ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer |
☒ | Smaller reporting company | ||||
Emerging growth company |
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(i) | sourcing, structuring, negotiating, underwriting, performing diligence, originating and disposing of investments of the Company; |
(ii) | making all investment decisions for the Company; |
(iii) | servicing investments of the Company including, without limitation, monitoring the investments and the creditworthiness of all issuers, developing and executing work out strategies where applicable; |
(iv) | overseeing the placement of purchase and sale orders on behalf of the Company, including, without limitation, realization of the Company’s assets during a wind down and/or liquidation of the Company’s affairs (unless otherwise provided in the LLC Agreement); |
(v) | undertaking certain compliance-related activities in respect of the Company in accordance with the Company’s investment objective; |
(vi) | providing good faith recommendations for valuations of Company investments for which market quotes are not readily available pursuant to the LLC Agreement; |
(vii) | voting proxies, exercise rights, options, warrants, conversion privileges, and redemption privileges, and tender securities pursuant to a tender offer; |
(viii) | entering into agreements and executing any documents (including, but not limited to, any loan or credit facility agreements), including without limitation, any market and/or industry standard documentation and standard representations contained therein; and |
(ix) | providing periodic and special reports to the Company as requested. |
• | Pre-Exchange ListingPre-Exchange Listing Management Fee will be calculated as of the close of business on the last day of each calendar quarter in an amount equal to 1.50% per annum |
• | Post-Exchange Listing . Following an Exchange Listing, the Post-Exchange Listing Management Fee will be an amount equal to 1.50% per annum of the average value of the Company’s total assets at the end of the two most recently completed calendar quarters; provided, however, the Post-Exchange Listing Management Fee will be calculated at an annual rate of 1.00% of the average value of the Company’s total assets at the end of the two most recently completed calendar quarters that exceeds the product of (i) 200% and (ii) the value of the Company’s total net assets at the end of the immediately preceding calendar quarter. |
(i) | Pre-Incentive Fee Net Investment Income. One part will be calculated and payable quarterly in arrears based on the net investment income for the immediately preceding calendar quarter. |
a. | For this purpose, Pre-Incentive Fee Net Investment Income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued by the Company during the calendar quarter, minus the Company’s operating expenses for the quarter (including the Post-Exchange Listing Management Fees, expenses payable under an administration agreement, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the Post-Exchange Listing Incentive Fee). |
b. | Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of the Company’s net assets at the end of the immediately preceding calendar quarter, will be compared to a “hurdle rate” of 1.75% per quarter (7.00% annualized). The Company’s Pre-Incentive Fee Net Investment Income used to calculate this part of the Post-Exchange Listing Incentive Fee is also included in the amount of its gross assets used to calculate the 1.50% Post-Exchange Listing Management Fees. |
c. | The Company will pay the Adviser a Post-Exchange Listing Incentive Fee with respect to the Company’s Pre-Incentive Fee Net Investment Income in each calendar quarter as follows: |
i. | no Post-Exchange Listing Incentive Fee in any calendar quarter in which the Company’s Pre-Incentive Fee Net Investment Income does not exceed the quarterly hurdle rate of 1.75%; |
ii. | 100% of the Company’s Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than 2.1875% in any calendar quarter (8.75% annualized); this portion of the Pre-Incentive Fee Net Investment Income (which exceeds the hurdle but is less than 2.1875%) is referred to herein as the “catch-up.” The “catch-up” is meant to provide the Adviser with 20% of the Company’s Pre-Incentive Fee Net Investment Income as if a hurdle did not apply if this Pre-Incentive Fee Net Investment Income exceeds 2.1875% in any calendar quarter; and |
iii. | 20% of the amount of the Company’s Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized) payable to the Adviser (once the hurdle is reached and the catch-up is achieved, 20% of all Pre-Incentive Fee Net investment income thereafter is allocated to the Adviser). |
• | The nature, extent and quality of advisory and other services proposed to be provided by SLR, and concluded that such proposed advisory and other services are satisfactory; |
• | The experience and qualifications of the personnel expected to provide such proposed advisory and other services, including information about the backgrounds of the investment personnel, the allocation of responsibilities among such personnel and the proposed process by which investment decisions are made, and concluded that the investment personnel of SLR have extensive experience and are well qualified to provide the proposed advisory and other services to the Company; |
• | The proposed fee structure, the existence of any proposed fee waivers, and the Company’s anticipated expense ratios in relation to those of other investment companies having comparable investment policies and limitations, and concluded that the proposed fee structure is reasonable; |
• | The proposed advisory fees charged by SLR to the Company and comparative data regarding the advisory fees charged by other investment advisers to BDCs with similar investment objectives, and concluded that the proposed advisory fees charged by SLR to the Company are reasonable; |
• | The anticipated direct and indirect costs, including for personnel and office facilities, that are incurred by SLR and its affiliates in performing services for the Company and the basis of determining and allocating these anticipated costs, and concluded that the anticipated direct and indirect costs, including the allocation of such anticipated costs, are reasonable; |
• | Possible economies of scale arising from the Company’s size and/or anticipated growth, and the extent to which such economies of scale are reflected in the proposed advisory fees to be charged by SLR to the Company, and concluded that some economies of scale may be possible in the future; |
• | Other possible benefits to SLR and its affiliates arising from their relationships with the Company, and concluded that all such other benefits were not material to SLR and its affiliates; and |
• | Possible alternative fee structures or bases for determining fees, and concluded that the Company’s current proposed fee structure and bases for determining fees are satisfactory. |
(i) | all of its fees, costs, expenses and liabilities, all of its investment-related fees, costs, expenses and liabilities (including with respect to amounts incurred prior to the Company’s initial closing) and all of its other operating fees, costs, expenses and liabilities, including all fees, due diligence costs and other fees, costs, expenses and liabilities related to the identification, sourcing, evaluation, pursuit, acquisition, holding, appraisals, asset management, restructuring and disposing of investments, including all reasonable travel-related fees, costs, expenses and liabilities, including lodging and meals, all fees, costs, expenses and liabilities of legal counsel and financial and other advisers incurred in connection therewith, all fees, costs, expenses and liabilities of information technology services relating to the ongoing management of investments, and all other investment-related fees, costs, expenses and liabilities (to the extent not reimbursed by the relevant portfolio company); |
(ii) | all fees, costs, expenses and liabilities related to any audits or agreed upon procedures, tax forms and return preparations and filings, custodian and bank fees and expenses, fund accounting, administrator services, financial statement preparation and reporting, web services for the benefit of Unitholders, delivery costs and expenses in connection with reporting obligations and communications and compliance services; |
