Fair Value Measurements Investments

9 Months Ended

Sep. 30, 2024

Fair Value Measurements Investments [Abstract]

Fair Value Measurements Investments

Note 4. Fair Value Measurements Investments

ASC Topic 820 clarifies the definition of fair value as the amount that would be received in the sale of an asset or paid in the transfer of a liability in an orderly transaction between market participants at the measurement date. Where available, the Company uses quoted market prices based on the last sales price on the measurement date.

In accordance with ASC Topic 820, the Company discloses the fair value of its investments in a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to valuations based upon unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to valuations based upon unobservable inputs that are significant to the valuation (Level 3 measurements). To the extent that fair value is based on inputs that are less observable, the determination of fair value requires a significant amount of management judgment. Investments which are valued using NAV as a practical expedient are excluded from this hierarchy.

The three-tier hierarchy of inputs is summarized below.

• Level 1 - Quoted prices are available in active markets/exchanges for identical investments as of the reporting date.

• Level 2 - Pricing inputs are observable inputs including, but not limited to, prices quoted for similar assets or liabilities in active markets/exchanges or prices quoted for identical or similar assets or liabilities in markets that are not active, and fair value is determined through the use of models or other valuation methodologies.

• Level 3 - Pricing inputs are unobservable for the investment and include activities where there is little, if any, market activity for the investment. The inputs into determination of fair value require significant management judgment and estimation.

The inputs used by management in estimating the fair value of Level 3 investments may include valuations and other reporting provided by representatives of the portfolio companies, original transaction prices, recent transactions for identical or similar instruments, and comparisons to fair values of comparable investments, and may include adjustments to reflect illiquidity or non-transferability. The Company has policies with respect to its investments, which may assist the Advisor in assessing the quality of information provided by, or on behalf of, each portfolio investment and in determining whether such information continues to be provided by a reliable source or whether further investigation is necessary. Any such investigation, as applicable, may or may not require the Advisor to forego its normal reliance on the value supplied by, or on behalf of, such portfolio investment and to independently recommend the fair value of the Company’s interest in such portfolio investments for approval by the Board, consistent with the Company’s valuation procedures.

The Company has engaged an independent third-party valuation provider, which performs valuation procedures to arrive at estimated valuation ranges of the investments on a quarterly basis. Investments that have been completed within the past three months will be fair valued at cost unless there has been a material event. If there has been a material event or material information that was not known as of the close of the transaction, the independent third-party valuation provider will provide an independent valuation range. The types of valuation methodologies employed by the third-party valuation provider include discounted cash flow, recent financing and enterprise value valuation methodologies. The Company’s Board will discuss valuations and determine the fair value of each investment in the Company’s portfolio in good faith, based on the input of the Advisor, the respective independent valuation firms and the audit committee.

The Company’s investments and borrowings are subject to market risk. Market risk is the potential for changes in the value due to market changes. Market risk is directly impacted by the volatility and liquidity in the markets in which the investments and borrowings are traded.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in these securities. The availability of valuation techniques and observable inputs can vary from security to security and is affected by a wide variety of factors including the type of security, whether the security is new and not yet established in the marketplace, and other characteristics particular to the transaction. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics and other factors.

The use of these valuation models requires significant estimation and judgment by the Advisor. While the Company believes its valuation methods are appropriate, other market participants may value identical assets differently than the Company at the measurement date. The methods used by the Company may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. The Company may also have risk associated with its concentration of investments in certain geographic regions and industries.

To the extent that valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Those estimated values do not necessarily represent the amounts that may be ultimately realized due to the occurrence of future circumstances that cannot be reasonably determined. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for securities categorized in Level 3.

The determination of what constitutes “observable” requires significant judgment by the Company. The Company considers observable data to be market data which is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, which may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level input that is significant to the fair value measurement. The categorization of an investment within the hierarchy is based upon the pricing transparency of the investment and observability of prices and inputs may be reduced for many investments. This condition could cause the investment to be reclassified to a lower level within the fair value hierarchy.

The consolidated financial statements include portfolio investments at fair value of $345,481,284 and $376,992,972 as of September 30, 2024 and December 31, 2023, respectively.

The Company valued its investments in underlying funds based on its proportionate interest in net asset value (“NAV”) of the underlying funds. For the purpose of classifying the investments in underlying funds within the fair value hierarchy, the Company makes use of the practical expedient under ASU 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent). As of September 30, 2024 and December 31, 2023, the Company’s investments in underlying funds amounted to $2,818,111 and $2,809,327, respectively.

