BARINGS BDC, INC. The following discussion is designed to provide a better understanding of our Unaudited Consolidated Financial Statements for the three months endedMarch 31, 2023 , including a brief discussion of our business, key factors that impacted our performance and a summary of our operating results. The following discussion should be read in conjunction with the Unaudited Consolidated Financial Statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q, and the Consolidated Financial Statements and notes thereto and Management's Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year endedDecember 31, 2022 . Historical results and percentage relationships among any amounts in the financial statements are not necessarily indicative of trends in operating results for any future periods.
Forward-Looking Statements
Some of the statements in this Quarterly Report constitute forward-looking statements because they relate to future events or our future performance or financial condition. Forward-looking statements may include, among other things, statements as to our future operating results, our business prospects and the prospects of our portfolio companies, the impact of the investments that we expect to make, the ability of our portfolio companies to achieve their objectives, our expected financings and investments, the adequacy of our cash resources and working capital, and the timing of cash flows, if any, from the operations of our portfolio companies. Words such as "expect," "anticipate," "target," "goals," "project," "intend," "plan," "believe," "seek," "estimate," "continue," "forecast," "may," "should," "potential," variations of such words, and similar expressions indicate a forward-looking statement, although not all forward-looking statements include these words. Readers are cautioned that the forward-looking statements contained in this Quarterly Report are only predictions, are not guarantees of future performance, and are subject to risks, events, uncertainties and assumptions that are difficult to predict. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the items discussed herein, in Item 1A entitled "Risk Factors" in Part I of our Annual Report on Form 10-K for the year endedDecember 31, 2022 and in Item 1A entitled "Risk Factors" in Part II of our subsequently filed Quarterly Reports on Form 10-Q or in other reports that we may file with theSecurities and Exchange Commission (the "SEC") from time to time. Other factors that could cause our actual results and financial condition to differ materially include, but are not limited to, changes in political, economic or industry conditions, including the risks of a slowing economy, rising inflation and risk of recession, and volatility in the financial services sector, including bank failures; the interest rate environment or conditions affecting the financial and capital markets; the impact of global health crises, on our or our portfolio companies' business and theU.S. and global economies; our, or our portfolio companies', future business, operations, operating results or prospects; risks associated with possible disruption due to terrorism in our operations or the economy generally; and future changes in laws or regulations and conditions in our or our portfolio companies' operating areas. These statements are based on our current expectations, estimates, forecasts, information and projections about the industry in which we operate and the beliefs and assumptions of our management as of the date of filing of this Quarterly Report. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless we are required to do so by law. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with theSEC , including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Overview of Our Business We are aMaryland corporation incorporated onOctober 10, 2006 . InAugust 2018 , in connection with the closing of an externalization transaction through whichBarings LLC ("Barings" or the "Adviser") agreed to become our external investment adviser, we entered into an investment advisory agreement (the "Original Advisory Agreement") and an administration agreement (the "Administration Agreement") with Barings. In connection with the completion of our acquisition ofMVC Capital, Inc. , aDelaware corporation, onDecember 23, 2020 (the "MVC Acquisition"), we entered into an amended and restated investment advisory agreement (the "Amended and Restated Advisory Agreement") with Barings onDecember 23, 2020 , following approval of the Amended and Restated Advisory Agreement by our stockholders at ourDecember 23, 2020 special meeting of stockholders. The terms of the Amended and Restated Advisory Agreement became effective onJanuary 1, 2021 . In connection with the completion of the Sierra Merger (as defined below), onFebruary 25, 2022 , we entered into a second amended and restated investment advisory agreement (the "New Barings BDC Advisory Agreement") with the Adviser. Under the terms of the New Barings BDC Advisory Agreement and the Administration Agreement, Barings serves as our investment adviser and administrator and manages our investment portfolio and performs (or oversees, or arranges for, the performance of) the administrative services necessary for our operation. 112 -------------------------------------------------------------------------------- An externally-managed BDC generally does not have any employees, and its investment and management functions are provided by an outside investment adviser and administrator under an advisory agreement and administration agreement. Instead of directly compensating employees, we pay Barings for investment management and administrative services pursuant to the terms of an investment advisory agreement and an administration agreement. Under the terms of the New Barings BDC Advisory Agreement, the fees paid to Barings for managing our affairs are determined based upon an objective and fixed formula, as compared with the subjective and variable nature of the costs associated with employing management and employees in an internally-managed BDC structure, which include bonuses that cannot be directly tied to Company performance because of restrictions on incentive compensation under the Investment Company Act of 1940, as amended (the "1940 Act"). Beginning inAugust 2018 , Barings shifted our investment focus to invest in syndicated senior secured loans, bonds and other fixed income securities. Since that time, Barings has transitioned our portfolio to primarily senior secured private debt investments in well-established middle-market businesses that operate across a wide range of industries. Barings' existingSEC co-investment exemptive relief under the 1940 Act (the "Exemptive Relief") permits us and Barings' affiliated private andSEC -registered funds to co-invest in Barings-originated loans, which allows Barings to efficiently implement its senior secured private debt investment strategy for us. Barings employs fundamental credit analysis, and targets investments in businesses with relatively low levels of cyclicality and operating risk. The holding size of each position will generally be dependent upon a number of factors including total facility size, pricing and structure, and the number of other lenders in the facility. Barings has experience managing levered vehicles, both public and private, and will seek to enhance our returns through the use of leverage with a prudent approach that prioritizes capital preservation. Barings believes this strategy and approach offers attractive risk/return with lower volatility given the potential for fewer defaults and greater resilience through market cycles. A significant portion of our investments are expected to be rated below investment grade by rating agencies or, if unrated would be rated below investment grade if they were rated. Below investment grade securities, which are often referred to as "junk," have predominantly speculative characteristics with respect to the issuer's capacity to pay interest and repay principal. We generate revenues in the form of interest income, primarily from our investments in debt securities, loan origination and other fees and dividend income. Fees generated in connection with our debt investments are recognized over the life of the loan using the effective interest method or, in some cases, recognized as earned. Our senior secured, middle-market, private debt investments generally have terms of between five and seven years. Our senior secured, middle-market, first lien private debt investments generally bear interest between the Secured Overnight Financing Rate ("SOFR") (or the applicable currency rate for investments in foreign currencies) plus 475 basis points and SOFR plus 675 basis points per annum. Our subordinated middle-market, private debt investments generally bear interest between LIBOR (or the applicable currency rate for investments in foreign currencies) plus 700 basis points and LIBOR plus 900 basis points per annum if floating rate, and between 8% and 15% if fixed rate. From time to time, certain of our investments may have a form of interest, referred to as payment-in-kind, or PIK, interest, which is not paid currently but is instead accrued and added to the loan balance and paid at the end of the term. As ofMarch 31, 2023 andDecember 31, 2022 , the weighted average yield on the principal amount of our outstanding debt investments other than non-accrual debt investments was approximately 10.2% and 9.7%, respectively. The weighted average yield on the principal amount of all of our outstanding debt investments (including non-accrual debt investments) was approximately 9.5% and 9.1% as ofMarch 31, 2023 andDecember 31, 2022 , respectively.
Sierra Income Corporation Acquisition
OnFebruary 25, 2022 , we completed our acquisition ofSierra Income Corporation , aMaryland corporation ("Sierra"), pursuant to the terms and conditions of that certain Agreement and Plan of Merger (the "Sierra Merger Agreement"), dated as ofSeptember 21, 2021 , with Sierra,Mercury Acquisition Sub, Inc. , aMaryland corporation and our direct wholly owned subsidiary ("Sierra Acquisition Sub"), and Barings. To effect the acquisition, Sierra Acquisition Sub merged with and into Sierra, with Sierra surviving the merger as our wholly owned subsidiary (the "FirstSierra Merger "). Immediately thereafter, Sierra merged with and into us, withBarings BDC, Inc. as the surviving company (the "SecondSierra Merger " and, together with the FirstSierra Merger , the "Sierra Merger"). Pursuant to the Sierra Merger Agreement, each share of Sierra common stock, par value$0.001 per share (the "Sierra Common Stock"), issued and outstanding immediately prior to the effective time of the FirstSierra Merger (other than shares of Sierra Common Stock issued and outstanding immediately prior to the effective time of the FirstSierra Merger that were held by a subsidiary of Sierra or held, directly or indirectly, by us or Sierra Acquisition Sub) was converted into the right to receive (i) an amount in cash from Barings, without interest, equal to$0.9783641 , and (ii) 0.44973 shares of our common stock, plus any cash in lieu of fractional shares. As a result of the Sierra Merger, former Sierra stockholders received approximately 46.0 million shares of our common stock for their shares of Sierra Common Stock. 113 -------------------------------------------------------------------------------- In connection with the Sierra Merger, onFebruary 25, 2022 , following the closing of the Sierra Merger, we entered into (1) the New Barings BDC Advisory Agreement, and (2) a credit support agreement (the "Sierra Credit Support Agreement") with Barings, pursuant to which Barings has agreed to provide credit support to us in the amount of up to$100.0 million relating to the net cumulative realized and unrealized losses on the acquired Sierra investment portfolio over a 10-year period. See "Note 2. Agreements andRelated Party Transactions" and "Note. 6 Derivative Instruments" in the Notes to our Unaudited Consolidated Financial Statements included in this Quarterly Report on Form 10-Q for more information. In addition, in connection with the Sierra Merger, we committed to make open-market purchases of our common stock, pursuant to Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and subject to our compliance with our covenant and regulatory requirements, shares of our common stock in an aggregate amount of up to$30.0 million at then-current market prices at any time the shares of our common stock trade below 90% of our then most recently disclosed net asset value per share during the 12-month period commencing onApril 1, 2022 .
Relationship with Our Adviser, Barings
Our investment adviser, Barings, a wholly-owned subsidiary ofMassachusetts Mutual Life Insurance Company , is a leading global asset management firm and is registered with theSEC as an investment adviser under the Investment Advisers Act of 1940, as amended. Barings' primary investment capabilities include fixed income, private credit, real estate, equity, and alternative investments. Subject to the overall supervision of the Board,Barings' Global Private Finance Group ("Barings GPFG") manages our day-to-day operations, and provides investment advisory and management services to us. Barings GPFG is part of Barings'$281.6 billion Global Fixed Income Platform (as ofMarch 31, 2023 ) that invests in liquid, private and structured credit. Barings GPFG manages private funds and separately managed accounts, along with multiple public vehicles. Among other things, Barings (i) determines the composition of our portfolio, the nature and timing of the changes therein and the manner of implementing such changes; (ii) identifies, evaluates and negotiates the structure of the investments made by us; (iii) executes, closes, services and monitors the investments that we make; (iv) determines the securities and other assets that we will purchase, retain or sell; (v) performs due diligence on prospective portfolio companies and (vi) provides us with such other investment advisory, research and related services as we may, from time to time, reasonably require for the investment of our funds. Under the terms of the Administration Agreement, Barings (in its capacity as our Administrator) performs (or oversees, or arranges for, the performance of) the administrative services necessary for our operation, including, but not limited to, office facilities, equipment, clerical, bookkeeping and record keeping services at such office facilities and such other services as Barings, subject to review by the Board, will from time to time determine to be necessary or useful to perform its obligations under the Administration Agreement. Barings also, on our behalf and subject to the Board's oversight, arranges for the services of, and oversees, custodians, depositories, transfer agents, dividend disbursing agents, other stockholder servicing agents, accountants, attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers, banks and such other persons in any such other capacity deemed to be necessary or desirable. Barings is responsible for the financial and other records that we are required to maintain and will prepare all reports and other materials required to be filed with theSEC or any other regulatory authority. Included in Barings GPFG is Barings North American Private Finance Team (the "U.S. Investment Team"), which consists of 51 investment professionals (as ofMarch 31, 2023 ) located in three offices in theU.S. TheU.S. Investment Team provides a full set of solutions to the North American middle market, including revolvers, first and second lien senior secured loans, unitranche structures, mezzanine debt and equity co-investments. TheU.S. Investment Team averages over 20 years of industry experience at the Managing Director and Director level. In addition, Barings believes that it has best-in-class support personnel, including expertise in risk management, legal, accounting, tax, information technology and compliance, among others. We expect to benefit from the support provided by these personnel in our operations.