(iii) | all fees, costs, expenses and liabilities relating to insurance policies (including director and officer liability insurance) maintained by or for the Company, including in respect of Portfolio Investments and/or personnel of the Adviser, the Administrative Coordinator and their affiliates; |
(iv) | other administrative fees, costs, and liabilities; |
(v) | all fees, costs, expenses and liabilities of brokers, transaction finders and other intermediaries, including brokerage commissions and spreads, and all other transaction-related fees, costs, expenses and liabilities, including reverse break-up fees |
(vi) | all fees, costs, expenses and liabilities relating to derivatives and hedging transactions; |
(vii) | all principal amounts of, and interest expense on, borrowings and guarantees, and all other fees, costs, expenses and liabilities arising out of borrowings and guarantees, including the arranging and maintenance thereof, whether incurred by the Company or incurred or facilitated by a special purpose vehicle that makes Portfolio Investments; |
(viii) | Management Fees; |
(ix) | Administration Expenses; |
(x) | all fees, costs, expenses and liabilities incurred through the use or engagement of Service Providers; |
(xi) | all taxes, fees, penalties and other governmental charges levied against the Company (see “ Certain U.S. Federal Income Tax Considerations |
(xii) | all fees, costs, expenses and liabilities of the Company’s legal counsel related to extraordinary matters, including expenses for any dispute resolution (including litigation and regulatory-related legal expenses); |
(xiii) | all fees, costs, expenses and liabilities relating to legal, governance and regulatory compliance and filings, including filings to register the Company under the Securities Exchange Act of 1934 (the “1934 Act”), to make an election to be regulated as a BDC, and any other securities law filings; |
(xiv) | all fees, costs, expenses and liabilities related to the Company’s indemnification or contribution obligations; |
(xv) | all fees, costs, expenses and liabilities for subscription services (to the extent such subscription is required by a placement agent); |
(xvi) | any required regulatory filings and related legal fees; |
(xvii) | all fees, costs, expenses and liabilities of liquidating the Company; |
(xviii) | transfer agent services; |
(xix) | any other fees, costs, expenses and liabilities not specifically assumed by the Adviser or the Administrative Coordinator. |
(xx) | all fees, costs, expenses and liabilities of the independent directors, including resources retained by the independent directors, or on their behalf, while representing and/or acting on behalf of all Unitholders; and |
(xxi) | all fees, costs, expenses and liabilities related to an Exchange Listing (including any transactions effectuated in connection therewith) or other business combination. |
• | Reduced bank participation in U.S. loans |
• | Increased percentage of middle-market direct lending transactions above $200 million |
• | Private credit as an increasing percentage of total credit markets |
• | Private equity liquidity creates opportunities to deploy debt capital |
• | Sponsors increasingly prefer to partner with private lenders COVID-19 pandemic). In addition, private lenders can work with sponsors to achieve mutual economic objectives (i.e., more favorable call features, maintenance covenants, etc.) when structuring terms. Private lenders are generally prepared to fund loans on more flexible terms than banks, and can quickly fund incremental financings and add-ons. We expect lenders to be able to negotiate more favorable loan terms as borrowers continue to favor private financing markets over the broadly syndicated loan (“BSL”) market. |
• | Directly originated middle-market loans continue to present an attractive relative value compared to liquid leveraged loans: |
• | Due diligence |
• | Borrower EBITDA |
• | Covenants |
• | Credit Monitoring |
• | Pricing |
• | Leverage |
• | The significant allocation to higher yielding, lower risk, Specialty Finance strategies may enable the Company to generate outsized returns and lower loss rates relative to other cash flow-only direct lending funds without taking on junior capital risk. These niches are dominated by small groups of lenders with highly specialized experience. We believe pricing and loan-to-values |
• | Asset-Based Lending |
• | Life Science Finance |
• | at least 85% of the Company’s total portfolio will be comprised of secured loans; |
• | at least 80% of the Company’s total portfolio will be comprised of floating rate loans; |
• | no more than 20% of the Company’s total portfolio will consist of loans to lower middle market (i.e. provided however |
• | the Company will take no more than four (4) positions greater than 7.5% of the Company’s total portfolio, and the balance of the Company’s positions will each comprise 5%, directly or indirectly, or less of the Company’s total portfolio; |
• | the Company’s 10 largest positions will comprise no more than 60% of the Company’s total portfolio; |
• | the Company’s portfolio will be comprised of investments in the United States and Canada, provided that up to 15.0% of the total portfolio may be outside of the United States and Canada; and |
• | the target percentage of non-cash flow lending investments will be approximately 30% to 40% of the Company’s total portfolio. |
• | Buy larger companies with strong business franchises; |
• | Invest significant amounts of equity in their portfolio companies; |
• | Value flexibility and creativity in structuring their transactions; |
• | Possess longer track records over multiple investment funds; |
• | Have a deeper management bench; |
• | Have better ability to withstand downturns; and |
• | Possess the ability to support portfolio companies with additional capital. |
• | review of historical and prospective financial information; |
• | review and valuation of assets, including appraisals; |
• | research relating to the company’s management, industry, markets, products and services and competitors; |
• | on-site visits; |
• | discussions with management, employees, customers or vendors of the potential portfolio company; |
• | review of material legal documents and legal issues; |
• | review of third party due diligence report including quality of earnings, field exams, industry reports; and |
• | background investigations on management and the company. |
• | investment track record; |
• | industry experience; |
• | capacity and willingness to provide additional financial support to the company through additional capital contributions, if necessary; and |
• | reference checks. |
• | Stable Earnings and Strong Free Cash Flow de-lever through consistent generation of cash flows rather than relying solely on growth to service and repay our loans. |
• | Value of Assets |
• | Strong Competitive Position in Industry |
• | Diversified Customer and Supplier Base |
• | Experienced and Committed Management |
• | Strong Sponsorship |
• | Exit Strategy |
• | Expected High Recurring Cash Flows: hold-to-maturity |
• | Focus on Core Non-Cyclical Sectors |
• | Asset-rich companies that have limited access to traditional financing sources |
• | Focused investment in commercial finance companies |
• | Value orientation unwinding/run-off of the portfolio assuming a recessionary environment. |
• | Senior secured, collateral-based underwriting |
• | Specialized Skills to Evaluate Collateral |
• | Exit Strategy held-to-maturity 48-60 months when borrowers are able to attract more traditional and cheaper bank warehouse or securitization financing of portfolio assets. |
• | Focused Investment Strategy small-cap drug and medical device companies with substantial equity invested to date who are in later stages of drug or product development and/or in transition to commercialization. Borrowers typically are led by strong management teams and board of directors with proven track records. Venture capital sponsors typically have continuing involvement and influence. Borrowers have successfully demonstrated access to the private and/or public equity markets and seek debt financing to broaden their funding sources and project stability. |
• | Value Orientation pre-clinical stage), platforms and/or disruptive technologies. Borrowers typically have had significant equity invested to date and have had support from venture capital firms and strategic investors. |
