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Fair Value Measurements and Derivative Instruments

9 Months Ended

Sep. 30, 2022

Fair Value Measurements and Derivative Instruments

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

The fair value hierarchy under ASC 820 prioritizes the inputs to valuation methodology 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:

•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 debt and equity investments in privately held entities, collateralized loan obligations (“CLOs”) and certain over-the-counter derivatives where the fair value is based on unobservable inputs.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the overall fair value measurement. The Adviser’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 investment. Transfers between levels, if any, are recognized at the beginning of the quarter in which the transfer occurs.

In addition to using the above inputs in investment valuations, the Company applies the valuation policy approved by its Board that is consistent with ASC 820 and Rule 2a-5 under the 1940 Act, which defines fair value as the value of a portfolio investment for which market quotations are not readily available. A market quotation is "readily available" only when it is a quoted price (unadjusted) in active markets for identical instruments that a fund can access at the measurement date, provide that such a quotation is not considered to be readily available if it is not reliable. Consistent with the valuation policy, the Company evaluates the source of the inputs, including any markets in which its investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value. When an investment is valued based on prices provided by reputable dealers or pricing services (that is, broker quotes), the Company subjects those prices to various criteria in making the determination as to whether a particular investment would qualify for treatment as a Level 2 or Level 3 investment.

In the absence of independent, reliable market quotes, an enterprise value analysis is typically performed to determine the value of equity investments, control debt investments and non-control debt investments that are credit-impaired, and to determine if debt investments are credit impaired. Enterprise value (“EV”) means the entire value of the portfolio company to a market participant, including the sum of the values of debt and equity securities used to capitalize the enterprise at a point in time. When an investment is valued using an EV analysis, the EV of a portfolio company is first determined and allocated over the portfolio company’s securities in order of their preference relative to one another (i.e., “waterfall” allocation).

If debt investments are credit-impaired, which occurs when there is insufficient coverage under the EV analysis through the respective investment’s position in the capital structure, the Adviser uses the enterprise value “waterfall” approach or a recovery method (if a liquidation or restructuring is deemed likely) to determine fair value. For debt investments that are not determined to be credit-impaired, the Adviser uses a market interest rate yield analysis (discussed below) to determine fair value.

The Adviser will generally utilize approaches including the market approach, the income approach or both approaches, as appropriate, when calculating EV. The primary method for determining EV for non-control investments, and control investments without reliable projections, uses a multiple analysis whereby appropriate multiples are applied to the portfolio company’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) or another key financial metric (e.g., such as revenues, cash flows or net income) (“Performance Multiple”). Performance Multiples are typically determined based upon a review of publicly traded comparable companies and market comparable transactions, if any. The second method for determining EV (and primary method for control investments with reliable projections) uses a discounted cash flow analysis whereby future expected cash flows and the anticipated terminal value of the portfolio company are discounted to determine a present value using estimated discount rates. The income approach is generally used when the Adviser has visibility into the long term projected cash flows of a portfolio company, which is more common with control investments.

Subsequently, for non-control debt investments that are not credit-impaired, and where there is an absence of available market quotations, fair value is determined using a yield analysis. To determine fair value using a yield analysis, the expected cash flows are projected based on the contractual terms of the debt security and discounted back to the measurement date based on a market yield. A market yield is determined based upon an assessment of current and expected market yields for similar investments and risk profiles. The Company considers the current contractual interest rate, the maturity and other terms of the investment relative to risk of the company and the specific investment. A key determinant of risk, among other things, is the leverage through the investment relative to the enterprise value of the portfolio company. As debt investments held by the Company are substantially illiquid with no active transaction market, the Company depends on primary market data, including newly funded transactions, as well as secondary market data with respect to high yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable. The fair value of loans with call protection is generally capped at par plus applicable prepayment premium in effect at the measurement date.

Investments

The following table presents the fair value hierarchy of financial instruments:


	September 30, 2022
	Level 1		Level 2		Level 3		Total
First lien debt	$	—	$	8,278,199	$	35,623,823	$	43,902,022
Second lien debt	—		842,501		1,268,919		2,111,420
Unsecured debt	—		17,370		—		17,370
Structured finance obligations	—		69,486		287,898		357,384
Equity investments (1)	—		—		714,568		714,568

Total investments	—		9,207,556		37,895,208		47,102,764
Investments measured at NAV(2)	—		—		—		1,856,239


Total	$	—	$	9,207,556	$	37,895,208	$	48,959,003


	December 31, 2021
	Level 1		Level 2		Level 3		Total
First lien debt	$	—	$	5,096,942	$	23,046,509	$	28,143,451
Second lien debt	—		1,013,739		800,133		1,813,872
Unsecured debt	—		5,842		—		5,842
Structured finance obligations	—		81,018		205,592		286,610
Equity investments(1)	—		—		545,918		545,918
Total investments	$	—	$	6,197,541	$	24,598,152	$	30,795,693

(1)Includes equity investment in SLC.