Stockholder Approval of Reduced Asset Coverage Ratio
OnJuly 24, 2018 , our stockholders voted at a special meeting of stockholders (the "2018 Special Meeting") to approve a proposal to authorize us to be subject to a reduced asset coverage ratio of at least 150% under the 1940 Act. As a result of the stockholder approval at the 2018 Special Meeting, effectiveJuly 25, 2018 , our applicable asset coverage ratio under the 1940 Act has been decreased to 150% from 200%. As a result, we are permitted under the 1940 Act to incur indebtedness at a level which is more consistent with a portfolio of senior secured debt. As ofMarch 31, 2023 , our asset coverage ratio was 180.8%. 114 --------------------------------------------------------------------------------
Portfolio Composition
The total value of our investment portfolio was$2,556.1 million as ofMarch 31, 2023 , as compared to$2,448.9 million as ofDecember 31, 2022 . As ofMarch 31, 2023 , we had investments in 331 portfolio companies with an aggregate cost of$2,658.5 million . As ofDecember 31, 2022 , we had investments in 322 portfolio companies with an aggregate cost of$2,562.4 million . As of bothMarch 31, 2023 andDecember 31, 2022 , none of our portfolio investments represented greater than 10% of the total fair value of our investment portfolio.
As of
Percentage of Percentage of
Total Total
($ in thousands) Cost Portfolio Fair Value Portfolio
March 31, 2023 :
Senior debt and 1st lien notes $ 1,813,687 68 % $ 1,765,238 69 %
Subordinated debt and 2nd lien notes 318,480 12 255,089 10
Structured products 96,896 4 79,343 3
Equity shares 274,704 10 331,880 13
Equity warrants 178 - 1,056 -
Investment in joint ventures / PE fund 154,539 6 123,508 5
$ 2,658,484 100 % $ 2,556,114 100 %
December 31, 2022:
Senior debt and 1st lien notes $ 1,752,943 69 % $ 1,696,192 69 %
Subordinated debt and 2nd lien notes 326,639 13 263,139 11
Structured products 88,805 3 73,550 3
Equity shares 230,188 9 284,570 12
Equity warrants 178 - 1,057 -
Investment in joint ventures / PE fund 163,645 6 130,427 5
$ 2,562,398 100 % $ 2,448,935 100 %
Investment Activity
During the three months endedMarch 31, 2023 , we made 11 new investments totaling$65.8 million , made investments in existing portfolio companies totaling$33.9 million and made a$45.0 million equity co-investment alongside certain affiliates in a portfolio company that specializes in providing financing to plaintiff law firms engaged in mass tort and other civil litigation. We had four loans repaid totaling$26.6 million , received$12.7 million of portfolio company principal payments and received$9.1 million of return of capital from our joint ventures. In addition, we sold$1.0 million of loans, recognizing a net realized loss on these transactions of$0.3 million . We received proceeds related to the sale of equity investments totaling$4.3 million and recognized a net realized gain on such sales totaling$1.0 million . During the three months endedMarch 31, 2022 , we made 22 new investments totaling$229.3 million , purchased$442.2 million of investments as part of the Sierra Merger, made investments in existing portfolio companies totaling$89.3 million and made additional investments in joint venture equity portfolio companies totaling$11.7 million . We had four loans repaid totaling$12.4 million and received$7.5 million of portfolio company principal payments. In addition, we sold$19.2 million of loans, recognizing a net realized gain on these transactions of$0.8 million , and sold$132.3 million of middle-market portfolio company debt investments to one of our joint ventures and realized a loss on these transactions of$0.2 million . Lastly, we received proceeds related to the sale of equity investments totaling$1.6 million and recognized a net realized loss on such sales totaling$0.7 million . 115 -------------------------------------------------------------------------------- Total portfolio investment activity for the three months endedMarch 31, 2023 and 2022 was as follows: Three Months Ended Senior Debt Investments in March 31, 2023: and 1st Lien Subordinated Debt Structured Equity Equity Joint Ventures / ($ in thousands) Notes and 2nd Lien Notes Products Shares Warrants PE Fund Total
Fair value, beginning of period
$ 73,550 $ 284,570 $ 1,057 $ 130,427 $ 2,448,935 New investments 86,805 769 9,382 47,763 - - 144,719 Proceeds from sales of investments/return of capital (979) - (902) (4,297) - (9,106) (15,284) Loan origination fees received (2,397) (23) - - - - (2,420) Principal repayments received (26,475) (11,445) (394) - - - (38,314) Payment-in-kind interest/dividend 1,974 2,319 - - - - 4,293 Accretion of loan premium/discount 243 55 5 - - - 303 Accretion of deferred loan origination revenue 1,856 161 - - - - 2,017 Realized gain (loss) (282) 4 - 1,049 - - 771 Unrealized appreciation (depreciation) 8,301 110 (2,298) 2,795 (1) 2,187 11,094
Fair value, end of period
$ 79,343 $ 331,880 $ 1,056 $ 123,508 $ 2,556,114 Three Months Ended Senior Debt Investments in March 31, 2022: and 1st Lien Subordinated Debt Structured Equity Equity Joint Ventures / ($ in thousands) Notes and 2nd Lien Notes Products Shares Warrants PE Fund Total
Fair value, beginning of period
268,202 30,065 1,060 19,200 - 11,696 330,223
Investments acquired in Sierra
merger 235,770 66,662 46,666 7,065 72 85,963 442,198
Proceeds from sales of
investments (151,575) - - (1,388) (249) - (153,212)
Loan origination fees received (5,350) 36 - - - - (5,314)
Principal repayments received (8,114) (11,020) (730) - - - (19,864)
Payment-in-kind
interest/dividend 1,050 6,984 - - - - 8,034
Accretion of loan
premium/discount 301 33 5 - - - 339
Accretion of deferred loan
origination revenue 1,461 62 - - - - 1,523
Realized gain (loss) 579 8 - 24 (760) - (149)
Unrealized appreciation
(depreciation) (8,176) (15,224) (5,258) 40,088 (14) (12,363) (947)
Fair value, end of period
Non-Accrual Assets Generally, when interest and/or principal payments on a loan become past due, or if we otherwise do not expect the borrower to be able to service its debt and other obligations, we will place the loan on non-accrual status and will generally cease recognizing interest income on that loan for financial reporting purposes until all principal and interest have been brought current through payment or due to a restructuring such that the interest income is deemed to be collectible. As ofMarch 31, 2023 , we had nine portfolio companies with investments on non-accrual, the fair value of which was$28.5 million , which comprised 1.1% of the total fair value of our portfolio, and the cost of which was$102.3 million , which comprised 3.8% of the total cost of our portfolio. As ofDecember 31, 2022 , we had seven portfolio companies with investments on non-accrual, the fair value of which was$24.3 million , which comprised 1.0% of the total fair value of our portfolio, and the cost of which was$98.8 million , which comprised 3.9% of the total cost of our portfolio. 116 --------------------------------------------------------------------------------
A summary of our non-accrual assets as of
1888
In connection with the Sierra Merger, we purchased our debt and equity investments in 1888Industrial Services, LLC , or 1888. The 1888 debt investments are on non-accrual status and as a result, underU.S. GAAP, we will not recognize interest income on our debt investments in 1888 for financial reporting purposes. As ofMarch 31, 2023 , the cost of our debt investments in 1888 was$1.9 million and the fair value of such investments was$1.1 million .
In connection with the Sierra Merger, we purchased our debt and equity investments inBlack Angus Steakhouse, LLC , or Black Angus. The Black Angus PIK term loan is on non-accrual status and as a result, underU.S. GAAP, we will not recognize interest income on our PIK term loan in Black Angus for financial reporting purposes. As ofMarch 31, 2023 , the cost of the PIK term loan in Black Angus was$9.6 million and the fair value of such investment was$8.8 million .
Core Scientific, Inc.
During the quarter endedDecember 31, 2022 , we placed our debt investment in Core Scientific, Inc., or Core Scientific, on non-accrual status effective with the monthly payment dueOctober 31, 2022 . As a result, underU.S. GAAP, we will not recognize interest income on our debt investment in Core Scientific for financial reporting purposes. As ofMarch 31, 2023 , the cost of our debt investment in Core Scientific was$29.6 million and the fair value of such investment was$15.0 million .
In connection with the MVC Acquisition, we purchased our debt investment inCustom Alloy Corporation , or Custom Alloy. During the quarter endedDecember 31, 2021 , we placed our debt investment in Custom Alloy on non-accrual status. As a result, underU.S. GAAP, we will not recognize interest income on our debt investment in Custom Alloy for financial reporting purposes. As ofMarch 31, 2023 , the cost of our debt investment in Custom Alloy was$46.4 million and the fair value of such investment was$0.9 million .
In connection with the Sierra Merger, we purchased our debt investment inHolland Acquisition Corp. , or Holland. Holland is on non-accrual status and as a result, underU.S. GAAP, we will not recognize interest income on our debt investment in Holland for financial reporting purposes. As ofMarch 31, 2023 , both the cost and fair value of our debt investment in Holland was nil.
In connection with the Sierra Merger, we purchased our debt investment inIsagenix International, LLC , or Isagenix. During the quarter endedSeptember 30, 2022 , we placed our debt investment in Isagenix on non-accrual status. As a result, underU.S. GAAP, we will not recognize interest income on our debt investment in Isagenix for financial reporting purposes. As ofMarch 31, 2023 , the cost of our debt investment in Isagenix was$1.2 million and the fair value of such investment was$0.5 million .