• | Senior secured, collateral-based underwriting 20%-to-30% loan-to-value de-risking of the investment and shorter weighted average holding periods. |
• | Sophisticated Knowledge Base and Industry Experience 13-year period. The Life Science Finance team has an extensive network of relationships with venture capital sponsors, management teams and strategic investors. |
• | Exit Strategy |
• | ABL |
• | Asset-Based Lending to Commercial Finance Companies run-off value of the portfolio. Borrowing base and maintenance covenants are generally expected to be included. These loans generally are expected to have a five-year final maturity with a four to five-year average duration. Opportunities in the lender finance strategy are sourced from sponsors, a variety of regional banks, other asset-based lenders, boutique advisors and companies themselves. |
• | Life Science Finance |
• | Assessment of success in adhering to each portfolio company’s business plan and compliance with covenants; |
• | Periodic and regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor, to discuss financial position, requirements and accomplishments; |
• | Comparisons to portfolio companies of other SLR clients in the industry, if any; |
• | Attendance at and participation in board meetings (as an observer) or lender meetings; |
• | Review of monthly and/or quarterly financial statements and financial projections for portfolio companies; |
• | Review of monthly borrowing base reports to monitor collateral value supporting SLR asset-based loans; and |
• | Periodic field examinations of collateral and business systems of our underlying ABL borrowers. |
Investment Rating |
Summary | |
1 |
Involves the least amount of risk in our portfolio, the portfolio company is performing above expectations, and the trends and risk factors are generally favorable (including a potential exit). | |
2 |
Risk that is similar to the risk at the time of origination, the portfolio company is performing as expected, and the risk factors are neutral to favorable; all new investments are initially assessed a grade of 2. | |
3 |
The portfolio company is performing below expectations, may be out of compliance with debt covenants, and requires procedures for closer monitoring. | |
4 |
The investment is performing well below expectations and is not anticipated to be repaid in full. |
(1) | Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined in the 1940 Act as any issuer which: |
(a) | is organized under the laws of, and has its principal place of business in, the U.S.; |
(b) | is not an investment company (other than a small business investment company wholly owned by the BDC); and |
(c) | satisfies any of the following: |
i. | does not have any class of securities that is traded on a national securities exchange; |
ii. | has a class of securities listed on a national securities exchange, but has an aggregate market value of outstanding voting and non-voting common equity of less than $250 million; |
iii. | is controlled by a BDC or a group of companies including a BDC and the BDC has an affiliated person who is a director of the eligible portfolio company; or |
iv. | is a small and solvent company having total assets of not more than $4.0 million and capital and surplus of not less than $2.0 million. |
(2) | Securities of any eligible portfolio company which the Company controls, which, as defined by the 1940 Act, is presumed to exist where a BDC beneficially owns more than 25% of the outstanding voting securities of the portfolio company. |
(3) | Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities, was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements. |
(4) | Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and the Company already owns 60% of the outstanding equity of the eligible portfolio company. |
(5) | Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of warrants or rights relating to such securities. |
(6) | Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment. |
(7) | Office furniture and equipment, interests in real estate and leasehold improvements and facilities maintained to conduct the business operations of the BDC, deferred organization and operating expenses, and other noninvestment assets necessary and appropriate to its operations as a BDC, including notes of indebtedness of directors, officers, employees, and general partners held by a BDC as payment for securities of such company issued in connection with an executive compensation plan described in Section 57(j) of the 1940 Act. |
• | Information we receive from recordholders, whether we receive it orally, in writing or electronically. This includes recordholders’ communications to us concerning their investment; |
• | Information about recordholders’ transactions and history with us; and |
• | Other general information that we may obtain about recordholders, such as demographic and contact information such as address. |
• | to our affiliates (such as SLR) and their employees for everyday business purposes; |
• | to our service providers (such as our accountants, attorneys, custodians, transfer agent, underwriter and proxy solicitors) and their employees as is necessary to service recordholder accounts or otherwise provide the applicable service; |
• | to comply with court orders, subpoenas, lawful discovery requests, or other legal or regulatory requirements; or |
• | as allowed or required by applicable law or regulation. |
• | an individual who is a citizen or resident of the U.S.; |
• | a corporation created or organized in or under the laws of the U.S., any state therein or the District of Columbia; |
• | an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or |
• | a trust if a court within the U.S. is able to exercise primary jurisdiction over the administration of the trust and one or more U.S. persons have authority to control all substantial decisions of the trust. |
• | derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale or other taxable disposition of stock, securities or foreign currencies, other income derived with respect to the business of investing in stock, securities or currencies, or net income derived from an interest in a “qualified publicly traded partnership,” or “QPTP,” hereinafter the “90% Gross Income Test;” and |
• | diversify its holdings so that, at the end of each quarter of each taxable year: |
• | at least 50% of the value of its total assets is represented by cash and cash items, U.S. Government securities, the securities of other RICs and other securities, with other securities limited, in respect of any one issuer, to an amount not greater than 5% of the value of total assets and not more than 10% of the outstanding voting securities of such issuer; and |
• | not more than 25% of the value of its total assets is invested in the securities of any issuer (other than U.S. Government securities and the securities of other RICs), the securities of any two or more issuers that the Company controls and that are determined to be engaged in the same business or similar or related trades or businesses, or the securities of one or more QPTPs, or the “Diversification Tests.” |
• | at least 98% of net ordinary income (not taking into account any capital gains or losses) for the calendar year; |
• | at least 98.2% of the amount by which capital gains exceed capital losses (adjusted for certain ordinary losses) for a one-year period ending on October 31 of the calendar year; and |
• | 100% of any ordinary income and net capital gain income recognized in preceding years but were not distributed during such years, and on which the Company paid no corporate-level U.S. federal income tax. |
• | The success of the Company’s investments will depend on the successful implementation of its investment strategy. |
• | The Company could be subject to the risks associated with investments in senior secured loans, subordinated loans, Mezzanine Securities (as defined below) and unsecured loans. |
• | The Company’s loans may permit borrowers to prepay, which could affect the yield of the Company’s investments. |
• | Terms and conditions of the Company’s loan agreements may be amended, modified or waived only by the agreement of the lenders. |
• | The Company may make investments in loans, or securities backed by loans, that are or may be non-performing loans. |
• | The Company’s success will depend, in part, on originating loans on advantageous terms. |
