Fair Value of Financial Instruments

6 Months Ended

Jun. 30, 2023

5. Fair Value of Financial Instruments

Investments

The following tables present fair value measurements of investments as of June 30, 2023 and December 31, 2022:


	Fair Value Hierarchy at June 30, 2023
	Level 1		Level 2		Level 3		Total
First-lien debt investments	$	—	$	—	$	1,640,479	$	1,640,479
Mezzanine debt investments		—		—		97,750		97,750
Equity and other investments		—		—		20,682		20,682
Total	$	—	$	—	$	1,758,911	$	1,758,911


	Fair Value Hierarchy at December 31, 2022
	Level 1		Level 2		Level 3		Total
First-lien debt investments	$	—	$	—	$	800,995	$	800,995
Equity and other investments		—		—		7,806		7,806
Total	$	—	$	—	$	808,801	$	808,801

Transfers between levels, if any, are recognized at the beginning of the quarter in which the transfers occur.

The following tables present the changes in the fair value of investments for which Level 3 inputs were used to determine the fair value as of and for the three and six months ended June 30, 2023:


	As of and for the Three Months Ended
	June 30, 2023
	First-lien debt investments			Mezzanine debt investments		Equity and other investments		Total
Balance, beginning of period	$	1,246,008		$	—	$	16,444	$	1,262,452
Purchases or originations		422,327			97,000		4,238		523,565
Repayments / redemptions		(32,451	)		—		—		(32,451	)
Paid-in-kind interest		779			—		—		779
Net change in unrealized gains (losses)		203			669		—		872
Net amortization of discount on securities		3,613			81		—		3,694
Balance, End of Period	$	1,640,479		$	97,750	$	20,682	$	1,758,911


	As of and for the Six Months Ended
	June 30, 2023
	First-lien debt investments			Mezzanine debt investments		Equity and other investments		Total
Balance, beginning of period	$	800,995		$	—	$	7,806	$	808,801
Purchases or originations		858,451			97,000		12,876		968,327
Repayments / redemptions		(38,737	)		—		—		(38,737	)
Paid-in-kind interest		799			—		—		799
Net change in unrealized gains (losses)		13,964			669		—		14,633
Net amortization of discount on securities		5,007			81		—		5,088
Balance, End of Period	$	1,640,479		$	97,750	$	20,682	$	1,758,911

The following tables present information with respect to the net change in unrealized gains or losses on investments for which Level 3 inputs were used in determining fair value that are still held by the Company at June 30, 2023:


	Net Change in Unrealized
	Gains or (Losses)
	for the Three Months Ended
	June 30, 2023 on
	Investments Held at
	June 30, 2023
First-lien debt investments	$	380
Mezzanine debt investments		669
Equity and other investments		—
Total	$	1,049


	Net Change in Unrealized
	Gains or (Losses)
	for the Six Months Ended
	June 30, 2023 on
	Investments Held at
	June 30, 2023
First-lien debt investments	$	13,964
Mezzanine debt investments		669
Equity and other investments		—
Total	$	14,633

The following tables present the fair value of Level 3 Investments at fair value and the significant unobservable inputs used in the valuations as of June 30, 2023 and December 31, 2022. The tables are not intended to be all-inclusive, but instead capture the significant unobservable inputs relevant to the Company’s determination of fair values.

June 30, 2023

Valuation

Unobservable

Range (Weighted

Impact to Valuation
from an

Fair Value

Technique

Input

Average)

Increase to Input

First-lien debt investments

1,640,479

Income approach

Discount rate

9.7% — 17.4% (13.5%)

Decrease

Mezzanine debt investments

97,750

Income approach (2)

Discount rate

15.1% — 15.1% (15.1%)

Decrease

Equity and other investments

20,682

Market Multiple

Comparable multiple

5.3x — 14.9x (14.3x)

Increase

Total

1,758,911

December 31, 2022

Valuation

Unobservable

Range (Weighted

Impact to Valuation
from an

Fair Value

Technique

Input

Average)

Increase to Input

First-lien debt investments

800,995

Income approach

Discount rate

9.3% — 15.1% (13.1%)

Decrease

Equity and other investments

7,806

Market Multiple

Comparable multiple

5.8x — 13.5x (13.3x)

Increase

Total

808,801

The Company typically determines the fair value of its performing Level 3 debt investments utilizing a yield analysis. In a yield analysis, a price is ascribed for each investment based upon an assessment of current and expected market yields for similar investments and risk profiles. Additional consideration is given to the expected life, portfolio company performance since close, and other terms and risks associated with an investment. Among other factors, a determinant of risk is the amount of leverage used by the portfolio company relative to the total enterprise value of the company, and the rights and remedies of our investment within each portfolio company’s capital structure.

Significant unobservable quantitative inputs typically considered in the fair value measurement of the Company’s Level 3 debt investments primarily include current market yields, including relevant market indices, but may also include quotes from brokers, dealers, and pricing services as indicated by comparable investments. If debt investments are credit impaired, an enterprise value analysis may be used to value such debt investments; however, in addition to the methods outlined above, other methods such as a liquidation or wind-down analysis may be utilized to estimate enterprise value. For the Company’s Level 3 equity investments, multiples of similar companies’ revenues, earnings before income taxes, depreciation and amortization (“EBITDA”) or some combination thereof and comparable market transactions are typically used.

Financial Instruments Not Carried at Fair Value

Debt

The fair value of the Company’s Credit Facilities, which are categorized as Level 3 within the fair value hierarchy, as of June 30, 2023 and December 31, 2022, approximates their carrying value as the outstanding balance is callable at carrying value.

Other Financial Assets and Liabilities

Under the fair value hierarchy, cash and cash equivalents are classified as Level 1 while the Company’s other assets and liabilities, other than investments at fair value and Credit Facilities, are classified as Level 2.

- 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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