In connection with the MVC Acquisition, we purchased our debt investment inLegal Solutions Holdings , or Legal Solutions. During the quarter endedSeptember 30, 2021 , we placed our debt investment in Legal Solutions on non-accrual status. As a result, underU.S. GAAP, we will not recognize interest income on our debt investment in Legal Solutions for financial reporting purposes. As ofMarch 31, 2023 , the cost of our debt investment in Legal Solutions was$10.1 million and the fair value of such investment was$39.4 thousand . 117 --------------------------------------------------------------------------------
During the quarter endedMarch 31, 2023 , we placed our Super Priority Second Out, or Second Out, debt investment inSerta Simmons Bedding LLC , or Serta Simmons, on non-accrual status effective with the quarterly payment due onMarch 31, 2023 . As a result, underU.S. GAAP, we will not recognize interest income on our Second Out debt investment in Serta Simmons for financial reporting purposes. As ofMarch 31, 2023 , the cost of our Second Out debt investment in Serta Simmons was$3.4 million and the fair value of such investments was$2.0 million .
In connection with the Sierra Merger, we purchased our debt investment inWawona Delaware Holdings, LLC , or Wawona. During the quarter endedMarch 31, 2023 , we placed our debt investment in Wawona on non-accrual status. As a result, underU.S. GAAP, we will not recognize interest income on our debt investment in Wawona for financial reporting purposes. As ofMarch 31, 2023 , the cost of our debt investment in Wawona was$41.0 thousand and the fair value of such investment was$30.4 thousand .
Results of Operations
Comparison of the three months ended
Operating results for the three months endedMarch 31, 2023 and 2022 were as follows: Three Months Three Months Ended Ended March 31, March 31, ($ in thousands) 2023 2022 Total investment income $
67,204
Total operating expenses 39,509 24,742 Net investment income before taxes 27,695 19,015 Income taxes, including excise tax provision 195 6 Net investment income after taxes 27,500 19,009 Net realized gains (losses) (9,746) (1,442) Net unrealized appreciation (depreciation) 21,970 3,465 Benefit from (provision for) taxes (73) - Net increase in net assets resulting from operations $
39,651
Net increases or decreases in net assets resulting from operations vary substantially from period to period due to various factors, including recognition of realized gains and losses and unrealized appreciation and depreciation. As a result, quarterly comparisons of net increases or decreases in net assets resulting from operations may not be meaningful.
Investment Income
Three Months Three Months
Ended Ended
March 31, March 31,
($ in thousands) 2023 2022
Investment income:
Total interest income $ 51,890 $ 32,069
Total dividend income 7,874 7,693
Total fee and other income 3,300 1,197
Total payment-in-kind interest income 3,942 2,798
Interest income from cash 198 -
Total investment income $ 67,204 $ 43,757
The change in total investment income for the three months ended March 31, 2023 ,
as compared to the three months ended March 31, 2022 , was primarily due to an
increase in the weighted average yield on the portfolio from higher base rates,
an increase in the average size of our portfolio, increased dividends from
portfolio companies and joint venture investments and increased payment-in-kind
("PIK") interest income. The weighted average yield on the principal amount of
our outstanding debt investments, other than non-accrual debt investments was
10.2% as of March 31, 2023 , as compared to 7.3% as of March 31, 2022 . The amount
of our outstanding debt investments was $2,353.1 million as of March 31, 2023 ,
as compared to $2,134.2 million as of March 31, 2022 . The increase in the
average size of our portfolio was largely due to the increased middle-market
investment opportunities and special situation investment opportunities. For
three months ended March 31 ,
118
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2022, the portfolio included the investments acquired as part of the Sierra
Merger; however, as the Sierra Merger did not close until late in the first
quarter of 2022, we did not receive a full quarter of investment income from the
acquired Sierra portfolio for the three months ended March 31, 2022 . For the
three months ended March 31, 2023 , dividends from portfolio companies and joint
venture investments were $7.9 million , as compared to $7.7 million for the three
months ended March 31, 2022 . For the three months ended March 31, 2023 ,
acceleration of unamortized OID income and unamortized loan origination fees
totaled $0.3 million as compared to $0.2 million for the three months ended
March 31, 2022 . For the three months ended March 31, 2023 , PIK interest income
was $3.9 million , as compared to $2.8 million for the three months ended
March 31, 2022 .
Operating Expenses
Three Months Three Months
Ended Ended
March 31, March 31,
($ in thousands) 2023 2022
Operating expenses:
Interest and other financing fees $ 19,316 $ 11,661
Base management fees 7,853 5,872
Incentive management fees 9,604 4,754
General and administrative expenses 2,736 2,455
Total operating expenses $ 39,509 $ 24,742 Interest and Other Financing Fees
Interest and other financing fees during both the three months endedMarch 31, 2023 andMarch 31, 2022 were attributable to borrowings under theFebruary 2019 Credit Facility, theAugust 2025 Notes, the November Notes, the February Notes and theNovember 2026 Notes (each as defined below under "Liquidity and Capital Resources"). The increase in interest and other financing fees for the three months endedMarch 31, 2023 as compared to the three months endedMarch 31, 2022 , was primarily attributable to increase in the weighted average interest rate on theFebruary 2019 Credit Facility. The weighted average interest on theFebruary 2019 Credit Facility was 6.3% as ofMarch 31, 2023 , as compared to 2.2% as ofMarch 31, 2022 . Base Management Fees Under the terms of the New Barings BDC Advisory Agreement, we pay Barings a base management fee (the "Base Management Fee"), quarterly in arrears on a calendar quarter basis. The Base Management Fee is calculated based on the average value of our gross assets, excluding cash and cash equivalents, at the end of the two most recently completed calendar quarters prior to the quarter for which such fees are being calculated. Base Management Fees for any partial month or quarter are appropriately pro-rated. See Note 2 to our Unaudited Consolidated Financial Statements for additional information regarding the terms of the New Barings BDC Advisory Agreement and the fee arrangements thereunder. For the three months endedMarch 31, 2023 , the amount of Base Management Fee incurred was approximately$7.9 million . For the three months endedMarch 31, 2022 , the amount of Base Management Fee incurred was approximately$5.9 million . The increase in the Base Management Fee for the three months endedMarch 31, 2023 versus the corresponding 2022 period is primarily related to the average value of gross assets increasing from$1,879.0 million as of the end of the two most recently completed calendar quarters prior toMarch 31, 2022 to$2,512.9 million as of the end of the two most recently completed calendar quarters prior toMarch 31, 2023 . For both the three months endedMarch 31, 2023 and 2022, the Base Management Fee rate was 1.250%.
Incentive Fee
Under the New Barings BDC Advisory Agreement, we pay Barings an incentive fee. A portion of the incentive fee is based on our income and a portion is based on our capital gains. The income-based fee will be determined and paid quarterly in arrears based on the amount by which (x) the aggregate pre-incentive fee net investment income in respect of the current calendar quarter and the eleven preceding calendar quarters beginning with the calendar quarter that commences on or afterJanuary 1, 2021 , as the case may be (or the appropriate portion thereof in the case of any of our first eleven calendar quarters that commences on or afterJanuary 1, 2021 ) exceeds (y) the hurdle amount as calculated for the same period. See Note 2 to our Unaudited Consolidated Financial Statements for additional information regarding the terms of the New Barings BDC Advisory Agreement and the fee arrangements thereunder. For the three months endedMarch 31, 2023 , the amount of income-based fee incurred was$9.6 million , as compared to$4.8 million for the three months endedMarch 31, 2022 . The increase in the incentive fee for the three months endedMarch 31, 2023 , as compared to the three months endedMarch 31, 2022 , relates predominately to an increase in pre-incentive fee net investment income. The amount of pre-incentive fee net investment income was$37.3 million as ofMarch 31, 2023 , as compared to$23.8 million as ofMarch 31, 2022 . 119 --------------------------------------------------------------------------------
General and Administrative Expenses
We entered into the Administration Agreement with Barings inAugust 2018 . Under the terms of the Administration Agreement, Barings performs (or oversees, or arranges for, the performance of) the administrative services necessary for our operations. We reimburse Barings for the costs and expenses incurred by it in performing its obligations and providing personnel and facilities under the Administration Agreement in an amount to be negotiated and mutually agreed to by us and Barings quarterly in arrears; provided that the agreed-upon quarterly expense amount will not exceed the amount of expenses that would otherwise be reimbursable by us under the Administration Agreement for the applicable quarterly period, and Barings will not be entitled to the recoupment of any amounts in excess of the agreed-upon quarterly expense amount. See Note 2 to our Unaudited Consolidated Financial Statements for additional information regarding the Administration Agreement. For the three months endedMarch 31, 2023 , the amount of administration expense incurred and invoiced by Barings for expenses was approximately$0.7 million . For the three months endedMarch 31, 2022 , the amount of administration expense incurred and invoiced by Barings for expenses was approximately$1.0 million . In addition to expenses incurred under the Administration Agreement, general and administrative expenses include fees payable to the members of our board of directors (the "Board") for their service on the Board, D&O insurance costs, as well as legal and accounting expenses.
Net Realized Gains (Losses)
Net realized gains (losses) during the three months endedMarch 31, 2023 and 2022 were as follows: Three Months Three Months Ended Ended March 31, March 31, ($ in thousands) 2023 2022
Net realized gain (losses):
Non-Control / Non-Affiliate investments $ 771 $ (250)
Affiliate investments - 101
Net realized gains (losses) on investments 771 (149)
Foreign currency transactions (10,517) (1,293)
Net realized gains (losses) $ (9,746) $ (1,442)
During the three months endedMarch 31, 2023 , we recognized net realized losses totaling$9.7 million , which consisted primarily of a net loss on foreign currency transactions of$10.5 million , partially offset by a net gain on our investment portfolio of$0.8 million . During the three months endedMarch 31, 2022 , we recognized net realized losses totaling$1.4 million , which consisted primarily of a net loss on foreign currency transactions of$1.3 million .
Net Unrealized Appreciation (Depreciation)
Net unrealized appreciation (depreciation) during the three months ended
Three Months Three Months
Ended Ended
March 31, March 31,
($ in thousands) 2023 2022
Net unrealized appreciation (depreciation):
Non-Control / Non-Affiliate investments $ 7,437 $ (28,587)
Affiliate investments 10,841 12,996
Control investments (7,269) 14,644
Net unrealized appreciation (depreciation) on investments 11,009 (947)
Credit support agreements 5,586 (400)
Foreign currency transactions 5,375 4,812
Net unrealized appreciation (depreciation) $
21,970
During the three months endedMarch 31, 2023 , we recorded net unrealized appreciation totaling$22.0 million , consisting of net unrealized appreciation on our current portfolio of$11.8 million , unrealized appreciation of$0.9 million on the MVC credit support agreement with Barings, unrealized appreciation of$4.7 million on the Sierra credit support agreement with Barings, net unrealized appreciation related to foreign currency transactions of$5.4 million , net of unrealized depreciation reclassification adjustments of$0.7 million related to the net realized gains on the sales / repayments of certain investments and$0.1 million of deferred taxes. The net unrealized appreciation on our current portfolio of$11.8 million was driven primarily by broad market moves for investments of$4.0 million , credit or fundamental performance of investments of$0.9 million and the impact of foreign currency exchange rates on investments of$6.9 million . 120 -------------------------------------------------------------------------------- During the three months endedMarch 31, 2022 , we recorded net unrealized appreciation totaling$3.5 million , consisting of net unrealized appreciation on our current portfolio of$0.1 million and net unrealized appreciation related to foreign currency transactions of$4.8 million , net of unrealized depreciation of$0.4 million on the MVC credit support agreement with Barings and net unrealized depreciation reclassification adjustments of$1.0 million related to the realized gains on the sales/ repayments of certain investments. The net unrealized appreciation on our current portfolio of$0.1 million was driven primarily by credit or fundamental performance of investments of$27.8 million , partially offset by the impact of foreign currency exchange rates on investments of$4.7 million and broad market moves for investments of$23.1 million .