• | The Company intends to make investments in the life sciences industry. Various segments of the life sciences industry are (or may become) (i) highly regulated, (ii) subject to frequent regulatory change and (iii) dependent upon various government or private insurance reimbursement programs. |
• | The value of the Company’s investments could be affected by factors affecting the economy and securities markets generally. |
• | Periods of market volatility have occurred and could continue to occur in response to pandemics or other events. |
• | The Adviser will rely on information provided by internal sources and third parties when conducting due diligence. |
• | Fixed and floating rate debt instruments are subject to the risks associated with changes in interest rates. |
• | Most of the Company’s Portfolio Investments at any given time are expected to be illiquid. |
• | The Company is subject to risks related to inflation and deflation. |
• | Economic sanction laws may prohibit investments in certain countries and with certain individuals and companies. |
• | The Company may choose to waive or defer enforcement of covenants in the debt securities held in our portfolio, which may cause us to lose all or part of our investment in these companies. |
• | There can be no guarantee of returns and Unitholders may lose all of their money by investing in the Company. |
• | Pursuant to the LLC Agreement, Units are not generally transferable and voluntary withdrawal of Units is not allowed. |
• | The Company is subject to management risk because the Adviser actively manages its investment portfolio. |
• | If the professional staff of the Adviser fail to maintain their existing relationships or develop new relationships with other sponsors or sources of investment opportunities, the Company will not be able to grow its investment portfolio. |
• | The Company’s assets are available to satisfy all liabilities and other obligations of the Company. |
• | There is no assurance that the Company will have the ability, opportunity or resources to pursue potential investment opportunities or to make follow-on investments. |
• | The Company could be substantially adversely affected by the unfavorable performance of any single investment. |
• | The Company will include in its income certain amounts that the Company has not yet received in cash. |
• | It is expected that substantially all of the Company’s investments will not have market quotations available. |
• | The Adviser may employ financial/analytical models that may not reflect actual results. |
• | The Company and the Adviser may be subject to the risks and costs of regulatory investigations or becoming involved in litigation with third parties. |
• | The Company and/or the Adviser may enter into various indemnification agreements or arrangements with third parties. |
• | A Unitholder in default with respect to its unfunded Commitment may experience material adverse effects on its investment. |
• | The Company could be subject to the risks related to the Russian invasion of Ukraine. |
• | Unitholders could be subject to cybersecurity risks associated with electronic databases and communications. |
• | Adverse developments affecting the financial services industry could have a material adverse effect on the Company, the Adviser and the Portfolio Investments. |
• | The Company is subject to technological risks, including those associated with artificial intelligence and machine learning technology. |
• | The Company is subject to risks associated with ESG (as defined below) initiatives and climate change. |
• | The Company is subject to risks associated with U.S. government shutdowns, uncertainty over the U.S. debt ceiling and any related downgrades in the U.S.’s credit ratings. |
• | The Company intends to distribute to Unitholders substantially all of its ordinary income and capital gain. |
• | No assurance can be given that the Company will be able to maintain qualification as a RIC. |
• | Unitholders will experience the increased risks pertaining to the Company’s use of leverage to partially finance its investments. |
• | A BDC must carry investments at market value or at fair value, as determined in good faith by the Board. |
• | At least 70% of a BDC’s assets must consist of “qualifying assets”. |
• | The Company and its affiliates are substantially limited in their ability to co-invest in privately negotiated transactions. |
• | The Company could be precluded from conducting Rule 506 Offerings (as defined below) due to “Bad Actor” restrictions. |
• | The Company could be subject to the risks associated with complying with the Sarbanes-Oxley Act (as defined below). |
• | The Company could be subject to the risks associated with investments in high yield securities, corporate debt securities, convertible securities, preferred stock, reverse repurchase agreements, and distressed companies. |
• | The Company could be subject to the risks associated with the use of warrants and rights. |
• | The Company could be subject to the risks associated with the use of SOFR. |
• | The Company could be subject to the risks associated with the effect of an economic slowdown on Portfolio Investments. |
• | The Company’s Portfolio Investments will require active monitoring and may, at times, involve participation in business strategy or reorganization proceedings. |
• | The Company could be subject to the risks associated with investments in zero-coupon bonds, deferred interest rate bonds and PIKs (as defined below) because such bonds allow an issuer to avoid or delay the need to generate cash to meet current interest payments and, as a result, may involve greater credit risk than bonds that pay interest currently or in cash. |
• | The Company may dispose of its investments through whatever manner it deems to be advisable, including through asset sales, repackaging transactions, securitizations, initial public offerings, strategic transactions and other mergers and acquisitions activity, and/or any combination thereof. Therefore, the disposition of Company investments will be subject to the risks associated with the particular exit strategy utilized. |
• | The interest payments deferred on a PIK loan are subject to the risk that the borrower may default when the deferred payments are due in cash at the maturity of the loan; |
• | The interest rates on PIK loans are higher to reflect the time-value of money on deferred interest payments and the higher credit risk of borrowers who may need to defer interest payments; |
• | PIK instruments may have unreliable valuations because the accruals require judgments about ultimate collectability of the deferred payments and the value of the associated collateral; |
• | An election to defer PIK interest payments by adding them to principal increases the Company’s gross assets and, thus, increases future base fees to the Adviser and, because interest payments will then be payable on a larger principal amount, the PIK election also increases the Adviser’s future income incentive fees at a compounding rate; |
• | Market prices of OID instruments are more volatile because they are affected to a greater extent by interest rate changes than instruments that pay interest periodically in cash; |
• | The deferral of interest on a PIK loan increases its loan-to-value |
• | OID creates the risk of non-refundable cash payments to the Adviser based on non-cash accruals that may never be realized. |
• | our future operating results, including our ability to achieve objectives; |
• | our business prospects and the prospects of our portfolio companies; |
• | the impact of investments that we expect to make; |
• | our contractual arrangements and relationships with third parties; |
• | the dependence of our future success on the general economy and its impact on the industries in which we invest; |
• | the impact of any protracted decline in the liquidity of credit markets on our business; |
• | the ability of our portfolio companies to achieve their objectives; |
• | the valuation of our investments in portfolio companies, particularly those having no liquid trading market; |
• | market conditions and our ability to access different debt markets and additional debt and equity capital; |
• | our expected financings and investments; |
• | the adequacy of our cash resources and working capital; |
• | the timing of cash flows, if any, from the operations of our portfolio companies; |