(2)Includes equity investment in the Emerald JV (refer to Note 11). Certain investments that are measured at fair value using the NAV practical expedient have not been categorized in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

The following table presents changes in the fair value of financial instruments for which Level 3 inputs were used to determine the fair value:


	Three Months Ended September 30, 2022
	First Lien Debt		Second Lien Debt		Structured Finance Investments		Equity		Total Investments
Fair value, beginning of period	$	32,556,391	$	1,446,075	$	298,409	$	702,034	$	35,002,909
Purchases of investments	5,978,812		71,844		—		2,805		6,053,461
Proceeds from principal repayments and sales of investments	(2,597,994)		(182,082)		—		—		(2,780,076)
Accretion of discount/amortization of premium	39,220		933		52		—		40,206
Net realized gain (loss)	(11,758)		(2,206)		—		—		(13,964)
Net change in unrealized appreciation (depreciation)	(266,806)		(16,191)		(10,563)		9,728		(283,832)
Transfers into Level 3 (1)	193,055		111,523		—		—		304,578
Transfers out of Level 3 (1)	(267,097)		(160,977)		—		—		(428,074)
Fair value, end of period	$	35,623,823	$	1,268,919	$	287,898	$	714,568	$	37,895,208
Net change in unrealized appreciation (depreciation) included in earnings related to financial instruments still held as of September 30, 2022 included in net unrealized appreciation (depreciation) on the Consolidated Statements of Operations	$	(267,815)	$	(16,191)	$	(10,159)	$	9,729	$	(284,436)


	Nine Months Ended September 30, 2022
	First Lien Debt		Second Lien Debt		Structured Finance Investments		Equity		Total Investments
Fair value, beginning of period	$	23,046,509	$	800,133	$	205,592	$	545,918	$	24,598,152
Purchases of investments	15,919,276		595,997		122,159		193,127		16,830,559
Proceeds from principal repayments and sales of investments	(3,204,195)		(182,080)		—		(31,769)		(3,418,044)
Accretion of discount/amortization of premium	87,705		2,191		114		—		90,010
Net realized gain (loss)	(10,188)		(2,184)		—		144		(12,228)
Net change in unrealized appreciation (depreciation)	(364,753)		(55,881)		(39,968)		7,148		(453,453)
Transfers into Level 3 (1)	380,165		164,614		—		—		544,781
Transfers out of Level 3 (1)	(230,697)		(53,871)		—		—		(284,567)
Fair value, end of period	$	35,623,823	$	1,268,919	$	287,898	$	714,568	$	37,895,208
Net change in unrealized appreciation (depreciation) included in earnings related to financial instruments still held as of September 30, 2022 included in net unrealized appreciation (depreciation) on the Consolidated Statements of Operations	$	(364,088)	$	(53,924)	$	(39,967)	$	7,147	$	(450,832)

(1)For the nine months ended September 30, 2022, transfers into or out of Level 3 were primarily due to decreased or increased price transparency, respectively.


	Three Months Ended September 30, 2021
	First Lien Debt		Second Lien Debt		Structured Finance Investments		Equity		Total Investments		Forward Purchase Obligation
Fair value, beginning of period	$	5,346,267	$	453,487	$	—	$	56,877	$	5,856,631	$	—
Purchases of investments	6,055,199		422,557		197,899		113,178		6,788,833		—
Proceeds from principal repayments and sales of investments	(320,070)		(5,499)		—		—		(325,569)		—
Accretion of discount/amortization of premium	8,651		189		2		—		8,842		—
Net realized gain (loss)	749		24		—		—		773		—
Net change in unrealized appreciation (depreciation)	2,981		1,614		207		2,235		7,037		—
Transfers into Level 3 (1)	90,087		28,097		—		—		118,184		—
Transfers out of Level 3 (1)	(308,987)		(254,418)		—		—		(563,405)		—
Fair value, end of period	$	10,874,877	$	646,051	$	198,108	$	172,290	$	11,891,326	$	—
Net change in unrealized appreciation (depreciation) included in earnings related to financial instruments still held as of September 30, 2021	$	5,042	$	1,649	$	207	$	2,235	9,133		$	—