Liquidity and Capital Resources
We believe that our current cash and foreign currencies on hand, our available borrowing capacity under theFebruary 2019 Credit Facility and our anticipated cash flows from operations will be adequate to meet our cash needs for our daily operations for at least the next twelve months. This "Liquidity and Capital Resources" section should be read in conjunction with the notes to our Unaudited Consolidated Financial Statements.
Cash Flows
For the three months endedMarch 31, 2023 , we experienced a net decrease in cash in the amount of$84.0 million . During that period, our operating activities used$92.0 million in cash, consisting primarily of purchases of portfolio investments of$179.6 million partially offset by proceeds from sales or repayments of portfolio investments totaling$69.5 million . In addition, our financing activities provided net cash of$8.0 million , consisting of net borrowings under theFebruary 2019 Credit Facility (as defined below under "Financing Transactions") of$35.0 million , partially offset by dividends paid in the amount of$27.0 million . As ofMarch 31, 2023 , we had$55.4 million of cash and foreign currencies on hand. For the three months endedMarch 31, 2022 , we experienced a net increase in cash in the amount of$70.2 million . During that period, our operating activities used$18.8 million in cash, consisting primarily of purchases of portfolio investments of$335.5 million , partially offset by net cash acquired from the acquisition of Sierra of$101.9 million and proceeds from sales or repayments of portfolio investments totaling$210.5 million . In addition, our financing activities provided net cash of$89.0 million , consisting of net borrowings under theFebruary 2019 Credit Facility (as defined below under "Financing Transactions") of$107.7 million , partially offset by dividends paid in the amount of$15.0 million and share repurchases of$2.1 million . As ofMarch 31, 2022 , we had$154.4 million of cash and foreign currencies on hand.
Financing Transactions
OnFebruary 21, 2019 , we entered into a senior secured credit facility withING Capital LLC ("ING"), as administrative agent, and the lenders party thereto (as amended, restated and otherwise modified from time to time, the "February 2019 Credit Facility"). The initial commitments under theFebruary 2019 Credit Facility total$800.0 million . Effective onNovember 4, 2021 , we increased aggregate commitments under theFebruary 2019 Credit Facility to$875.0 million from$800.0 million pursuant to the accordion feature under theFebruary 2019 Credit Facility, which allows for an increase in the total commitments to an aggregate of$1.2 billion subject to certain conditions and the satisfaction of specified financial covenants (the "February 2022 Amendment"). Effective onFebruary 25, 2022 , we increased aggregate commitments under theFebruary 2019 Credit Facility to$965.0 million from$875.0 million pursuant to the accordion feature under theFebruary 2019 Credit Facility, and the allowance for an increase in the total commitments increased to$1.5 billion from$1.2 billion subject to certain conditions and the satisfaction of specified financial covenants. Effective onApril 1, 2022 , we increased the aggregate commitments under theFebruary 2019 Credit Facility to$1.1 billion from$965.0 million pursuant to the accordion feature under theFebruary 2019 Credit Facility, which allows for an increase in the total commitments to an aggregate of$1.5 billion subject to certain conditions and the satisfaction of specified financial covenants. We can borrow foreign currencies directly under theFebruary 2019 Credit Facility (the "April 2022 Amendment"). TheFebruary 2019 Credit Facility, which is structured as a revolving credit facility, is secured primarily by a material portion of our assets and guaranteed by certain of our subsidiaries. Following the termination onJune 30, 2020 ofBarings BDC Senior Funding I, LLC's ("BSF") credit facility entered into inAugust 2018 withBank of America, N.A . (the "August 2018 Credit Facility"), BSF became a subsidiary guarantor and its assets secure theFebruary 2019 Credit Facility. The revolving period of theFebruary 2019 Credit Facility ends onFebruary 21, 2024 , followed by a one-year repayment period with a maturity date ofFebruary 21, 2025 . Borrowings denominated inU.S. Dollars under theFebruary 2019 Credit Facility bear interest, subject to our election, on a per annum basis equal to (i) the alternate base rate plus 1.25% (or 1.00% for so long as we maintain an investment grade credit rating) or (ii) the term Secured Overnight Financing Rate ("SOFR") plus 2.25% (or 2.00% for so long as we maintain an investment grade credit rating) plus a credit spread adjustment of 0.10% for borrowings with an interest period of one month, 0.15% for borrowings with an interest period of three months or 0.25% for borrowings with an interest period of six months. 121 -------------------------------------------------------------------------------- For borrowings denominated in certain foreign currencies other than Australian dollars, the applicable currency rate for the foreign currency as defined in the credit agreement plus 2.00% (or 2.25% if we no longer maintain an investment grade credit rating) or for borrowings denominated in Australian dollars, the applicable Australian dollars Screen Rate, plus 2.20% (or 2.45% if we no longer maintain an investment grade credit rating). The alternate base rate is equal to the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.5%, (iii) the Overnight Bank Funding Rate plus 0.5%, (iv) one-month term SOFR plus 1.0% plus a credit spread adjustment of 0.10% and (v) 1.0%. In addition, we pay a commitment fee of (i) 0.5% per annum on undrawn amounts if the unused portion of theFebruary 2019 Credit Facility is greater than two-thirds of total commitments or (ii) 0.375% per annum on undrawn amounts if the unused portion of theFebruary 2019 Credit Facility is equal to or less than two-thirds of total commitments. In connection with entering into theFebruary 2019 Credit Facility, we incurred financing fees of approximately$6.4 million , which will be amortized over the life of theFebruary 2019 Credit Facility. In connection with theFebruary 2022 Amendment and theApril 2022 Amendment, we incurred financing fees of approximately$1.7 million , which will be amortized over the remaining life of theFebruary 2019 Credit Facility. As ofMarch 31, 2023 , we were in compliance with all covenants under theFebruary 2019 Credit Facility and hadU.S. dollar borrowings of$532.5 million outstanding under theFebruary 2019 Credit Facility with an interest rate of 6.798% (one month SOFR of 4.698%), borrowings denominated in Swedish krona of 12.8kr million ($1.2 million U.S. dollars) with an interest rate of 5.000% (one month STIBOR of 3.000%), borrowings denominated in British pounds sterling of £68.6 million ($84.8 million U.S. dollars) with an interest rate of 5.960% (one month SONIA of 3.960%) and borrowings denominated in Euros of €138.6 million ($150.6 million U.S. dollars) with an interest rate of 4.625% (one month EURIBOR of 2.625%). The borrowings denominated in foreign currencies were translated intoU.S. dollars based on the spot rate at the relevant balance sheet date. The impact resulting from changes in foreign exchange rates on theFebruary 2019 Credit Facility borrowings is included in "Net unrealized appreciation (depreciation) - foreign currency transactions" in our Unaudited Consolidated Statements of Operations. The fair values of the borrowings outstanding under theFebruary 2019 Credit Facility are based on a market yield approach and current interest rates, which are Level 3 inputs to the market yield model. As ofMarch 31, 2023 , the total fair value of the borrowings outstanding under theFebruary 2019 Credit Facility was$769.1 million . See Note 5 to our Unaudited Consolidated Financial Statements for additional information regarding theFebruary 2019 Credit Facility.
OnAugust 3, 2020 , we entered into a Note Purchase Agreement (the "August 2020 NPA") withMassachusetts Mutual Life Insurance Company governing the issuance of (1)$50.0 million in aggregate principal amount of Series A senior unsecured notes dueAugust 2025 (the "Series A Notes due 2025") with a fixed interest rate of 4.66% per year, and (2) up to$50.0 million in aggregate principal amount of additional senior unsecured notes dueAugust 2025 with a fixed interest rate per year to be determined (the "Additional Notes" and, collectively with the Series A Notes due 2025, the "August 2025 Notes"), in each case, to qualified institutional investors in a private placement. An aggregate principal amount of$25.0 million of the Series A Notes due 2025 was issued onSeptember 24, 2020 and an aggregate principal amount of$25.0 million of the Series A Notes due 2025 was issued onSeptember 29, 2020 , both of which will mature onAugust 4, 2025 unless redeemed, purchased or prepaid prior to such date by us in accordance with their terms. Interest on theAugust 2025 Notes is due semiannually in March and September, beginning inMarch 2021 . In addition, we are obligated to offer to repay theAugust 2025 Notes at par (plus accrued and unpaid interest to, but not including, the date of prepayment) if certain change in control events occur. Subject to the terms of theAugust 2020 NPA, we may redeem theAugust 2025 Notes in whole or in part at any time or from time to time at our option at par plus accrued interest to the prepayment date and, if redeemed on or beforeNovember 3, 2024 , a make-whole premium. TheAugust 2025 Notes are guaranteed by certain of our subsidiaries, and are our general unsecured obligations that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by us.