• | the ability of the Adviser to locate suitable investments for us and to monitor and administer our investments; |
• | the ability of the Adviser to attract and retain highly talented professionals; |
• | the ability of the Adviser to adequately allocate investment opportunities among the Company and its other advisory clients; |
• | any conflicts of interest posed by the structure of the management fee and incentive fee to be paid to the Adviser; |
• | changes in political, economic or industry conditions, relations between the United States, Russia, Ukraine and other nations, the interest rate environment, certain regional bank failures or conditions affecting the financial and capital markets; |
• | the escalating conflict in the Middle East; |
• | changes in the general economy, slowing economy, rising inflation, risk of recession and risks in respect of a failure to increase the U.S. debt ceiling; and |
• | our ability to anticipate and identify evolving market expectations with respect to environmental, social and governance matters, including the environmental impacts of our portfolio companies’ supply chains and operations. |
• | an economic downturn could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies; |
• | a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities; |
• | interest rate volatility could adversely affect our results, particularly because we use leverage as part of our investment strategy; |
• | currency fluctuations could adversely affect the results of our investments in foreign companies, particularly to the extent that we receive payments denominated in foreign currency rather than U.S. dollars; and |
• | the risks, uncertainties and other factors we identify in Item 1A. — Risk Factors contained in this Annual Report on Form 10-K and in our other filings with the SEC. |
(i) | all of its fees, costs, expenses and liabilities, all of its investment-related fees, costs, expenses and liabilities (including with respect to amounts incurred prior to the Company’s initial closing) and all of its other operating fees, costs, expenses and liabilities, including all fees, due diligence costs and other fees, costs, expenses and liabilities related to the identification, sourcing, evaluation, pursuit, acquisition, holding, appraisals, asset management, restructuring and disposing of investments, including all reasonable travel-related fees, costs, expenses and liabilities, including lodging and meals, all fees, costs, expenses and liabilities of legal counsel and financial and other advisers incurred in connection therewith, all fees, costs, expenses and liabilities of information technology services relating to the ongoing management of investments, and all other investment-related fees, costs, expenses and liabilities (to the extent not reimbursed by the relevant portfolio company); |
(ii) | all fees, costs, expenses and liabilities related to any audits or agreed upon procedures, tax forms and return preparations and filings, custodian fees and expenses, fund accounting, administrator services, financial statement preparation and reporting, web services for the benefit of Unitholders, delivery costs and expenses in connection with reporting obligations and communications and compliance services; |
(iii) | all fees, costs, expenses and liabilities relating to insurance policies (including director and officer liability insurance) maintained by or for the Company, including in respect of Portfolio Investments and/or personnel of the Adviser, the Adviser in its capacity as Administrative Coordinator and their affiliates; |
(iv) | other administrative fees, costs, and liabilities; |
(v) | all fees, costs, expenses and liabilities of brokers, transaction finders and other intermediaries, including brokerage commissions and spreads, and all other transaction-related fees, costs, expenses and liabilities, including reverse break-up fees; |
(vi) | all fees, costs, expenses and liabilities relating to derivatives and hedging transactions; |
(vii) | all principal amounts of, and interest expense on, borrowings and guarantees, and all other fees, costs, expenses and liabilities arising out of borrowings and guarantees, including the arranging and maintenance thereof, whether incurred by the Company or incurred or facilitated by a special purpose vehicle that makes Portfolio Investments; |
(viii) | management fees and incentive fees; |
(ix) | administration expenses; |
(x) | all fees, costs, expenses and liabilities incurred through the use or engagement of service providers; |
(xi) | all taxes, fees, penalties and other governmental charges levied against the Company and all fees, costs, expenses, penalties and liabilities related to tax compliance; |
(xii) | all fees, costs, expenses and liabilities of the Company’s legal counsel related to extraordinary matters, including expenses for any dispute resolution (including litigation and regulatory-related legal expenses); |
(xiii) | all fees, costs, expenses and liabilities relating to legal, governance and regulatory compliance and filings, including securities law filings relating to Portfolio Investments; |
(xiv) | all fees, costs, expenses and liabilities related to the Company’s indemnification or contribution obligations; |
(xv) | all fees, costs, expenses and liabilities for subscription services (to the extent such subscription is required by a placement agent); |
(xvi) | any required regulatory filings and related legal fees; |
(xvii) | all fees, costs, expenses and liabilities related to liquidating the Company; |
(xviii) | transfer agent services; |
(xix) | any other fees, costs, expenses and liabilities not specifically assumed by the Adviser or the Administrative Coordinator; |
(xx) | all fees, costs, expenses and liabilities of the independent directors, including resources retained by the independent directors, or on their behalf, while representing and/or acting on behalf of all Unitholders; and |
(xxi) | all fees, costs, expenses and liabilities related to an exchange listing (including any transactions effectuated in connection therewith) or other business combination. |
Payments due by Period as of December 31, 2023 (dollars in millions) |
||||||||||||||||||||
Total |
Less than 1 year |
1-3 years |
3-5 years |
More than 5 years |
||||||||||||||||
Credit facilities (1) |
$ | 13.4 | $ | — | $ | 11.4 | $ | 2.0 | $ | — |
(1) | At December 31, 2023, we had a total of $36.6 million of unused borrowing capacity under our credit facilities, subject to borrowing base limits. |
December 31, 2023 |
||||
(in millions) |
||||
AMF Levered II, LLC |
$ | 3.1 | ||
Outset Medical, Inc. |
3.1 | |||
AAH Topco, LLC |
1.8 | |||
Cerapedics, Inc. |
1.5 | |||
OIS Management Services, LLC |
1.4 | |||
Legacy Service Partners, LLC |
1.2 | |||
Human Interest, Inc. |
1.0 | |||
World Insurance Associates, LLC |
0.8 | |||
Retina Midco, Inc. |
0.8 | |||
Ardelyx, Inc. |
0.7 | |||
CVAUSA Management, LLC |
0.7 | |||
Alkeme Intermediary Holdings, LLC |
0.7 | |||
West-NR Parent, Inc. |
0.4 | |||
Peter C. Foy & Associates Insurance Services, LLC |
0.4 | |||
Toptal, LLC |
0.3 | |||
Apex Service Partners, LLC |
0.3 | |||
United Digestive MSO Parent, LLC |
0.3 | |||
The Townsend Company, LLC |
0.3 | |||
Vertos Medical, Inc. |
0.2 | |||
Medrina, LLC |
0.2 | |||
UVP Management, LLC |
0.2 | |||
Crewline Buyer, Inc. |
0.1 | |||
Exactcare Parent, Inc. |
0.1 | |||
WCI-BXC Purchaser, LLC |
0.1 | |||
MRI Software LLC |
0.1 | |||
Total Commitments |
$ | 19.8 |
Increase (Decrease) in SOFR |
(1.00 | %) | 1.00 | % | ||||
Increase (Decrease) in Net Investment Income Per Unit Per Year |
$ | (0.14 | ) | $ | 0.14 |
Page |
||||
84 | ||||
85 | ||||
86 | ||||
87 | ||||
88 | ||||
89 | ||||
91 |
* | Commencement of operations |
December 31, 2023 |
||||
Assets |
||||
Investments at fair value: |
||||
Non-controlled/non-affiliated |
$ | |||
Cash |
||||
Cash equivalents (cost: $ |
||||
Interest receivable |
||||
Prepaid expenses |
||||
Total assets |
$ | |||
Liabilities |
||||
Revolving credit facility due March 2025 (the “Subscription Facility”) ($ |
$ | |||
Revolving credit facility due December 2028 (the “SPV Facility”) ($ |
||||
Payable for cash equivalents purchased |
||||
Management fee payable (see note 3) |
||||
Administration fee payable (see note 3) |
||||
Interest payable (see note 5) |
||||
Other liabilities and accrued expenses |
||||
Total liabilities |
$ | |||