U.S. GAAP requires that the Company disclose the Company’s pro-rata portion of individual securities, if available, that are reported to the Company by the underlying portfolio funds that exceed 5% of the Company’s capital balance.

The following tables present fair value measurements of investments, by major class according to the fair value hierarchy.

	Fair Value Measurements
September 30, 2024	Level 1		Level 2		Level 3		Total
First Lien Senior Secured Loan	$	-	$	-	$	281,382,082	$	281,382,082
Second Lien Senior Secured Loan		-		-		6,118,091		6,118,091
Senior Unsecured Notes		-		-		3,427,073		3,427,073
Preferred Equity Securities		-		-		45,273,253		45,273,253
Warrants and Other Equity Securities		-		-		6,462,674		6,462,674
Total	$	-	$	-	$	342,663,173	$	342,663,173
Fund Investments								2,818,111
Total Investments							$	345,481,284

	Fair Value Measurements
December 31, 2023	Level 1		Level 2		Level 3		Total
First Lien Senior Secured Loan	$	-	$	-	$	319,229,009	$	319,229,009
Second Lien Senior Secured Loan		-		-		6,059,372		6,059,372
Senior Unsecured Notes		-		-		1,384,446		1,384,446
Preferred Equity Securities		-		-		41,804,395		41,804,395
Warrants and Other Equity Securities		-		-		5,706,423		5,706,423
Total	$	-	$	-	$	374,183,645	$	374,183,645
Fund Investments								2,809,327
Total Investments							$	376,992,972

First Lien Senior Secured Loans and Second Lien Senior 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.

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 nine months ended September 30, 2024 and 2023:

	Investments
	First Lien Senior Secured Loan			Second Lien Senior Secured Loan			Senior Unsecured Notes		Preferred Equity Securities		Warrants and Other Equity Securities		Fund Investments		Total Investments
Balance as of June 30, 2024	$	266,987,705		$	6,073,644		$	3,427,073	$	40,480,202	$	5,985,419	$	2,818,111	$	325,772,154
Net change in unrealized gain (loss) on investments		(2,032,140	)		73,855			-		1,254,589		477,255		-		(226,441	)
Purchases of investments and other adjustments to cost (1)		18,557,493			21,490			-		3,538,462		-		-		22,117,445
Proceeds from principal repayments (2)		(2,130,976	)		(50,898	)		-		-		-		-		(2,181,874	)
Balance as of September 30, 2024	$	281,382,082		$	6,118,091		$	3,427,073	$	45,273,253	$	6,462,674	$	2,818,111	$	345,481,284

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

(2) Includes paydowns receivable from the Consolidated Statements of Assets and Liabilities.

	Investments
	First Lien Senior Secured Loan			Second Lien Senior Secured Loan			Senior Unsecured Notes			Preferred Equity Securities			Warrants and Other Equity		Fund Investments		Total Investments
Balance as of December 31, 2023	$	319,229,009		$	6,059,372		$	1,384,446		$	41,804,395		$	5,706,423	$	2,809,327	$	376,992,972
Net realized gain (loss) on investments		-			-			-			2,034,517			-		-		2,034,517
Net change in unrealized gain (loss) on investments		(4,840,190	)		188,237			(1,384,446	)		(4,860,702	)		25,980		8,784		(10,862,337	)
Purchases of investments and other adjustments to cost (1)		23,969,777			29,415			8,874			3,748,495			-		-		27,756,561
Proceeds from sales of investments		(116,674	)		-			-			(2,632,407	)		-		-		(2,749,081	)
Proceeds from principal repayments (2)		(47,515,376	)		(158,933	)		-			(17,039	)		-		-		(47,691,348	)
Lien status change(3)		(9,344,464	)		-			3,418,199			5,195,994			730,271		-		-
Balance as of September 30, 2024	$	281,382,082		$	6,118,091		$	3,427,073		$	45,273,253		$	6,462,674	$	2,818,111	$	345,481,284

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

(2) Includes paydowns receivable from the Consolidated Statements of Assets and Liabilities.

(3) Lien conversions are fair valued at beginning of period on January 1, 2024, April 1, 2024 or at time of restructure.