The Company's permitted issuance period for the Additional Notes under the
TheAugust 2020 NPA contains certain representations and warranties, and various covenants and reporting requirements customary for senior unsecured notes issued in a private placement, including, without limitation, affirmative and negative covenants such as information reporting, maintenance of our status as a BDC within the meaning of the 1940 Act, certain restrictions with respect to transactions with affiliates, fundamental changes, changes of line of business, permitted liens, investments and restricted payments, minimum shareholders' equity, maximum net debt to equity ratio and minimum asset coverage ratio. TheAugust 2020 NPA also contains customary events of default with customary cure and notice periods, including, without limitation, nonpayment, incorrect representation in any material respect, breach of covenant, cross-default under our other indebtedness or that of our subsidiary guarantors, certain judgements and orders, and certain events of 122 -------------------------------------------------------------------------------- bankruptcy. Upon the occurrence of an event of default, the holders of at least 66-2/3% in principal amount of theAugust 2025 Notes at the time outstanding may declare allAugust 2025 Notes then outstanding to be immediately due and payable. As ofMarch 31, 2023 , we were in compliance with all covenants under theAugust 2020 NPA. TheAugust 2025 Notes were offered in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended (the "Securities Act"). TheAugust 2025 Notes have not and will not be registered under the Securities Act or any state securities laws and, unless so registered, may not be offered or sold inthe United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, as applicable. As ofMarch 31, 2023 , the fair value of the outstandingAugust 2025 Notes was$46.6 million . The fair value determination of theAugust 2025 Notes was based on a market yield approach and current interest rates, which are Level 3 inputs to the market yield model. November Notes OnNovember 4, 2020 , we entered into a Note Purchase Agreement (the "November 2020 NPA") governing the issuance of (1)$62.5 million in aggregate principal amount of Series B senior unsecured notes dueNovember 2025 (the "Series B Notes") with a fixed interest rate of 4.25% per year and (2)$112.5 million in aggregate principal amount of Series C senior unsecured notes dueNovember 2027 (the "Series C Notes," and, collectively with the Series B Notes, the "November Notes") with a fixed interest rate of 4.75% per year, in each case, to qualified institutional investors in a private placement. Each stated interest rate is subject to a step up of (x) 0.75% per year, to the extent the applicable November Notes do not satisfy certain investment grade conditions and/or (y) 1.50% per year, to the extent the ratio of our secured debt to total assets exceeds specified thresholds, measured as of each fiscal quarter end. The November Notes were delivered and paid for onNovember 5, 2020 . The Series B Notes will mature onNovember 4, 2025 , and the Series C Notes will mature onNovember 4, 2027 unless redeemed, purchased or prepaid prior to such date by us in accordance with their terms. Interest on the November Notes is due semiannually in May and November, beginning inMay 2021 . In addition, we are obligated to offer to repay the November Notes at par (plus accrued and unpaid interest to, but not including, the date of prepayment) if certain change in control events occur. Subject to the terms of theNovember 2020 NPA, we may redeem the Series B Notes and the Series C Notes in whole or in part at any time or from time to time at our option at par plus accrued interest to the prepayment date and, if redeemed on or beforeMay 4, 2025 , with respect to the Series B Notes, or on or beforeMay 4, 2027 , with respect to the Series C Notes, a make-whole premium. The November Notes are guaranteed by certain of our subsidiaries, and are our general unsecured obligations that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by us. TheNovember 2020 NPA contains certain representations and warranties, and various covenants and reporting requirements customary for senior unsecured notes issued in a private placement, including, without limitation, affirmative and negative covenants such as information reporting, maintenance of our status as a BDC within the meaning of the 1940 Act, certain restrictions with respect to transactions with affiliates, fundamental changes, changes of line of business, permitted liens, investments and restricted payments, minimum shareholders' equity, maximum net debt to equity ratio and minimum asset coverage ratio. TheNovember 2020 NPA also contains customary events of default with customary cure and notice periods, including, without limitation, nonpayment, incorrect representation in any material respect, breach of covenant, cross-default under our other indebtedness or that of our subsidiary guarantors, certain judgements and orders, and certain events of bankruptcy. Upon the occurrence of an event of default, the holders of at least 66-2/3% in principal amount of the November Notes at the time outstanding may declare all November Notes then outstanding to be immediately due and payable. As ofMarch 31, 2023 , we were in compliance with all covenants under theNovember 2020 NPA. The November Notes were offered in reliance on Section 4(a)(2) of the Securities Act. The November Notes have not and will not be registered under the Securities Act or any state securities laws and, unless so registered, may not be offered or sold inthe United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, as applicable. As ofMarch 31, 2023 , the fair value of the outstanding Series B Notes and the Series C Notes was$56.8 million and$98.3 million , respectively. The fair value determinations of the Series B Notes and Series C Notes were based on a market yield approach and current interest rates, which are Level 3 inputs to the market yield model.
February Notes
OnFebruary 25, 2021 , we entered into a Note Purchase Agreement (the "February 2021 NPA") governing the issuance of (1)$80.0 million in aggregate principal amount of Series D senior unsecured notes dueFebruary 26, 2026 (the "Series D 123 -------------------------------------------------------------------------------- Notes") with a fixed interest rate of 3.41% per year and (2)$70.0 million in aggregate principal amount of Series E senior unsecured notes dueFebruary 26, 2028 (the "Series E Notes" and, collectively with the Series D Notes, the "February Notes") with a fixed interest rate of 4.06% per year, in each case, to qualified institutional investors in a private placement. Each stated interest rate is subject to a step up of (x) 0.75% per year, to the extent the applicable February Notes do not satisfy certain investment grade rating conditions and/or (y) 1.50% per year, to the extent the ratio of our secured debt to total assets exceeds specified thresholds, measured as of each fiscal quarter end. The February Notes were delivered and paid for onFebruary 26, 2021 . The Series D Notes will mature onFebruary 26, 2026 , and the Series E Notes will mature onFebruary 26, 2028 unless redeemed, purchased or prepaid prior to such date by us in accordance with the terms of theFebruary 2021 NPA. Interest on the February Notes is due semiannually in February and August of each year, beginning inAugust 2021 . In addition, we are obligated to offer to repay the February Notes at par (plus accrued and unpaid interest to, but not including, the date of prepayment) if certain change in control events occur. Subject to the terms of theFebruary 2021 NPA, we may redeem the Series D Notes and the Series E Notes in whole or in part at any time or from time to time at our option at par plus accrued interest to the prepayment date and, if redeemed on or beforeAugust 26, 2025 , with respect to the Series D Notes, or on or beforeAugust 26, 2027 , with respect to the Series E Notes, a make-whole premium. The February Notes are guaranteed by certain of our subsidiaries, and are our general unsecured obligations that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by us. TheFebruary 2021 NPA contains certain representations and warranties, and various covenants and reporting requirements customary for senior unsecured notes issued in a private placement, including, without limitation, information reporting, maintenance of our status as a BDC within the meaning of the 1940 Act, and certain restrictions with respect to transactions with affiliates, fundamental changes, changes of line of business, permitted liens, investments and restricted payments. In addition, theFebruary 2021 NPA contains the following financial covenants: (a) maintaining a minimum obligors' net worth, measured as of each fiscal quarter end; (b) not permitting our asset coverage ratio, as of the date of the incurrence of any debt for borrowed money or the making of any cash dividend to shareholders, to be less than the statutory minimum then applicable to us under the 1940 Act; and (c) not permitting our net debt to equity ratio to exceed 2.0x, measured as of each fiscal quarter end. TheFebruary 2021 NPA also contains customary events of default with customary cure and notice periods, including, without limitation, nonpayment, incorrect representation in any material respect, breach of covenant, cross-default under other indebtedness or that of our subsidiary guarantors, certain judgements and orders, and certain events of bankruptcy. Upon the occurrence of certain events of default, the holders of at least 66-2/3% in principal amount of the February Notes at the time outstanding may declare all February Notes then outstanding to be immediately due and payable. As ofMarch 31, 2023 , we were in compliance with all covenants under theFebruary 2021 NPA. The February Notes were offered in reliance on Section 4(a)(2) of the Securities Act. The February Notes have not and will not be registered under the Securities Act or any state securities laws and, unless so registered, may not be offered or sold inthe United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, as applicable. As ofMarch 31, 2023 , the fair value of the outstanding Series D Notes and the Series E Notes was$70.9 million and$59.1 million , respectively. The fair value determinations of the Series D Notes and Series E Notes were based on a market yield approach and current interest rates, which are Level 3 inputs to the market yield model.
OnNovember 23, 2021 , we entered into an Indenture (the "Base Indenture") and a Supplemental Indenture (the "First Supplemental Indenture" and, together with the Base Indenture, the "Indenture") withU.S. Bank National Association (the "Trustee"). The First Supplemental Indenture relates to our issuance of$350.0 million aggregate principal amount of its 3.300% notes due 2026 (the "November 2026 Notes"). TheNovember 2026 Notes will mature onNovember 23, 2026 and may be redeemed in whole or in part at our option at any time or from time to time at the redemption prices set forth in the Indenture. TheNovember 2026 Notes bear interest at a rate of 3.300% per year payable semi-annually onMay 23 andNovember 23 of each year, commencing onMay 23, 2022 . TheNovember 2026 Notes are our general unsecured obligations that rank senior in right of payment to all of our existing and future indebtedness that is expressly subordinated in right of payment to theNovember 2026 Notes, rank pari passu with all existing and future unsecured unsubordinated indebtedness issued by us, rank effectively junior to any of our secured indebtedness (including unsecured indebtedness that we later secure) to the extent of the value of the assets securing such 124 --------------------------------------------------------------------------------
indebtedness, and rank structurally junior to all existing and future indebtedness (including trade payables) incurred by our subsidiaries, financing vehicles or similar facilities.
The Indenture contains certain covenants, including covenants requiring us to comply with the asset coverage requirements of Section 18(a)(1)(A) as modified by Sections 61(a)(1) and (2) of the 1940 Act, whether or not we are subject to those requirements, and to provide financial information to the holders of theNovember 2026 Notes and the Trustee if we are no longer subject to the reporting requirements under the Exchange Act. These covenants are subject to important limitations and exceptions that are described in the Indenture. In addition, on the occurrence of a "change of control repurchase event," as defined in the Indenture, we will generally be required to make an offer to purchase the outstandingNovember 2026 Notes at a price equal to 100% of the principal amount of suchNovember 2026 Notes plus accrued and unpaid interest to the repurchase date. TheNovember 2026 Notes were offered to qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons outsidethe United States pursuant to Regulation S under the Securities Act. Concurrent with the closing ofNovember 2026 Notes offering, we entered into a registration rights agreement for the benefit of the purchasers of theNovember 2026 Notes. Pursuant to the terms of this registration rights agreement, we filed a registration statement on Form N-14 with theSEC , which was subsequently declared effective, to permit electing holders of theNovember 2026 Notes to exchange all of their outstanding restrictedNovember 2026 Notes for an equal aggregate principal amount of newNovember 2026 Notes (the "Exchange Notes"). The Exchange Notes have terms substantially identical to the terms of theNovember 2026 Notes, except that the Exchange Notes are registered under the Securities Act, and certain transfer restrictions, registration rights, and additional interest provisions relating to theNovember 2026 Notes do not apply to the Exchange Notes. As ofMarch 31, 2023 , the fair value of the outstandingNovember 2026 Notes was$296.5 million . The fair value determinations of theNovember 2026 Notes were based on a market yield approach and current interest rates, which are Level 3 inputs to the market yield model.