Commitments and contingencies (see note 6) |
||||
Unitholders’ Capital |
||||
Common Unitholders’ capital ( |
||||
Accumulated distributable net loss (see note 2f) |
( |
) | ||
Total unitholders’ capital |
$ | |||
Total liabilities and unitholders’ capital |
$ | |||
Net asset value per unit |
$ | |||
For the period January 18, 2023* to December 31, 2023 |
||||
Investment Income: |
||||
Interest income from non-controlled/non-affiliated |
$ | |||
Total investment income |
||||
Expenses: |
||||
Management fees (see note 3) |
$ | |||
Administration fees (see note 3) |
||||
Interest and other credit facility expenses (see note 5) |
||||
Administrative services expenses |
||||
Legal expenses |
||||
Organizational expenses |
||||
Audit and tax preparation expenses |
||||
Other general and administrative expenses |
||||
Total expenses |
||||
Net investment loss |
$ | ( |
) | |
Realized and unrealized gain (loss) on investments and cash equivalents: |
||||
Net realized loss on non-controlled/non-affiliated |
$ | ( |
) | |
Net change in unrealized gain on non-controlled/non-affiliated |
||||
Net realized and unrealized gain on non-controlled/non-affiliated |
||||
Net Decrease in Unitholders’ Capital Resulting From Operations |
$ | ( |
) | |
Net Loss Per Unit |
$ | ( |
) | |
* | Commencement of operations |
For the period January 18, 2023* to December 31, 2023 |
||||
Increase (decrease) in unitholders’ capital resulting from operations: |
||||
Net investment loss |
$ | ( |
) | |
Net realized loss |
( |
) | ||
Net change in unrealized gain |
||||
Net decrease in unitholders’ capital resulting from operations |
( |
) | ||
Increase (decrease) in unitholders’ capital resulting from capital activity (see note 7): |
||||
Contributions |
||||
Less offering costs |
( |
) | ||
Cancellation |
( |
) | ||
Net increase in unitholders’ capital resulting from capital activity |
||||
Total increase in unitholders’ capital |
||||
Unitholders’ capital, beginning of period |
||||
Unitholders’ capital, end of period |
$ | |||
Capital unit activity (see note 7): |
||||
Units issued |
||||
Units canceled |
( |
) | ||
Net increase from capital unit activity |
||||
* | Commencement of operations |
For the period January 18, 2023* to December 31, 2023 |
||||
Cash Flows from Operating Activities: |
||||
Net decrease in unitholders’ capital resulting from operations |
$ | ( |
) | |
Adjustments to reconcile net decrease in unitholders’ capital resulting from operations to net cash used in operating activities: |
||||
Net realized loss on investments and cash equivalents |
||||
Net change in unrealized gain on investments |
( |
) | ||
Deferred financing costs |
||||
(Increase) decrease in operating assets: |
||||
Purchase of investments |
( |
) | ||
Net accretion of discount on investments |
( |
) | ||
Proceeds from disposition of investments |
||||
Interest receivable |
( |
) | ||
Prepaid expenses |
( |
) | ||
Increase in operating liabilities: |
||||
Payable for cash equivalents purchased |
||||
Management fee payable |
||||
Administration fee payable |
||||
Interest payable |
||||
Other liabilities and accrued expenses |
||||
Net Cash Used in Operating Activities |
( |
) | ||
Cash Flows from Financing Activities: |
||||
Contributions from unitholders |
||||
Offering costs |
( |
) | ||
Cancellation of units |
( |
) | ||
Proceeds from borrowings |
||||
Repayments of borrowings |
( |
) | ||
Net Cash Provided by Financing Activities |
||||
NET INCREASE IN CASH AND CASH EQUIVALENTS |
||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD |
||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD |
$ | |||
Supplemental disclosure of cash flow information: |
||||
Cash paid for interest |
$ | |||
* | Commencement of operations |
Description |
Industry |
Spread above Index (2) |
Floor |
Interest Rate (1) |
Acquisition Date |
Maturity Date |
Par Amount |
Cost |
Fair Value |
|||||||||||||||||||||||||
Bank Debt/Senior Secured Loans — |
| |||||||||||||||||||||||||||||||||
Accession Risk Management Group, Inc. |
% | % | $ | $ | $ | |||||||||||||||||||||||||||||
Alkeme Intermediary Holdings, LLC (4) |
% | % | ||||||||||||||||||||||||||||||||
Apex Service Partners, LLC |
(5) |
% | % | |||||||||||||||||||||||||||||||
Cerapedics, Inc. (4) |
% | % | ||||||||||||||||||||||||||||||||
Crewline Buyer, Inc. |
% | % | ||||||||||||||||||||||||||||||||
CVAUSA Management, LLC |
% | % | ||||||||||||||||||||||||||||||||
Exactcare Parent, Inc. |
% | % | ||||||||||||||||||||||||||||||||
Higginbotham Insurance Agency, Inc. |
% | % | ||||||||||||||||||||||||||||||||
Medrina, LLC |
% | % | ||||||||||||||||||||||||||||||||
MRI Software, LLC (4) |
% | % | ||||||||||||||||||||||||||||||||
OIS Management Services, LLC (4) |
% | % | ||||||||||||||||||||||||||||||||
Peter C. Foy & Associates Insurance Services, LLC |
% | % | ||||||||||||||||||||||||||||||||
Retina Midco, Inc. (4) |
% | % | ||||||||||||||||||||||||||||||||
The Townsend Company, LLC (4) |
% | % | ||||||||||||||||||||||||||||||||
Toptal, LLC |
% | % | ||||||||||||||||||||||||||||||||
United Digestive MSO Parent, LLC |
% | % | ||||||||||||||||||||||||||||||||
UVP Management, LLC |
% | % | ||||||||||||||||||||||||||||||||
Vertos Medical, Inc. (4) |
% | % | ||||||||||||||||||||||||||||||||
WCI-BXC Purchaser, LLC |
% | % | ||||||||||||||||||||||||||||||||
West-NR Parent, Inc. |
% | % | ||||||||||||||||||||||||||||||||
World Insurance Associates, LLC |
% | % | ||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||
Total Bank Debt/Senior Secured Loans |
$ |
$ |
||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||
Warrants — |
Warrants |
|||||||||||||||||||||||||||||||||
Vertos Medical, Inc.* |
$ | $ | ||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||
Total Warrants |
$ |
$ |
||||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||
Total Investments (3) — |
$ |
$ |
||||||||||||||||||||||||||||||||
Cash Equivalents — |
|
|||||||||||||||||||||||||||||||||
U.S. Treasury Bill |
Government | $ | $ | $ | ||||||||||||||||||||||||||||||
|
|
|
|
|||||||||||||||||||||||||||||||
Total Investments & Cash Equivalents |
$ |
$ |
||||||||||||||||||||||||||||||||
Liabilities in Excess of Other Assets — ( |
( |
) | ||||||||||||||||||||||||||||||||
|
|
|||||||||||||||||||||||||||||||||
Net Assets — |
$ |
|||||||||||||||||||||||||||||||||
|
|
(1) | Floating rate debt investments typically bear interest at a rate determined by reference to either the Secured Overnight Financing Rate (“SOFR”) or the prime index rate (“PRIME” or “P”), and which typically reset monthly, quarterly or semi-annually. For each debt investment SLR Private Credit B D C II LLC (the “Company”, “we”, “us” or “our”) has provided the current interest rate in effect as of December 31, 2023. |
(2) | Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the SOFR or PRIME rate. These instruments are often subject to a SOFR or PRIME rate floor. |
(3) | Aggregate net unrealized depreciation for U.S. federal income tax purposes is $ |
(4) | Indicates an investment that is wholly or partially held by the Company through its wholly-owned financing subsidiary SLR Private Credit BDC II SPV LLC (the “SPV”). Such investments are pledged as collateral under the SPV Facility (see Note 5 to the consolidated financial statements) and are not generally available to creditors, if any, of the Company. |
(5) |
S+ |
* |
Non-income producing security. |
Industry Classification |
Percentage of Total Investments (at fair value) as of December 31, 2023 |
|||
Health Care Providers & Services |
% | |||
Insurance |
% | |||
Commercial Services & Supplies |
% | |||
Software |
% | |||
IT Services |
% | |||
Diversified Consumer Services |
% | |||
Biotechnology |
% | |||
Distributors |
% | |||
Health Care Equipment & Supplies |
% | |||
Total Investments |
% | |||
(a) | Investment transactions are accounted for on the trade date. |
(b) | In accordance with GAAP and the 1940 Act, the Company’s assets will generally be valued as follows: |
(i) | securities or other instruments (other than as referred to in clauses (ii) and (iii) below) for which market quotes are readily available and deemed to represent fair value under GAAP will be valued based on quotes obtained from a quotation reporting system, market makers or pricing services (when deemed to represent fair value under GAAP). A market quotation is readily available for a security only when that quotation is a quoted price (unadjusted) in active markets for identical investments that the Company can access at the measurement date, provided that a quotation will not be readily available if it is not reliable. If the Company anticipates using a market quotation for a security, it will also monitor for circumstances that may necessitate the use of fair value, such as significant events that may cause concern over the reliability of a market quotation; |
