flow	EBITDA multiples	11.3x		3.8x		24.4x
					Market yields	11.3	%	8.7	%	21.0	%
Senior secured loans	711,503			Discounted cash flow	Revenue multiples	7.3x		0.8x		18.3x
					Market yields	11.5	%	9.3	%	24.5	%
Senior secured loans	11,214			Enterprise value	Revenue multiples	0.5x		0.4x		1.6x
Senior secured loans	9,221			Liquidation	Probability weighting of alternative outcomes	91.1	%	91.1	%	91.1	%
Unitranche secured loans	134,246			Discounted cash flow	EBITDA multiples	10.4x		7.3x		14.5x
					Market yields	13.5	%	8.6	%	22.2	%
Unitranche secured loans	34,007			Discounted cash flow	Revenue multiples	9.2x		6.0x		12.5x
					Market yields	13.2	%	12.3	%	14.1	%
Junior secured loans	116,680			Discounted cash flow	Market yields	14.1	%	11.8	%	17.3	%
Junior secured loans	3,153			Enterprise value	Revenue multiples	0.7x		0.3x		1.6x
Junior secured loans	751			Discounted cash flow	Revenue multiples	1.0x		1.0x		1.0x
					Market yields	22.0	%	22.0	%	22.0	%
Equity securities	99,521			Enterprise value	EBITDA multiples	11.3x		3.8x		21.5x
Equity securities	52,082			Enterprise value	Revenue multiples	3.6x		0.4x		11.8x
Equity securities	3,452			Option pricing model	Volatility	47.0	%	25.0	%	72.5	%
Total Level 3 Assets	$	3,109,712	(2)

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(1)The weighted average mean and weighted average range of unobservable inputs is based on the fair value of investments.

(2)Excludes investments of $277,263 at fair value where valuation (unadjusted) is obtained from a third-party pricing service or broker quote for which such disclosure is not required.

	Fair Value			Valuation Technique	Unobservable Input	Weighted Average Mean (1)		Range (Weighted Average)
								Minimum		Maximum
Assets:
Senior secured loans	$	1,351,324		Discounted cash flow	EBITDA multiples	11.1x		5.0x		22.2x
					Market yields	11.4	%	8.7	%	24.0	%
Senior secured loans	559,534			Discounted cash flow	Revenue multiples	7.2x		0.7x		19.5x
					Market yields	11.6	%	9.0	%	16.6	%
Senior secured loans	10,310			Enterprise value	EBITDA multiples	7.4x		5.3x		8.3x
Senior secured loans	9,618			Liquidation	Probability weighting of alternative outcomes	95.0	%	95.0	%	95.0	%
Senior secured loans	6,473			Enterprise value	Revenue multiples	0.6x		0.5x		1.6x
Unitranche secured loans	151,703			Discounted cash flow	EBITDA multiples	10.5x		7.3x		14.8x
					Market yields	15.0	%	8.6	%	24.6	%
Unitranche secured loans	33,150			Discounted cash flow	Revenue multiples	9.4x		6.0x		12.8x
					Market yields	12.3	%	11.9	%	12.7	%
Junior secured loans	70,881			Discounted cash flow	EBITDA multiples	13.5x		13.5x		13.5x
					Market yields	12.6	%	11.6	%	18.4	%
Junior secured loans	6,241			Enterprise value	Revenue multiples	1.6x		1.6x		1.6x
Junior secured loans	348			Discounted cash flow	Revenue multiples	0.9x		0.9x		0.9x
					Market yields	16.2	%	16.2	%	16.2	%
Equity securities	52,062			Enterprise value	EBITDA multiples	10.7x		6.3x		20.5x
Equity securities	29,920			Enterprise value	Revenue multiples	3.6x		0.5x		11.8x
Equity securities	1,487			Option pricing model	Volatility	59.6	%	35.0	%	74.0	%
Total Level 3 Assets	$	2,283,051	(2)

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(1)The weighted average mean and weighted average range of unobservable inputs is based on the fair value of investments.

(2)Excludes investments of $245,093 at fair value where valuation (unadjusted) is obtained from a third-party pricing service or broker quote for which such disclosure is not required.

The significant unobservable input used in the income approach of fair value measurement of the Company’s investments is the discount rate used to discount the estimated future cash flows expected to be received from the underlying investment, which include both future principal and interest payments. Increases (decreases) in the discount rate would result in a decrease (increase) in the fair value estimate of the investment. Included in the consideration and selection of discount rates are the following factors: risk of default, rating of the investment and comparable investments, and call provisions.

The significant unobservable inputs used in the market approach of fair value measurement of the Company’s investments are the market multiples of EBITDA or revenue of the comparable guideline public companies. The Valuation Designee selects a population of public companies for each investment with similar operations and attributes of the portfolio company. Using these guideline public companies’ data, a range of multiples of enterprise value to EBITDA or revenue is calculated. The Valuation Designee selects percentages from the range of multiples for purposes of determining the portfolio company’s estimated enterprise value based on said multiple and generally the latest twelve months EBITDA or revenue of the portfolio company (or other meaningful measure). Increases (decreases) in the multiple will result in an increase (decrease) in enterprise value, resulting in an increase (decrease) in the fair value estimate of the investment.

Other Financial Assets and Liabilities

ASC Topic 820 requires disclosure of the fair value of financial instruments for which it is practical to estimate such value. The Company believes that the carrying amounts of its other financial instruments such as cash and restricted cash and cash equivalents, receivables and payables approximate the fair value of such items due to the short maturity of such instruments. Fair value of the Company’s SPV Credit Facility, Term Loan, 2022 ABS, 2023 ABS, 2028 Notes and Revolving Credit Facility is estimated by discounting remaining payments using applicable market rates or market quotes for similar instruments at the measurement date, if applicable. As of both June 30, 2024 and December 31, 2023, the Company believes that the carrying value of its SPV Credit Facility, Term Loan, SPV III Credit Facility and Revolving Credit Facility approximates fair value. As of June 30, 2024 and December 31, 2023, the estimated fair value of the Company’s 2028 Notes was $203,212 and $197,767, respectively. As of June 30, 2024 and December 31, 2023, the estimated fair value of the Company’s 2022 ABS Class A and Class B notes was $296,227 and $299,866, respectively. As of June 30, 2024 and December 31, 2023, the estimated fair value of its 2023 ABS Class A and Class B notes was $189,667 and $187,345, respectively.