Share Repurchase Program
In connection with the closing of the MVC Acquisition onDecember 23, 2020 , we committed to make open-market purchases of shares of our common stock in an aggregate amount of up to$15.0 million at then-current market prices at any time shares trade below 90% of our then most recently disclosed NAV per share. Any repurchases pursuant to the authorized program occurred during the 12-month period that commenced upon the filing of our quarterly report on Form 10-Q for the quarter endedMarch 31, 2021 , which occurred onMay 6, 2021 , and were made in accordance with applicable legal, contractual and regulatory requirements. The MVC-related repurchase program terminated onMay 6, 2022 . Prior to its termination, we repurchased a total of 207,677 shares of common stock in the open market under the MVC repurchase program at an average price of$10.14 per share, including broker commissions. In connection with the completion of the acquisition of Sierra, we committed to make open-market purchases of shares of our common stock in an aggregate amount of up to$30.0 million at then-current market prices at any time shares trade below 90% of our then most recently disclosed NAV per share. Any repurchases pursuant to the authorized program occurred during the 12-month period commencing onApril 1, 2022 and were made in accordance with a Rule 10b5-1 purchase plan that qualifies for the safe harbors provided by Rules 10b5-1 and 10b-18 under the Exchange Act, as well as subject to compliance with our covenant and regulatory requirements. During the year endedDecember 31, 2022 , we repurchased the maximum amount of$30.0 million of common stock authorized under the Sierra share repurchase program. In total under the Sierra share repurchase program, we repurchased a total of 3,179,168 shares of common stock in the open market under the authorized program at an average price of$9.44 per share, including broker commissions. OnFebruary 23, 2023 , our Board authorized a new 12-month share repurchase program. Under the program, we may repurchase, during the 12-month period commencing onMarch 1, 2023 , up to$30.0 million in the aggregate of our outstanding common stock in the open market at prices below the then-current NAV per share. The timing, manner, price and amount of any share repurchases will be determined by us, at our discretion, based upon the evaluation of economic and market conditions, our stock price, applicable legal, contractual and regulatory requirements and other factors. The program is expected to be in effect untilMarch 1, 2024 , unless extended or until the aggregate repurchase amount that has been approved by our Board has been expended. The program does not require us to repurchase any specific number of shares, and we cannot assure stockholders that any shares will be repurchased under the program. The program may be suspended, extended, modified or discontinued at any time. During the three months endedMarch 31, 2023 , we did not repurchase any shares. 125 --------------------------------------------------------------------------------
Distributions to Stockholders
We intend to pay quarterly distributions to our stockholders out of assets
legally available for distribution. We have adopted a dividend reinvestment plan
("DRIP") that provides for reinvestment of dividends on behalf of our
stockholders, unless a stockholder elects to receive cash. As a result, when we
declare a dividend, stockholders who have not opted out of the DRIP will have
their dividends automatically reinvested in shares of our common stock, rather
than receiving cash dividends.
We have elected to be treated as a RIC under the Code, and intend to make the
required distributions to our stockholders as specified therein. In order to
maintain our tax treatment as a RIC and to obtain RIC tax benefits, we must meet
certain minimum distribution, source-of-income and asset diversification
requirements. If such requirements are met, then we are generally required to
pay income taxes only on the portion of our taxable income and gains we do not
distribute (actually or constructively) and certain built-in gains. We have
historically met our minimum distribution requirements and continually monitor
our distribution requirements with the goal of ensuring compliance with the
Code. We can offer no assurance that we will achieve results that will permit
the payment of any level of cash distributions and our ability to make
distributions will be limited by the asset coverage requirement and related
provisions under the 1940 Act and contained in any applicable indenture or
financing agreement and related supplements. In addition, in order to satisfy
the annual distribution requirement applicable to RICs, we may declare a
significant portion of our dividends in shares of our common stock instead of in
cash. As long as a portion of such dividend is paid in cash (which portion may
be as low as 20% of such dividend under published guidance from the Internal
Revenue Service) and certain requirements are met, the entire distribution will
be treated as a dividend for U.S. federal income tax purposes. As a result, a
stockholder generally would be subject to tax on 100% of the fair market value
of the dividend on the date the dividend is received by the stockholder in the
same manner as a cash dividend, even though most of the dividend was paid in
shares of our common stock.
The minimum distribution requirements applicable to RICs require us to
distribute to our stockholders each year at least 90% of our investment company
taxable income, or ICTI, as defined by the Code. Depending on the level of ICTI
and net capital gain, if any, earned in a tax year, we may choose to carry
forward ICTI in excess of current year distributions into the next tax year and
pay a 4% U.S. federal excise tax on such excess. Any such carryover ICTI must be
distributed before the end of the next tax year through a dividend declared
prior to filing the final tax return related to the year which generated such
ICTI.
ICTI generally differs from net investment income for financial reporting
purposes due to temporary and permanent differences in the recognition of income
and expenses. We may be required to recognize ICTI in certain circumstances in
which we do not receive cash. For example, if we hold debt obligations that are
treated under applicable tax rules as having original issue discount (such as
debt instruments issued with warrants), we must include in ICTI each year a
portion of the original issue discount that accrues over the life of the
obligation, regardless of whether cash representing such income is received by
us in the same taxable year. We may also have to include in ICTI other amounts
that we have not yet received in cash, such as (i) PIK interest income and (ii)
interest income from investments that have been classified as non-accrual for
financial reporting purposes. Interest income on non-accrual investments is not
recognized for financial reporting purposes, but generally is recognized in
ICTI. Because any original issue discount or other amounts accrued will be
included in our ICTI for the year of accrual, we may be required to make a
distribution to our stockholders in order to satisfy the minimum distribution
requirements, even though we will not have received and may not ever receive any
corresponding cash amount. ICTI also excludes net unrealized appreciation or
depreciation, as investment gains or losses are not included in taxable income
until they are realized.
Recent Developments
Subsequent to
On
Critical Accounting Policies and Use of Estimates
The preparation of our unaudited financial statements in accordance withU.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods covered by such financial statements. We have identified investment valuation and revenue recognition as our most critical accounting estimates. On an ongoing basis, we evaluate our estimates, including those related to the matters described below. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could 126 --------------------------------------------------------------------------------
differ materially from those estimates under different assumptions or conditions. A discussion of our critical accounting policies follows.
Valuation of Investments
The Adviser conducts the valuation of our investments, upon which our net asset
value is primarily based, in accordance with its valuation policy, as well as
established and documented processes and methodologies for determining the fair
values of portfolio company investments on a recurring (at least quarterly)
basis in accordance with the 1940 Act and FASB ASC Topic 820, Fair Value
Measurements and Disclosures ("ASC Topic 820"). Our current valuation policy and
processes were established by the Adviser and were approved by the Board.
As of March 31, 2023 , our investment portfolio, valued at fair value in
accordance with the Board-approved valuation policies, represented approximately
212% of our total net assets, as compared to approximately 205% of our total net
assets as of December 31, 2022 .
Under ASC Topic 820, fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction between a
willing buyer and a willing seller at the measurement date. For our portfolio
securities, fair value is generally the amount that we might reasonably expect
to receive upon the current sale of the security. The fair value measurement
assumes that the sale occurs in the principal market for the security, or in the
absence of a principal market, in the most advantageous market for the security.
If no market for the security exists or if we do not have access to the
principal market, the security should be valued based on the sale occurring in a
hypothetical market.
Under ASC Topic 820, there are three levels of valuation inputs, as follows:
Level 1 Inputs - include quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 Inputs - include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 Inputs - include inputs that are unobservable and significant to the fair value measurement.
A financial instrument is categorized within the ASC Topic 820 valuation hierarchy based upon the lowest level of input to the valuation process that is significant to the fair value measurement. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore, unrealized appreciation and depreciation related to such investments categorized as Level 3 investments within the tables in the notes to our consolidated financial statements may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3). Our investment portfolio includes certain debt and equity instruments of privately held companies for which quoted prices or other observable inputs falling within the categories of Level 1 and Level 2 are generally not available. In such cases, the Adviser determines the fair value of our investments in good faith primarily using Level 3 inputs. In certain cases, quoted prices or other observable inputs exist, and if so, the Adviser assesses the appropriateness of the use of these third-party quotes in determining fair value based on (i) its understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer and (ii) the depth and consistency of broker quotes and the correlation of changes in broker quotes with underlying performance of the portfolio company. There is no single standard for determining fair value in good faith, as fair value depends upon the specific circumstances of each individual investment. The recorded fair values of our Level 3 investments may differ significantly from fair values that would have been used had an active market for the securities existed. 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 valuations currently assigned.
Investment Valuation Process
The Board must determine fair value in good faith for any or all of our
investments for which market quotations are not readily available. The Board has
designated the Adviser as valuation designee to perform the fair value
determinations relating to the value of these assets. Barings has established a
pricing committee that is, subject to the oversight of the Board, responsible
for the approval, implementation and oversight of the processes and
methodologies that relate to the pricing and valuation of assets we hold.
Barings uses independent third-party providers to price the portfolio, but in
the event an acceptable price cannot be obtained from an approved external
source, Barings will utilize alternative methods in accordance with internal
pricing procedures established by Barings' pricing committee.
127
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At least annually, Barings conducts reviews of the primary pricing vendors to
validate that the inputs used in the vendors' pricing process are deemed to be
market observable. While Barings is not provided access to proprietary models of
the vendors, the reviews have included on-site walkthroughs of the pricing
process, methodologies and control procedures for each asset class and level for
which prices are provided. The review also includes an examination of the
underlying inputs and assumptions for a sample of individual securities across
asset classes, credit rating levels and various durations, a process Barings
continues to perform annually. In addition, the pricing vendors have an
established challenge process in place for all security valuations, which
facilitates identification and resolution of prices that fall outside expected
ranges. Barings believes that the prices received from the pricing vendors are
representative of prices that would be received to sell the assets at the
measurement date (i.e., exit prices).
Our money market fund investments are generally valued using Level 1 inputs and
our equity investments listed on an exchange or on the NASDAQ National Market
System are valued using Level 1 inputs, using the last quoted sale price of that
day. Our syndicated senior secured loans and structured product investments are
generally valued using Level 2 inputs, which are generally valued at the bid
quotation obtained from dealers in loans by an independent pricing service. Our
middle-market, private debt and equity investments are generally valued using
Level 3 inputs.
Independent Valuation
The fair value of loans and equity investments that are not syndicated or for
which market quotations are not readily available, including middle-market
loans, are generally submitted to independent providers to perform an
independent valuation on those loans and equity investments as of the end of
each quarter. Such loans and equity investments are initially held at cost, as
that is a reasonable approximation of fair value on the acquisition date, and
monitored for material changes that could affect the valuation (for example,
changes in interest rates or the credit quality of the borrower). At the quarter
end following that of the initial acquisition, such loans and equity investments
are generally sent to a valuation provider which will determine the fair value
of each investment. The independent valuation providers apply various methods
(synthetic rating analysis, discounting cash flows, and re-underwriting
analysis) to establish the rate of return a market participant would require
(the "discount rate") as of the valuation date, given market conditions,
prevailing lending standards and the perceived credit quality of the issuer.
Future expected cash flows for each investment are discounted back to present
value using these discount rates in the discounted cash flow analysis. A range
of values will be provided by the valuation provider and Barings will determine
the point within that range that it will use. If the Barings pricing committee
disagrees with the price range provided, it may make a fair value recommendation
to Barings that is outside of the range provided by the independent valuation
provider and the reasons therefore. In certain instances, we may determine that
it is not cost-effective, and as a result is not in the stockholders' best
interests, to request an independent valuation firm to perform an independent
valuation on certain investments. Such instances include, but are not limited
to, situations where the fair value of the investment in the portfolio company
is determined to be insignificant relative to the total investment portfolio.
Valuation Inputs
The Adviser's valuation techniques are based upon both observable and unobservable pricing inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Adviser's market assumptions. 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 financial instrument. An independent pricing service provider is the preferred source of pricing a loan, however, to the extent the independent pricing service provider price is unavailable or not relevant and reliable, the Adviser will utilize alternative approaches such as broker quotes or manual prices. The Adviser attempts to maximize the use of observable inputs and minimize the use of unobservable inputs. The availability of observable inputs can vary from investment to investment and is affected by a wide variety of factors, including the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets and other characteristics particular to the security.