(ii) | exchange-traded options, futures and options on futures will be valued at the settlement price determined by the exchange or through the use of a model such as Black-Scholes; |
(iii) | short-term investments with maturities of sixty (60) days or less generally will be valued at amortized cost; and |
(iv) | securities, loans or other instruments for which market quotes are not readily available or reliable under GAAP will be valued as described below: |
a. | the quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of SLR responsible for the Portfolio Investment; |
b. | preliminary valuation conclusions are then documented and discussed with senior management of the Adviser; |
c. | the audit committee of the Board of Directors (the “Board”) reviews the preliminary valuations of the Adviser and third-party valuation specialist, if any, and responds to the valuation recommendations to reflect any comments; and |
d. | the Board discusses valuations and determines the fair value of each investment in the Company’s portfolio in good faith based on the input of the Adviser, the audit committee, and third-party valuation specialist, if any, which may from time to time be engaged by the Board. |
(c) | Gains or losses on investments are calculated by using the specific identification method. |
(d) | The Company records dividend income and interest, adjusted for amortization of premium and accretion of discount, on an accrual basis. Loan origination fees, original issue discount, and market discounts are capitalized and we amortize such amounts into income using the effective interest method. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. We record call premiums on loans repaid as interest income when we receive such amounts. Capital structuring fees, amendment fees, consent fees, and any other non-recurring fee income as well as management fee and other fee income for services rendered, if any, are recorded as other income when earned. |
(e) | The Company intends to comply with the applicable provisions of the Code pertaining to RICs to make distributions of taxable income sufficient to relieve it of substantially all U.S. federal income taxes. The Company, at its discretion, may carry forward taxable income in excess of calendar year distributions and pay a |
(f) | Book and tax basis differences relating to Unitholder distributions and other permanent book and tax differences are typically reclassified among the Company’s capital accounts annually. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from GAAP; accordingly at December 31, 2023, $ |
(g) | Distributions to Unitholders are recorded as of the record date. The amount to be paid out as a distribution is determined by the Board. Net realized capital gains, if any, are generally distributed or deemed distributed at least annually. |
(h) | In accordance with Regulation S-X and ASC Topic 810—Consolidation |
(i) | The accounting records of the Company are maintained in U.S. dollars. Any assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against the U.S. dollar on the date of valuation. The Company will not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations would be included with the net unrealized gain or loss from investments. The Company’s investments in foreign securities, if any, may involve certain risks, including without limitation: foreign exchange restrictions, expropriation, taxation or other political, social or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments in terms of U.S. dollars and therefore the earnings of the Company. |
(j) | In accordance with ASC 835-30, the Company reports origination and other expenses related to certain debt issuances, if any, as a direct deduction from the carrying amount of the debt liability. Applicable expenses are deferred and amortized using either the effective interest method or the straight-line method over the stated life. The straight-line method may be used on revolving facilities and/or when it approximates the effective yield method. |
(k) | The Company records expenses related to applicable equity offering costs as a charge to capital upon the sale of units, in accordance with ASC 946-20-25. |
(l) | Investments that are expected to pay regularly scheduled interest in cash are generally placed on non-accrual status when principal or interest cash payments are past due non-accrual investments are restored to accrual status if past due principal and interest are paid in cash, and in management’s judgment, are likely to continue timely payment of their remaining principal and interest obligations. Cash interest payments received on such investments may be recognized as income or applied to principal depending on management’s judgment. |
(m) | The Company records expenses directly related to its organization as incurred. |
(n) | The Company defines cash equivalents as securities that are readily convertible into known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only securities with a maturity of three months or less would qualify, with limited exceptions. The Company believes that certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities would qualify as cash equivalents. |
(i) | Pre-Incentive Fee Net Investment Income. One part will be calculated and payable quarterly in arrears based on the net investment income for the immediately preceding calendar quarter. |
a. | For this purpose, Pre-Incentive Fee Net Investment Income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued by the Company during the calendar quarter, minus the Company’s operating expenses for the quarter (including the Post-Exchange Listing Management Fees, expenses payable under an administration agreement, and any interest expense and dividends paid on any issued and outstanding preferred stock, but excluding the Post-Exchange Listing Incentive Fee). |
b. | Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of the Company’s net assets at the end of the immediately preceding calendar quarter, will be compared to a “hurdle rate” of Pre-Incentive Fee Net Investment Income used to calculate this part of the Post-Exchange Listing Incentive Fee is also included in the amount of its gross assets used to calculate the |
c. | The Company will pay the Adviser a Post-Exchange Listing Incentive Fee with respect to the Company’s Pre-Incentive Fee Net Investment Income in each calendar quarter as follows: |
i. | Pre-Incentive Fee Net Investment Income does not exceed the quarterly hurdle rate of |
ii. | Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than Pre-Incentive Fee Net Investment Income (which exceeds the hurdle but is less than “catch-up.” The “catch-up” is meant to provide the Adviser with 20% of the Company’s Pre-Incentive Fee Net Investment Income as if a hurdle did not apply if this Pre-Incentive Fee Net Investment Income exceeds |
iii. | 20% of the amount of the Company’s Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized) payable to the Adviser (once the hurdle is reached and the catch-up is achieved, Pre-Incentive Fee Net Investment Income thereafter is allocated to the Adviser). |
a) | Quoted prices for similar assets or liabilities in active markets; |
b) | Quoted prices for identical or similar assets or liabilities in non-active markets; |
c) | Pricing models whose inputs are observable for substantially the full term of the asset or liability; and |
d) | Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability. |
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
Assets: |
||||||||||||||||
Bank Debt/Senior Secured Loans |
$ | $ | $ | $ | ||||||||||||
Warrants |
||||||||||||||||
Total Investments |
$ | $ | $ | $ | ||||||||||||
Bank Debt/Senior Secured Loans |
Warrants |
Total |
||||||||||
Fair value, January 18, 2023 |
$ | $ | $ | |||||||||
Total gains or losses included in earnings: |
||||||||||||
Net realized gain |
||||||||||||
Net change in unrealized gain (loss) |
||||||||||||
Purchase of investment securities* |
||||||||||||
Proceeds from dispositions of investment securities |