	Nine months ended September 30, 2021
	First Lien Debt		Second Lien Debt		Structured Finance Investments		Equity		Total Investments		Forward Purchase Obligation
Fair value, beginning of period	$	—	$	—	$	—	$	—	$	—	$	—
Purchases of investments	11,089,353		644,485		197,899		170,054		12,101,791		—
Proceeds from principal repayments and sales of investments	(250,267)		(2,005)		—		—		(252,272)		(3,709)
Accretion of discount/amortization of premium	11,893		257		2		—		12,152		—
Net realized gain (loss)	694		15		—		—		709		3,709
Net change in unrealized appreciation (depreciation)	23,204		3,299		207		2,236		28,946		—
Fair value, end of period	$	10,874,877	$	646,051	$	198,108	$	172,290	$	11,891,326	$	—
Net change in unrealized appreciation (depreciation) included in earnings related to financial instruments still held as of September 30, 2021	$	23,162	$	3,299	$	207	$	2,236	28,904		$	—

(1)For the three months ended September 30, 2021, transfers into or out of Level 3 were primarily due to decreased or increased price transparency, respectively.

The following table presents quantitative information about the significant unobservable inputs of the Company’s Level 3 financial instruments. The table is not intended to be all-inclusive but instead captures the significant unobservable inputs relevant to the Company’s determination of fair value.


	September 30, 2022
					Range
	Fair Value		Valuation Technique	Unobservable Input	Low		High		Weighted Average (1)
Investments in first lien debt	$	34,814,597	Discounted cash flow	Discount rate	6.64	%	18.45	%	9.86	%
	29,003		EV Coverage	Market Multiple	7.0x		7.0x		7.0x
	780,223		Market quotations	Quoted price	66.97%		99.50%		93.26%
	35,623,823
Investments in second lien debt	918,781		Discounted Cash Flow	Discount Rate	9.96	%	14.10	%	11.51	%
	350,138		Market quotations	Quoted price	66.24	%	100.50	%	90.35	%
	1,268,919
Investments in structured finance	287,898		Market quotations	Quoted price	80.83%		97.50%		87.29%
Investments in equity	202,507		Performance Multiple	Market Multiple	5.00x		29.61x		22.37x
	25,126		Option Pricing Model	Volatility	30.00	%	48.00	%	37.37	%
	296,989		Discounted Cash Flow	Discount Rate	11.67	%	13.98	%	12.97	%
	189,946		Recent transaction	Transaction price	100.00	%	100.00	%	100.00	%
	714,568
Total	$	37,895,208


	December 31, 2021
					Range
	Fair Value		Valuation Technique	Unobservable Input	Low		High		Weighted Average (1)
Investments in first lien debt	$	22,414,991	Yield analysis	Discount rate	4.68	%	10.34	%	7.40	%
	631,518		Market quotations	Broker quoted price	98.00		100.25		99.49
	23,046,509
Investments in second lien debt	400,584		Yield analysis	Discount rate	8.15	%	13.04	%	9.98	%
	399,549		Market quotations	Broker quoted price	98.00		101.50		99.07
	800,133
Investments in structured finance	205,592		Market quotations	Broker quoted price	96.69		100.00		99.23
Investments in equity	74,022		Market approach	Performance multiple	7.25x		31.28x		21.38x
	22,722		Option pricing model	Expected volatility	30.00	%	49.00	%	38.24	%
	236,774		Yield analysis	Discount rate	10.89	%	12.19	%	11.50	%
	212,400		Recent transaction	Transaction price	100.00	%	100.00	%	100.00	%
	545,918
Total	$	24,598,152

(1)Weighted averages are calculated based on fair value of investments.

The significant unobservable input used in the yield analysis is the discount rate based on comparable market yields. The significant unobservable input used for market quotations are broker quoted prices provided by independent pricing services. The significant unobservable input used under the market approach is the performance multiple. Significant increases in discount rates would result in a significantly lower fair value measurement. Significant decreases in quoted prices or performance multiples would result in a significantly lower fair value measurement.

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of the Company’s investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, it could realize significantly less than the value at which the Company has recorded it. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected in the valuations currently assigned.