Valuation of Investments in Jocassee,
As Jocassee,Thompson Rivers ,Waccamaw River ,Sierra JV and MVC Private Equity Fund LP are investment companies with no readily determinable fair values, the Adviser estimates the fair value of our investments in these entities using net asset value of each company and our ownership percentage as a practical expedient. The net asset value is determined in accordance with the specialized accounting guidance for investment companies. 128 --------------------------------------------------------------------------------
Revenue Recognition
Interest and Dividend Income
Interest income, including amortization of premium and accretion of discount, is
recorded on the accrual basis to the extent that such amounts are expected to be
collected. Generally, when interest and/or principal payments on a loan become
past due, or if we otherwise do not expect the borrower to be able to service
its debt and other obligations, we will place the loan on non-accrual status and
will generally cease recognizing interest income on that loan for financial
reporting purposes until all principal and interest have been brought current
through payment or due to a restructuring such that the interest income is
deemed to be collectible. The cessation of recognition of such interest will
negatively impact the reported fair value of the investment. We write off any
previously accrued and uncollected interest when it is determined that interest
is no longer considered collectible.
Interest income from investments in the equity class of a collateralized loan
obligation ("CLO") security (typically subordinated notes) is recorded based
upon an estimation of an effective yield to expected maturity utilizing assumed
cash flows in accordance with ASC 325-40, Beneficial Interests in Securitized
Financial Assets. We monitor the expected cash flows from these investments,
including the expected residual payments, and the effective yield is determined
and updated periodically. Any difference between the cash distribution received
and the amount calculated pursuant to the effective interest method is recorded
as an adjustment to the cost basis of such investments.
Dividend income on preferred equity securities is recorded on the accrual basis
to the extent that such amounts are payable by the portfolio company and are
expected to be collected. Dividend income on common equity is recorded on the
ex-dividend date.
We may have to include interest income in our ICTI, including original issue
discount income, from investments that have been classified as non-accrual for
financial reporting purposes. Interest income on non-accrual investments is not
recognized for financial reporting purposes, but generally is recognized in
ICTI. As a result, we may be required to make a distribution to our stockholders
in order to satisfy the minimum distribution requirements to maintain our RIC
tax treatment, even though we will not have received and may not ever receive
any corresponding cash amount. Additionally, any loss recognized by us for U.S.
federal income tax purposes on previously accrued interest income will be
treated as a capital loss.
Fee Income
Origination, facility, commitment, consent and other advance fees received in connection with the origination of a loan, or Loan Origination Fees, are recorded as deferred income and recognized as investment income over the term of the loan. Upon prepayment of a loan, any unamortized Loan Origination Fees are recorded as investment income. In the general course of our business, we receive certain fees from portfolio companies, which are non-recurring in nature. Such fees include loan prepayment penalties, structuring fees, covenant waiver fees and loan amendment fees, and are recorded as investment income when earned. Fee income for the three months endedMarch 31, 2023 and 2022 was as follows: Three Months Three Months Ended Ended ($ in thousands) March 31, 2023 March 31, 2022 Recurring Fee Income: Amortization of loan origination fees$ 1,672 $
1,327
Management, valuation and other fees 593 (585) Total Recurring Fee Income 2,265 742 Non-Recurring Fee Income: Acceleration of unamortized loan origination fees 345
196
Advisory, loan amendment and other fees 690
259
Total Non-Recurring Fee Income 1,035 455 Total Fee Income$ 3,300 $ 1,197 129
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Payment-in-Kind (PIK) Interest Income
We currently hold, and expect to hold in the future, some loans in our portfolio that contain PIK interest provisions. PIK interest, computed at the contractual rate specified in each loan agreement, is periodically added to the principal balance of the loan, rather than being paid to us in cash, and is recorded as interest income. Thus, the actual collection of PIK interest may be deferred until the time of debt principal repayment. PIK interest, which is a non-cash source of income at the time of recognition, is included in our taxable income and therefore affects the amount we are required to distribute to our stockholders to maintain our tax treatment as a RIC forU.S. federal income tax purposes, even though we have not yet collected the cash. Generally, when current cash interest and/or principal payments on a loan become past due, or if we otherwise do not expect the borrower to be able to service its debt and other obligations, we will place the loan on non-accrual status and will generally cease recognizing PIK interest income on that loan for financial reporting purposes until all principal and interest have been brought current through payment or due to a restructuring such that the interest income is deemed to be collectible. We write off any previously accrued and uncollected PIK interest when it is determined that the PIK interest is no longer collectible. We may have to include in our ICTI, PIK interest income from investments that have been classified as non-accrual for financial reporting purposes. Interest income on non-accrual investments is not recognized for financial reporting purposes, but generally is recognized in ICTI. As a result, we may be required to make a distribution to our stockholders in order to satisfy the minimum distribution requirements, even though we will not have received and may not ever receive any corresponding cash amount.
Unused Commitments
In the normal course of business, we are party to financial instruments with off-balance sheet risk, consisting primarily of unused commitments to extend financing to our portfolio companies. Since commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. As ofMarch 31, 2023 andDecember 31, 2022 , we believed that we had adequate financial resources to satisfy our unfunded commitments. The balances of unused commitments to extend financing as ofMarch 31, 2023 andDecember 31, 2022 were as follows:Portfolio Company ($ in thousands) Investment Type March 31, 2023 December 31, 2022 Accurus Aerospace Corporation(1)(2) Revolver $ 922 $ 1,152 AlliA Insurance Brokers NV(1)(2)(3) Delayed Draw Term Loan 2,055 - Amtech LLC(1) Delayed Draw Term Loan 1,527 1,527 Amtech LLC(1) Revolver 682 545 AnalytiChem Holding GmbH(1)(2)(3) Bridge Revolver 373 366 APC1 Holding(1)(3) Delayed Draw Term Loan - 354 Aquavista Watersides 2 LTD(1)(2)(4) Capex / Acquisition Facility 2,155 2,543 Arc Education(1)(3) Delayed Draw Term Loan 1,934 1,900 Argus Bidco Limited(1)(2)(4) CAF Term Loan 674 789 Argus Bidco Limited(1)(2)(4) RCF Bridge Term Loan 172 168 ASC Communications, LLC Revolver 1,089 1,089 Astra Bidco Limited(1)(4) Delayed Draw Term Loan 901 876 ATL II MRO Holdings, Inc.(1) Revolver 1,667 1,667 Avance Clinical Bidco Pty Ltd(1)(5) Delayed Draw Term Loan 1,280 1,295 Azalea Buyer, Inc.(1) Delayed Draw Term Loan 962 962 Azalea Buyer, Inc.(1) Revolver 481 481 Bariacum S.A(1)(3) Acquisition Facility 2,064 2,028 Beyond Risk Management, Inc.(1)(2) Delayed Draw Term Loan 2,423 2,423 Biolam Group(1)(2)(3) Delayed Draw Term Loan 4,152 4,783 Black Angus Steakhouses, LLC(1) Delayed Draw Term Loan 417 417 Bounteous, Inc.(1)(2) Delayed Draw Term Loan 2,840 2,840 130
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Portfolio Company ($ in thousands) Investment Type March 31, 2023 December 31, 2022 Brightpay Limited(1)(2)(3) Delayed Draw Term Loan 138 135 BrightSign LLC(1) Revolver - 1,329 CAi Software, LLC(1)(2) Revolver 943 943
- 110
Catawba River Limited(1)(2)(4) Structured Junior Note 12,999 12,635
Centralis Finco S.a.r.l.(1)(3) Incremental CAF Term Loan 921 1,028
CGI Parent, LLC(1)(2) Revolver 1,653 1,653
Classic Collision (
78 78
Comply365, LLC(1) Revolver 1,101 935
Coyo Uprising GmbH(1)(3) Delayed Draw Term Loan 427 419
CSL Dualcom(1)(4) Capex / Acquisition Term Loan 146 142
DataServ Integrations, LLC(1) Revolver 481 481
DecksDirect, LLC(1) Revolver 218 218
DISA Holdings Corp.(1) Delayed Draw Term Loan 1,368 1,368
DISA Holdings Corp.(1) Revolver 429 416
DreamStart Bidco SAS (d/b/a
SmartTrade)(1)(2)(3) Acquisition Facility - 579
Dune Group(1)(2)(3) Delayed Draw Term Loan 635 624
Dwyer Instruments, Inc.(1) Delayed Draw Term Loan 5,165 5,164
Eclipse Business Capital, LLC(1) Revolver 18,364 17,455
EMI Porta Holdco LLC(1)(2) Delayed Draw Term Loan 9,272 9,272
EMI Porta Holdco LLC(1)(2) Revolver 1,092 1,471
EPS NASS Parent, Inc.(1) Delayed Draw Term Loan 257 257
eShipping, LLC(1) Delayed Draw Term Loan 1,650 1,650
eShipping, LLC(1) Revolver 1,486 1,486
Eurofins Digital Testing International LUX
Holding SARL(1)(2)(3) Delayed Draw Term Loan 2,686 2,639
Eurofins Digital Testing International LUX
Holding SARL(1)(2)(3) Delayed Draw Term Loan 537 528
Events Software BidCo Pty Ltd(1)(2) Delayed Draw Term Loan 640 640
Express Wash Acquisition Company, LLC(1)(2) Revolver 115 115
F24 (Stairway BidCo GmbH)(1)(2)(3) Acquisition Term Loan 230 246
Faraday(1)(2)(3) Delayed Draw Term Loan 974 -