( |
) | ( |
) | ||||||||
Transfers into Level 3 |
||||||||||||
Transfers out of Level 3 |
||||||||||||
Fair value, December 31, 2023 |
$ | $ | $ | |||||||||
Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period: |
||||||||||||
Net change in (loss) |
$ | $ | $ | |||||||||
* | Includes PIK capitalization and accretion of discount |
Asset or Liability |
Fair Value at December 31, 2023 |
Principal Valuation Technique/Methodology |
Unobservable Input |
Range (Weighted Average) |
||||||||||
Bank Debt / Senior Secured Loans |
Asset | $ | ||||||||||||
Warrants |
Asset | $ | ||||||||||||
December 31, 2023 |
||||
AMF Levered II, LLC |
$ | |||
Outset Medical, Inc. |
||||
AAH Topco, LLC |
||||
Cerapedics, Inc. |
||||
OIS Management Services, LLC |
||||
Legacy Service Partners, LLC |
||||
Human Interest, Inc. |
||||
World Insurance Associates, LLC |
||||
Retina Midco, Inc. |
||||
Ardelyx, Inc. |
||||
CVAUSA Management, LLC |
||||
Alkeme Intermediary Holdings, LLC |
||||
West-NR Parent, Inc. |
||||
Peter C. Foy & Associates Insurance Services, LLC |
||||
Toptal, LLC |
||||
Apex Service Partners, LLC |
||||
United Digestive MSO Parent, LLC |
||||
The Townsend Company, LLC |
||||
Vertos Medical, Inc. |
||||
Medrina, LLC |
||||
UVP Management, LLC |
||||
Crewline Buyer, Inc. |
||||
Exactcare Parent, Inc. |
||||
WCI-BXC Purchaser, LLC |
||||
MRI Software LLC |
||||
Total Commitments |
$ |
For the period January 18, 2023* to December 31, 2023 |
||||
Units at beginning of period |
||||
Units issued |
||||
Units canceled |
( |
) | ||
Units issued and outstanding at end of period |
||||
* | Commencement of operations |
For the period January 18, 2023* to December 31, 2023 |
||||
Per Unit Data: (a) |
||||
Net asset value per unit, beginning of period |
$ | |||
Net investment loss |
( |
) | ||
Net realized and unrealized gain |
||||
Net decrease in Unitholders’ capital resulting from operations |
( |
) | ||
Issuance of units |
** | |||
Offering costs |
( |
) | ||
Net asset value per unit, end of period |
$ | |||
Total Return(b)(c) |
( |
)% | ||
Unitholders’ capital, end of period |
$ | |||
Units outstanding, end of period |
||||
Ratios to average net assets of Unitholders’ Capital (c): |
||||
Net investment loss |
( |
)% | ||
Operating expenses |
% | |||
Interest and other credit facility expenses |
% | |||
Total expenses |
% | |||
Average debt outstanding |
$ | |||
Portfolio turnover ratio |
% |
(a) | Calculated using the average Units outstanding method. Weighted average Units outstanding for the period March 31, 2023 (date of first sale of Units to Unitholders) through December 31, 2023 was |
(b) | Calculated as the change in net asset value (“NAV”) per Unit during the period plus distributions declared per Unit, divided by the beginning NAV per Unit. Total return does not include a sales load. The beginning NAV per unit was determined to be as of the date of the first sale of Units to Unitholders as management considers this to be the most meaningful disclosure for investors. |
(c) | Not annualized for periods less than one year. Average net assets are calculated for the period March 31, 2023 (date of first sale of Units to Unitholders) through December 31, 2023. |
* | Commencement of operations |
** | Includes the impact of the different unit amounts used in calculating per Unit data as a result of calculating certain per Unit data based upon the weighted average Units outstanding during the period and certain per Unit data based on the Units outstanding as of a period end. |
2023 |
||||
Undistributed ordinary income |
$ | |||
Undistributed long-term net capital gains |
||||
|
|
|||
Total undistributed net earnings |
||||
Post-October capital losses |
||||
Capital loss carryforward |
( |
) | ||
Other book/tax temporary differences |
( |
) | ||
Net unrealized depreciation |
( |
) | ||
|
|
|||
Total tax accumulated loss |
$ | ( |
) | |
|
|
(1) | Tax information for the period January 18, 2023 (commencement of operations) to December 31, 2023 are estimates and are not final until the Company files its tax returns, typically in October each year. |
Name |
Age |
Position |
Director Since | |||
Interested Directors | ||||||
Michael S. Gross | 62 | Co-Chief Executive Officer, President and Director |
2022 | |||
Bruce Spohler | 63 | Co-Chief Executive Officer, Chief Operating Officer and Director |
2022 | |||
Independent Directors | ||||||
Steve Hochberg | 62 | Director | 2022 | |||
David S. Wachter | 60 | Director | 2022 | |||
Leonard A. Potter | 62 | Director | 2022 |
Name |
Age |
Position | ||
Shiraz Y. Kajee | 44 | Chief Financial Officer and Treasurer | ||
Guy Talarico | 68 | Chief Compliance Officer and Secretary |
Name |
Fees Earned or Paid in Cash(1) |
Stock Awards(2) |
All Other Compensation |
Total |
||||||||||||
Interested Directors |
||||||||||||||||
Michael S. Gross |
— | — | — | — | ||||||||||||
Bruce Spohler |
— | — | — | — | ||||||||||||
Independent Directors |
||||||||||||||||
Steven Hochberg |
$ | 25,000 | — | — | $ | 25,000 | ||||||||||
David S. Wachter |
$ | 25,000 | — | — | $ | 25,000 | ||||||||||
Leonard A. Potter |
$ | 25,000 | — | — | $ | 25,000 |
(1) | No compensation is paid to our directors who are “interested persons,” as such term is defined in Section 2(a) (19) of the 1940 Act. We pay each independent director $25,000 per year for serving as a director. We are also authorized to pay the reasonable out-of-pocket |
(2) | We do not maintain a stock or option plan, non-equity incentive plan or pension plan for our directors. |
Name and Address of Beneficial Owner |
Number of Units Owned Beneficially (1) |
Percentage of Class(2) |
||||||
Interested Directors |
||||||||
Michael S. Gross |
— | — | ||||||
Bruce Spohler |
— | — | ||||||
Independent Directors |
||||||||
Steven Hochberg |
— | — | ||||||
Leonard A. Potter |
— | — | ||||||
David S. Wachter |
— | — | ||||||
Executive Officers |
||||||||
Shiraz Y. Kajee |
— | — | ||||||
Guy Talarico |
— | — | ||||||
All executive officers and directors as a group (7 persons) |
— | — |
(1) | Beneficial ownership has been determined in accordance with Rule 13d-3 under the 1934 Act. |
(2) | Based on a total of 551,497 Company’s Units issued and outstanding on February 23, 2024. |
Name of Director |
Dollar Range of Equity Securities Beneficially Owned (1)(2) |
|||
Interested Directors |
— | |||
Michael S. Gross |
— | |||
Bruce Spohler |
— | |||
Independent Directors |
||||
Steven Hochberg |
— | |||
Leonard A. Potter |
— | |||
David S. Wachter |
— |
(1) | The dollar ranges are: None, $1-$10,000, $10,001-$50,000, $50,001-$100,000, or | |
(2) | Beneficial ownership has been determined in accordance with Rule 16a-1(a)(2) of the 1934 Act. |
January 18, 2023 (commencement of operations) to December 31, 2023 |
||||
Audit Fees |
$ | 100.0 | ||
Audit-Related Fees |
— | |||
Tax Fees |
17.3 | |||
All Other Fees |
— | |||
Total Fees: |
$ | 117.3 |
Index |
Page No. |
|||
84 | ||||
85 | ||||
86 | ||||
87 | ||||
88 | ||||
89 | ||||
91 |
* | Filed herewith |
(1) | Previously filed as an exhibit to the Registrant’s Registration Statement on Form 10 (File No. 000-56518) filed with the SEC on February 1, 2023. |
(2) | Previously filed as an exhibit to Amendment No. 1 to the Registrant’s Registration Statement on Form 10 (File No. 000-56518) filed with the SEC on March 31, 2023. |
(3) | Previously filed as an exhibit to the Registrant’s report on Form 8-K (File No. 814-01616) filed on December 14, 2023. |
SLR PRIVATE CREDIT BDC II LLC | ||||
/s/ M ICHAEL S. GROSS |
/s/ B RUCE J. SPOHLER | |||
Michael S. Gross Co-Chief Executive Officer, President, Chairman of the Board and Director Date: February 27, 2024 |
Bruce J. Spohler Co-Chief Executive Officer, Chief Operating Officerand Director Date: February 27, 2024 |
Date |
Signature |
Title | ||
February 27, 2024 | /s/ M ICHAEL S. GROSS Michael S. Gross |
Co-Chief Executive Officer, President, Chairman of the Board and Director (Principal Executive Officer) | ||
February 27, 2024 | /s/ B RUCE J. SPOHLER Bruce J. Spohler |
Co-Chief Executive Officer, Chief Operating Officer and Director (Principal Executive Officer) | ||
February 27, 2024 | /s/ S TEVEN HOCHBERG Steven Hochberg |
Director | ||
February 27, 2024 | /s/ D AVID S. WACHTER David S. Wachter |
Director | ||
February 27, 2024 | /s/ L EONARD A. POTTER Leonard A. Potter |
Director | ||
February 27, 2024 | /s/ S HIRAZ Y. KAJEE Shiraz Y. Kajee |
Chief Financial Officer (Principal Financial Officer) |