	Investments
	First Lien Senior Secured Loan			Second Lien Senior Secured Loan			Senior Unsecured Notes			Preferred Equity Securities		Warrants and Other Equity Securities			Fund Investments			Total Investments
Balance as of June 30, 2023	$	300,442,483		$	6,201,918		$	1,594,222		$	31,765,981	$	7,584,040		$	3,170,166		$	350,758,810
Net change in unrealized gain (loss) on investments		(1,102,579	)		83,320			(166,748	)		1,834,924		(1,329,513	)		(436,963	)		(1,117,559	)
Purchases of investments and other adjustments to cost (1)		29,568,585			(15,627	)		-			5,042,741		-			-			34,595,699
Proceeds from principal repayments (2)		(7,222,643	)		(50,897	)		-			-		-			-			(7,273,540	)
Balance as of September 30, 2023	$	321,685,846		$	6,218,714		$	1,427,474		$	38,643,646	$	6,254,527		$	2,733,203		$	376,963,410

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

(2) Includes paydowns receivable from the Consolidated Statements of Assets and Liabilities.

	Investments
	First Lien Senior Secured Loan			Second Lien Senior Secured Loan			Senior Unsecured Notes			Preferred Equity Securities			Warrants and Other Equity Securities		Fund Investments			Total Investments
Balance as of December 31, 2022	$	260,982,122		$	6,250,270		$	-		$	27,088,732		$	5,829,429	$	3,045,128		$	303,195,681
Net realized gain on investments		45,283			-			-			-			-		-			45,283
Net change in unrealized gain (loss) on investments		(2,563,379	)		115,818			(270,298	)		3,112,737			5,221		(311,925	)		88,174
Purchases of investments and other adjustments to cost (1)		76,767,867			5,317			69,697			10,070,252			419,877		-			87,333,010
Proceeds from sales of investments		(2,679,712	)		-			-			-			-		-			(2,679,712	)
Proceeds from principal repayments (2)		(10,866,335	)		(152,691	)		-			-			-		-			(11,019,026	)
Lien status change		-			-			1,628,075			(1,628,075	)		-		-			-
Balance as of September 30, 2023	$	321,685,846		$	6,218,714		$	1,427,474		$	38,643,646		$	6,254,527	$	2,733,203		$	376,963,410

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

(2) Includes paydowns receivable from the Consolidated Statements of Assets and Liabilities.

The net change in unrealized gain (loss) on investments included on the Consolidated Statements of Operations for the three and nine months ended September 30, 2024, attributable to Level 3 investments still held as of September 30, 2024 was $(226,441) and $(10,862,337), respectively. The net change in unrealized gain (loss) on investments included on the Consolidated Statements of Operations for the three and nine months ended September 30, 2023, attributable to Level 3 investments still held as of September 30, 2023 was $(1,117,559) and $88,174, 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 which the reclassifications occur. There were no transfers among Levels 1, 2 and 3 for the three and nine months ended September 30, 2024 and 2023.

Purchases (including accretion, amortization, PIK interest) for the three and nine months ended September 30, 2024 amounted to $22,117,445 and $27,756,561, respectively. Purchases (including accretion, amortization, PIK interest) for the three and nine months ended September 30, 2023 amounted to $34,595,699 and $87,333,010, respectively.

For the nine months ended September 30, 2024, the Company invested (net of original issue discount) $20,642,363 in two new portfolio companies and invested $2,134,380 in three existing portfolio companies as reflected in the Consolidated Schedule of Investments. For the nine months ended September 30, 2023, the Company invested (net of original issue discount) $66,166,847 in seven new portfolio companies and $18,370,033 in twelve existing portfolio companies as reflected in the Consolidated Schedule of Investments.

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. 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 Company.

The table below summarizes the quantitative inputs and assumptions used for items categorized in Level 3 of the fair value hierarchy as of September 30, 2024.