Fineline Technologies, Inc.(1) Delayed Draw Term Loan - 180
Footco 40 Limited(1)(2)(4) Delayed Draw Term Loan 556 766
Fortis Payment Systems, LLC(1)(2) Delayed Draw Term Loan 925 925
FragilePak LLC(1) Delayed Draw Term Loan 2,354 2,354
GB Eagle Buyer, Inc.(1)(2) Revolver 2,581 2,581
Global Academic Group Limited(1)(7) Term Loan 446 451
GPZN II GmbH(1)(2)(3) CAF Term Loan - 560
Greenhill II BV(1)(3) Capex Acquisition Facility 260 255
Groupe Product Life(1)(3) Delayed Draw Term Loan 449 441
Gusto Aus BidCo Pty Ltd(1)(5) Delayed Draw Term Loan 220 223
HeartHealth Bidco Pty Ltd(1)(5) Delayed Draw Term Loan 309 313
267 267
Heavy Construction Systems Specialists ,
LLC(1) Revolver 2,632 2,632
HEKA Invest(1)(2)(3) Delayed Draw Term Loan 565 555
HTI Technology & Industries(1)(2) Delayed Draw Term Loan 2,045 2,045
131
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Portfolio Company
($ in thousands) Investment Type March 31, 2023 December 31, 2022
HTI Technology & Industries(1)(2) Revolver 1,364 1,364
556 913
Innovad Group II BV(1)(2)(3) Delayed Draw Term Loan 1,284 1,261
INOS 19-090 GmbH(1)(3) Acquisition Facility 2,422 2,380
Interstellar Group B.V.(1)(3) Delayed Draw Term Loan 1,334 1,310
Interstellar Group B.V.(1)(3) Delayed Draw Term Loan 56 55
Isolstar Holding NV (IPCOM)(1)(3) Delayed Draw Term Loan 757 744
ITI Intermodal, Inc.(1)(2) Delayed Draw Term Loan - 103
ITI Intermodal, Inc.(1)(2) Delayed Draw Term Loan 4,249 -
ITI Intermodal, Inc.(1)(2) Revolver 857 118
Jaguar Merger Sub Inc.(1) Delayed Draw Term Loan - 422
Jaguar Merger Sub Inc.(1) Revolver - 490
Jocassee Partners LLC Joint Venture 65,000 65,000
Jon Bidco Limited(1)(7) Capex & Acquisition Facility 1,425 1,441
Jones Fish Hatcheries & Distributors
LLC(1)(2) Revolver 418 418
Kano Laboratories LLC(1) Delayed Draw Term Loan 153 153
Kano Laboratories LLC(1) Delayed Draw Term Loan 2,830 2,830
Kemmerer Operations LLC(1) Delayed Draw Term Loan - 908
Lambir Bidco Limited(1)(2)(3) Delayed Draw Term Loan 1,797 1,766
255 298
LeadsOnline, LLC(1) Revolver 2,603 2,603
Lifestyle Intermediate II, LLC(1)(2) Revolver 2,500 2,500
LivTech Purchaser, Inc.(1)(2) Delayed Draw Term Loan 138 138
Marmoutier Holding B.V.(1)(2)(3) Delayed Draw Term Loan 24 24
Marmoutier Holding B.V.(1)(2)(3) Revolver 108 106
Marshall Excelsior Co.(1) Revolver 55 413
MC Group Ventures Corporation(1) Delayed Draw Term Loan 296 296
Mercell Holding AS(1)(8) Capex Acquisition Facility 750 797
Modern Star Holdings Bidco Pty
Limited(1)(2)(5) Term Loan 956 968
Murphy Midco Limited(1)(2)(4) Delayed Draw Term Loan 361 407
Narda Acquisitionco., Inc.(1)(2) Revolver 1,180 1,180
NeoxCo(1)(2)(3) Delayed Draw Term Loan 489 -
Nexus Underwriting Management
Limited(1)(2)(4) Acquisition Facility 374 443
NF Holdco, LLC(1)(2) Revolver 1,105 -
Novotech Aus Bidco Pty Ltd(1)(2) Capex & Acquisition Facility 809 809
NPM Investments 28 BV(1)(3) Delayed Draw Term Loan 471 463
OA Buyer, Inc.(1) Revolver 1,331 1,331
OAC Holdings I Corp(1) Revolver 254 607
- 2,289
OSP Hamilton Purchaser, LLC(1)(2) Revolver 384 187
PDQ.Com Corporation(1) Delayed Draw Term Loan 6,885 6,885
Polara Enterprises, L.L.C.(1) Revolver 545 545
Premium Invest(1)(3) Delayed Draw Term Loan 2,933 2,882
ProfitOptics, LLC(1) Revolver 306 484
Protego Bidco B.V.(1)(2)(3) Delayed Draw Term Loan 807 792
PSP Intermediate 4, LLC(1)(2)(3) Delayed Draw Term Loan 740 727
Qualified Industries, LLC(1)(2) Revolver 242 -
132
--------------------------------------------------------------------------------Portfolio Company ($ in thousands) Investment Type March 31, 2023 December 31, 2022 R1 Holdings, LLC(1) Delayed Draw Term Loan 1,820 2,623 R1 Holdings, LLC(1) Revolver 1,601 1,601 RA Outdoors, LLC(1)(2) Revolver 864 1,235 Randys Holdings, Inc.(1)(2) Delayed Draw Term Loan 4,412 4,412 Randys Holdings, Inc.(1)(2) Revolver 1,513 1,571 Rep Seko Merger Sub LLC(1) Delayed Draw Term Loan 579 725 Reward Gateway (UK) Ltd(1)(2)(4) Acquisition Facility 617 600 Rhondda Financing No. 1 DAC(1)(2)(4) Structured Junior Note 22,914 - Rocade Holdings LLC Preferred Equity 40,000 - Royal Buyer, LLC(1) Revolver 1,340 1,340 Royal Buyer, LLC(1) Delayed Draw Term Loan 2,082 2,209 RTIC Subsidiary Holdings, LLC(1)(2) Revolver 1,587 2,381 Sanoptis S.A.R.L.(1)(2)(3) Acquisition Capex Facility 846 1,751 Sanoptis S.A.R.L.(1)(2)(9) CAF Delayed Draw Term Loan 445 - SBP Holdings LP(1)(2) Delayed Draw Term Loan 1,469 - SBP Holdings LP(1)(2) Revolver 887 - Scaled Agile, Inc.(1)(2) Delayed Draw Term Loan 416 416 Scaled Agile, Inc.(1) Revolver 336 336 Scout Bidco B.V.(1)(3) Delayed Draw Term Loan 2,311 2,270 Scout Bidco B.V.(1)(3) Revolver 1,049 1,030 Security Holdings B.V.(1)(2)(3) Delayed Draw Term Loan 2,173 2,134 Security Holdings B.V.(1)(2)(3) Revolver 1,086 1,067 Sereni Capital NV(1)(2)(3) Delayed Draw Term Loan 1,599 - Sereni Capital NV(1)(2)(3) Term Loan - 109 Smartling, Inc.(1)(2) Delayed Draw Term Loan 1,978 1,978 Smartling, Inc.(1)(2) Revolver 1,176 1,176 Smile Brands Group, Inc.(1)(2) Delayed Draw Term Loan - 38 Soho Square III Debtco II SARL(1)(4) Delayed Draw Term Loan 3,478 3,383 Solo Buyer, L.P.(1)(2) Revolver 1,995 1,995Sparus Holdings, LLC (f/k/a Sparus Holdings, Inc.)(1) Delayed Draw Term Loan 399 666Sparus Holdings, LLC (f/k/a Sparus Holdings, Inc.)(1) Revolver 141 156 Spatial Business Systems LLC(1) Delayed Draw Term Loan 7,500 7,500 Spatial Business Systems LLC(1) Revolver 1,406 1,406 SSCP Pegasus Midco Limited(1)(4) Delayed Draw Term Loan 4,794 4,664 Superjet Buyer, LLC(1) Revolver 1,825 1,825 Syntax Systems Ltd(1)(2) Delayed Draw Term Loan 1,933 1,933 Syntax Systems Ltd(1)(2) Revolver 202 337 Tank Holding Corp(1) Revolver 625 698 Tanqueray Bidco Limited(1)(2)(4) Capex Facility 1,118 1,088 Techone B.V.(1)(3) Revolver 310 203 Tencarva Machinery Company, LLC(1) Revolver 1,129 1,129The Caprock Group, Inc. (aka TA/TCG Holdings, LLC)(1) Delayed Draw Term Loan 2,811 2,811The Caprock Group, Inc. (aka TA/TCG Holdings, LLC)(1) Revolver 827 827 The Cleaver-Brooks Company, Inc.(1) Revolver 3,229 2,826 The Hilb Group, LLC(1)(2) Delayed Draw Term Loan 858 1,182 Trader Corporation(1)(6) Revolver 345 345 TSYL Corporate Buyer, Inc.(1) Delayed Draw Term Loan 1,681 1,681 133
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Portfolio Company December 31, ($ in thousands) Investment Type March 31, 2023 2022 TSYL Corporate Buyer, Inc.(1) Revolver 177 177 Turbo Buyer, Inc.(1)(2) Delayed Draw Term Loan 1,350 1,350 Union Bidco Limited(1)(2)(4) Acquisition Facility 80 78
672 1,170
Unither (Uniholding)(1)(2)(3) Delayed Draw Term Loan 471 -
USLS Acquisition, Inc. (f/k/a US Legal Support,
Inc.)(1)(2) Delayed Draw Term Loan 3,629 3,629
W2O Holdings, Inc.(1) Delayed Draw Term Loan - 2,622
Waccamaw River(2) Joint Venture 2,480 2,480
Whitcraft Holdings, Inc.(1)(2) Revolver 1,886 -
Woodland Foods, Inc.(1)(2) Line of Credit 456 456
WWEC Holdings III Corp(1)(2) Delayed Draw Term Loan 3,106 3,106
WWEC Holdings III Corp(1)(2) Revolver 1,367 1,366
Xeinadin Bidco Limited(1)(2)(4) CAF Term Loan 3,196 3,109
ZB Holdco LLC(1)(2) Delayed Draw Term Loan - 1,352
ZB Holdco LLC(1) Revolver 845 845
Zeppelin Bidco Limited(1)(2)(4) Capex / Acquisition Facility 2,587 2,516
Total unused commitments to extend financing (1)The Adviser's estimate of the fair value of the current investments in these portfolio companies includes an analysis of the fair value of any unfunded commitments. (2)Represents a commitment to extend financing to a portfolio company where one or more of our current investments in the portfolio company are carried at less than cost. (3)Actual commitment amount is denominated in Euros. Commitment was translated intoU.S. dollars based on the spot rate at the relevant balance sheet date. (4)Actual commitment amount is denominated in British pounds sterling. Commitment was translated intoU.S. dollars based on the spot rate at the relevant balance sheet date. (5)Actual commitment amount is denominated in Australian dollars. Commitment was translated intoU.S. dollars based on the spot rate at the relevant balance sheet date. (6)Actual commitment amount is denominated in Canadian dollars. Commitment was translated intoU.S. dollars based on the spot rate at the relevant balance sheet date. (7)Actual commitment amount is denominated inNew Zealand dollars. Commitment was translated intoU.S. dollars based on the spot rate at the relevant balance sheet date. (8)Actual commitment amount is denominated in Norwegian kroner. Commitment was translated intoU.S. dollars based on the spot rate at the relevant balance sheet date. (9)Actual commitment amount is denominated in Swiss francs. Commitment was translated intoU.S. dollars based on the spot rate at the relevant balance sheet date. In the normal course of business, we guarantee certain obligations in connection with our portfolio companies (in particular, certain controlled portfolio companies). Under these guarantee arrangements, payments may be required to be made to third parties if such guarantees are called upon or if the portfolio companies were to default on their related obligations, as applicable. As ofMarch 31, 2023 andDecember 31, 2022 , we had guaranteed €9.9 million ($10.8 million U.S. dollars and$10.6 million U.S. dollars, respectively) relating to credit facilities amongErste Bank andMVC Automotive Group Gmbh , or MVC Auto that mature inDecember 2025 . We would be required to make payments toErste Bank if MVC Auto were to default on their related payment obligations. None of the credit facility guarantees are recorded as a liability on our Unaudited and Audited Consolidated Balance Sheets. As such, the credit facility liabilities are considered in the valuation of our investments in MVC Auto. The guarantees denominated in foreign currencies were translated intoU.S. dollars based on the spot rate at the relevant balance sheet date.
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