Financial Instruments Not Carried at Fair Value

Debt


	September 30, 2022				December 31, 2021
	Net Carrying Value(1)(2)(3)		Fair Value		Net Carrying Value(1)(2)(3)		Fair Value
Bard Peak Funding Facility	$	1,449,196	$	1,449,196	$	879,000	$	879,000
Castle Peak Funding Facility	1,195,027		1,195,027		1,171,809		1,171,809
Maroon Peak Funding Facility	800,000		800,000		483,952		483,952
Summit Peak Funding Facility	1,535,572		1,535,572		1,643,154		1,643,154
Denali Peak Funding Facility	749,800		749,800		668,400		668,400
Bushnell Peak Funding Facility	600,000		600,000		395,500		395,500
Granite Peak Funding Facility	562,700		562,700		248,000		248,000
Middle Peak Funding Facility	599,950		599,950		799,550		799,550
Bison Peak Funding Facility	1,467,300		1,467,300		1,320,800		1,320,800
Blanca Peak Funding Facility	1,000,000		1,000,000		892,800		892,800
Windom Peak Funding Facility	1,612,648		1,612,648		989,759		989,759
Monarch Peak Funding Facility	1,123,400		1,123,400		567,400		567,400
Borah Peak Funding Facility	381,000		381,000		—		—
Naomi Peak Funding Facility	340,000		340,000		—		—
Meridian Peak Funding Facility	100,000		100,000		—		—
2022-1 BSL WH	168,000		168,000		—		—
Revolving Credit Facility	1,543,710		1,543,710		1,144,422		1,144,422
June 2024 Notes	413,517		415,757		431,854		431,738
June 2026 Notes	397,444		389,987		396,952		390,400
September 2024 Notes	344,879		347,189		361,805		359,232
December 2026 Notes	1,155,655		1,174,535		1,227,844		1,218,850
November 2026 Eurobonds	484,402		482,156		563,695		564,473
November 2024 Notes	470,872		473,960		496,054		499,946
March 2027 Notes	988,722		973,084		987,298		1,010,942
January 2025 Notes	469,326		472,810		—		—
January 2029 Notes	638,778		657,770		—		—
March 2025 Notes	852,378		859,293		—		—
May 2027 Notes	593,636		595,821		—		—
April 2026 UK Bonds	248,301		298,836		—		—
September 2025 Notes	590,541		599,441		—		—
2021-1 BSL Debt	661,975		663,000		661,910		663,148
2022-1 BSL Debt	418,376		419,311		—		—
2021-2 Debt	504,222		505,800		504,124		505,750
MML 2021-1 Debt	685,943		690,000		685,696		690,000
MML 2022-1 Debt	753,757		759,000		—		—
MML 2022-2 Debt	297,971		300,085		—		—
Short-Term Borrowings	844,083		844,083		718,156		718,156
Total	$	27,043,081	$	27,150,222	$	18,239,934	$	18,257,181

(1)The carrying value of the Company's June 2024 Notes, June 2026 Notes, September 2024 Notes, December 2026 Notes, November 2026 Eurobonds, November 2024 Notes, March 2027 Notes, January 2025 Notes, January 2029 Notes, March 2025 Notes, May 2027 Notes, April 2026 UK Bonds and

September 2025 Notes are presented net of unamortized debt issuance costs of $2.2 million, $2.5 million, $2.3 million, $19.6 million, $6.1 million, $3.1 million, $11.3 million, $3.9 million, $11.2 million, $7.3 million, $2.5 million, $3.1 million, and $8.9 million respectively, as of September 30, 2022. The carrying value of the Company's June 2024 Notes, September 2024 Notes, June 2026 Notes, December 2026 Notes, November 2026 Eurobonds, November 2024 Notes and March 2027 Notes are presented net of unamortized debt issuance costs of $3.1 million, $3.2 million, $3.0 million, $22.2 million, $6.3 million, $3.9 million, and $12.7 million, respectively, as of December 31, 2021.

(2)The November 2026 Eurobonds are denominated in Euros and were converted from local currency (EUR) to U.S. Dollars at the time of the transaction. The April 2026 UK Bonds are denominated in British Pounds and were converted from local currency (GBP) to U.S. Dollars at the time of the transaction.

(3)The carrying value of the Company’s 2021-1 BSL Debt, 2022-1 BSL Debt, 2021-2 Debt, MML 2021-1 Debt and MML 2022-1 Debt, and MML 2022-2 Debt is presented net of unamortized debt issuance costs of $1.0 million, $1.6 million, $1.6 million, $4.2 million, $5.3 million, and $2.5 million as of September 30, 2022. The carrying value of the Company’s 2021-1 BSL Debt, 2021-2 Debt and MML 2021-1 Debt is presented net of unamortized debt issuance costs of $1.1 million, $1.7 million, and $4.3 million as of December 31, 2021.

The following table presents fair value measurements of the Company’s debt obligations as of September 30, 2022 and December 31, 2021:


	September 30, 2022		December 31, 2021
Level 1	$	—	$	—
Level 2	6,339,074		3,653,442
Level 3	20,811,148		14,603,739
Total debt	$	27,150,222	$	18,257,181

Financial Instruments Not Carried at Fair Value

As of September 30, 2022 and December 31, 2021, the carrying amounts of the Company’s assets and liabilities, other than investments at fair value and debt, approximate fair value due to their short maturities.

The carrying amounts of the Company’s financial assets and liabilities, other than investments at fair value and the forward purchase obligation, approximate fair value. These financial instruments would be categorized as Level 3 within the hierarchy.

- 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.

+ References + Details