Range

Fair Value

Valuation Technique

Unobservable Input

Weighted Average Mean

Minimum

Maximum

Assets:

First Lien Senior Secured Loan

$

233,758,448

Discounted Cash Flow

Market Yields

14.5

%

7.0

%

28.0

%

EBITDA Multiple

8.67

x

4.25

x

35.50

x

First Lien Senior Secured Loan

11,423,044

Enterprise Value Method

Revenue Multiple

1.01

x

0.37

x

2.60

x

First Lien Senior Secured Loan

16,456,917

Enterprise Value Method

EBITDA Multiple

6.56

x

3.00

x

8.25

x

First Lien Senior Secured Loan

19,743,673

Other

N/A

N/A

N/A

N/A

Second Lien Senior Secured Loan

6,118,091

Discounted Cash Flow

Market Yields

14.2

%

13.4

%

15.1

%

EBITDA Multiple

7.50

x

7.00

x

8.00

x

Senior Unsecured Note

3,427,073

Enterprise Value Method

EBITDA Multiple

10.00

x

9.50

x

10.50

x

Preferred Equity Securities

4,945,909

Enterprise Value Method

Gross Profit Multiple

2.59

x

2.24

x

2.93

x

EBITDA Multiple

13.19

x

12.55

x

13.83

x

Preferred Equity Securities

5,800,061

Enterprise Value Method

Revenue Multiple

2.06

x

0.37

x

2.60

x

Preferred Equity Securities

30,988,821

Enterprise Value Method

EBITDA Multiple

7.60

x

3.00

x

13.75

x

Preferred Equity Securities

3,538,462

Other

N/A

N/A

N/A

N/A

Warrants and Other Equity Securities

5,616,388

Enterprise Value Method

EBITDA Multiple

7.57

x

3.00

x

35.50

x

Warrants and Other Equity Securities

13,801

Enterprise Value Method

Revenue Multiple

1.65

x

0.70

x

2.60

x

Warrants and Other Equity Securities

832,485

Other

N/A

N/A

N/A

N/A

Fund Investments

2,818,111

Other

N/A

N/A

N/A

N/A

Total Level 3 Assets

$

345,481,284

The table below summarizes the quantitative inputs and assumptions used for items categorized in Level 3 of the fair value hierarchy as of December 31, 2023.

								Range
	Fair Value		Valuation Technique	Unobservable Input	Weighted Average Mean			Minimum			Maximum
Assets:
First Lien Senior Secured Loan	$	297,206,519	Discounted Cash Flow	Market Yields		15.3	%		7.0	%		27.0	%
				EBITDA Multiple		8.15	x		1.97	x		35.50	x
First Lien Senior Secured Loan		5,270,878	Discounted Cash Flow	Market Yields		21.8	%		19.0	%		25.9	%
				Revenue Multiple		0.62	x		0.30	x		0.80	x
First Lien Senior Secured Loan		15,201,958	Enterprise Value Method	Revenue Multiple		1.77	x		0.40	x		8.43	x
First Lien Senior Secured Loan		1,549,654	Enterprise Value Method	EBITDA Multiple		5.50	x		5.00	x		6.00	x
Second Lien Senior Secured Loan		6,059,372	Discounted Cash Flow	Market Yields		16.6	%		15.5	%		17.7	%
				EBITDA Multiple		7.50	x		7.00	x		8.00	x
Senior Unsecured Note		1,384,446	Discounted Cash Flow	Market Yields		26.7	%		26.7	%		26.7	%
				EBITDA Multiple		9.00	x		8.50	x		9.50	x
Preferred Equity Securities		26,528	Discounted Cash Flow	Market Yields		23.3	%		23.3	%		23.3	%
				Revenue Multiple		0.40	x		0.30	x		0.50	x
Preferred Equity Securities		4,154,769	Enterprise Value Method	Gross Profit Multiple		2.60	x		2.10	x		3.10	x
				EBITDA Multiple		12.50	x		12.00	x		13.00	x
Preferred Equity Securities		5,511,310	Enterprise Value Method	Revenue Multiple		2.49	x		0.30	x		3.00	x
Preferred Equity Securities		32,111,788	Enterprise Value Method	EBITDA Multiple		7.51	x		3.25	x		14.00	x
Warrants and Other Equity Securities		571,189	Enterprise Value Method	Revenue Multiple		2.50	x		2.00	x		8.43	x
Warrants and Other Equity Securities		5,135,234	Enterprise Value Method	EBITDA Multiple		6.58	x		3.25	x		35.50	x
Fund Investments		2,809,327	Other	N/A		N/A			N/A			N/A
Total Level 3 Assets	$	376,992,972

An increase or decrease in any of the significant unobservable inputs used in the fair value measurement of the investments would result in a higher or lower fair value measurement, respectively.

The significant unobservable input used in the income approach of fair value measurement of the Company’s investments is the discount rate (derived from market yields, EBITDA Multiple and Revenue Multiple) 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 Company 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 Company 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.