What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-09 compared with 2020-08-05 · 199 added, 163 removed, 424 unchanged (46% of the section changed)

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following discussion is designed to provide a better understanding of our unaudited consolidated financial statements for the three and six months ended June 30, 2020, including a brief discussion of our business, key factors that impacted our performance and a summary of our operating results.

The following discussion is designed to provide a better understanding of our unaudited consolidated financial statements for the three and nine months ended September 30, 2020, 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 ended December 31, 2019.

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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 operating areas.

future changes in laws or regulations and conditions in our operating areas and risks related to the pending MVC Capital, Inc.

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 this Quarterly Report.

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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 of June 30, 2020, the weighted average yield on the principal amount of our syndicated senior secured loan portfolio (excluding non-accrual investments), our middle-market senior secured private debt portfolio and our structured product investments was approximately 4.5%, 6.2%, and 7.4%, respectively.

As of June 30, 2020, the weighted average yield on the principal amount on these three portfolios (excluding non-accrual investments) on a combined basis was approximately 5.5%.

The weighted-average yield on the principal amount of our outstanding investments (including equity and equity-linked investments and short-term investments and excluding non-accrual investments) was approximately 5.3% as of June 30, 2020.

As of December 31, 2019, the weighted average yield on the principal amount of our syndicated senior secured loan portfolio and our middle-market senior secured private debt portfolio was approximately 5.4% and 7.0%, respectively.

As of December 31, 2019, the weighted average yield on the principal amount of these two portfolios on a combined basis was approximately 6.2%.

The weighted-average yield on the principal amount of our outstanding investments (including equity and equity-linked investments and short-term investments) was approximately 5.8% as of December 31, 2019.

As of June 30, 2019, the weighted average yield on the principal amount of our syndicated senior secured loan portfolio and our middle-market senior secured private debt portfolio was approximately 5.6% and 7.4%, respectively.

As of June 30, 2019, the weighted average yield on the principal amount of these two portfolios on a combined basis was approximately 6.2%.

As of both September 30, 2020 and December 31, 2019, the weighted average yield on the principal amount of our outstanding debt investments was approximately 6.2%.

The weighted average yield on the principal amount all of our outstanding investments (including equity and equity-linked investments and short-term investments) was approximately 5.0% and 5.8% as of September 30, 2020 and December 31, 2019, respectively

COVID-19 Developments

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Protecting their employees and supporting the communities in which they live and work is a priority.

Having performed stress-testing on their systems and processes, Barings is operating a 100% remote-working model across the United States, Europe and Australia.

Barings shifted to remote working and flexible working arrangements in Asia at the end of January 2020, while maintaining service levels to partners and clients.

Having performed stress-testing on their systems and processes, Barings was operating a 100% remote-working model across the United States, Europe and Australia .

Over the past few months, Barings shifted to remote working and limited opening (inviting employees to return to the office on a volunteer basis only) and/or flexible working arrangements in Asia, Europe and U.S.

sites, while maintaining service levels to partners and clients.

Barings’ cybersecurity policies are applied consistently when working remotely or in the office.

While we have been carefully monitoring the COVID-19 pandemic and its impact on our business and the business of our portfolio companies, we have continued to fund our existing debt commitments.

In addition, we have continued to make and originate, and expect to continue to make and originate, new loans, including syndicated senior secured loans and senior secured private debt investments, as Barings continues to transition our portfolio from syndicated senior secured loans to senior secured private debt investments in middle-market businesses.

In addition, we have continued to make and originate, and expect to continue to make and originate, new loans.

We cannot predict the full impact of the COVID-19 pandemic, including its duration in the United States and worldwide and the magnitude of the economic impact of the outbreak, including with respect to the travel restrictions, business closures and other quarantine measures imposed on service providers and other individuals by various local, state, and federal governmental authorities, as well as non-U.S.

governmental authorities.

Many public health experts have predicted that the COVID-19 pandemic will worsen in the fall and winter months as people in the U.S.

spend more time indoors where the virus can spread more easily.

As such, we are unable to predict the duration of any business and supply-chain disruptions, the extent to which COVID-19 will negatively affect our portfolio companies’ operating results or the impact that such disruptions may have on our results of operations and financial condition.

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Any reduction in the borrowing base under the February 2019 Credit Facility could have a material adverse effect on our results of operations, financial condition and available liquidity.

In addition, any decreases in our net investment income would increase the portion of our cash flows dedicated to servicing our existing borrowings under the February 2019 Credit Facility and the Debt Securitization (each as defined below under "Liquidity and Capital Resources").

In addition, any decreases in our net investment income would increase the portion of our cash flows dedicated to servicing our existing borrowings under the February 2019 Credit Facility, the Debt Securitization and the August 2025 Notes (each as defined below under "Liquidity and Capital Resources").

As a result, we may be required to reduce the amount of our distributions to stockholders.

We have had a significant reduction in our net asset value as of June 30, 2020 as compared to our net asset value as of December 31, 2019, which is primarily the result of the impact of the COVID-19 pandemic.

The decrease in net asset value as of June 30, 2020 primarily resulted from an increase in the aggregate unrealized depreciation of our investment portfolio resulting from decreases in the fair value of some of our portfolio company investments primarily due to the immediate adverse economic effects of the COVID-19 pandemic and the continuing uncertainty surrounding its long-term impact, as well as the re-pricing of credit risk in the broadly syndicated credit market.

From March 31, 2020 to June 30, 2020, the Company did experience unrealized appreciation on our broadly syndicated loan portfolio of $31.6 million which partially offset the $82.6 million of unrealized depreciation that occurred from December 31, 2019 to March 31, 2020.

As of June 30, 2020, we are permitted under the 1940 Act, as a BDC, to borrow amounts such that our asset coverage, as defined in the 1940 Act, equals at least 150% after such borrowing.

In addition, the February 2019 Credit Facility contains affirmative and negative covenants and events of default relating to minimum stockholders’ equity, minimum obligors’ net worth, minimum asset coverage, minimum liquidity and maintenance of RIC and BDC status, as well as cross-default provisions relating to other indebtedness.

As of June 30, 2020, we are in compliance with our asset coverage requirements under the 1940 Act.

In addition, we are not in default under our credit facility as of June 30, 2020.

As of September 30, 2020, we are permitted under the 1940 Act, as a BDC, to borrow amounts such that our asset coverage, as defined in the 1940 Act, equals at least 150% after such borrowing.

In addition, the February 2019 Credit Facility and the August 2025 Notes contains affirmative and negative covenants and events of default relating to minimum stockholders’ equity, minimum obligors’ net worth, minimum asset coverage, minimum liquidity and maintenance of RIC and BDC status, as well as cross-default provisions relating to other indebtedness.

As of September 30, 2020, we are in compliance with our asset coverage requirements under the 1940 Act.

In addition, we are not in default under our credit facility as of September 30, 2020.

However, any increase in unrealized depreciation of our investment portfolio or further significant reductions in our net asset value as a result of the effects of the COVID-19 pandemic or otherwise increases the risk of breaching the relevant covenants, including those relating to minimum stockholders’ equity, minimum obligors’ net worth, and minimum asset coverage.

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We are also subject to financial risks, including changes in market interest rates.

As of June 30, 2020, approximately $1,053.9 million (principal amount) of our debt portfolio investments bore interest at variable rates, which generally are LIBOR-based (or based on an equivalent applicable currency rate), and many of which are subject to certain floors.

In addition, the Class A-1 2019 Notes and the Class A-2 2019 Notes issued in connection with the Debt Securitization have floating rate interest provisions, and the February 2019 Credit Facility has a floating rate interest provision.

In connection with the

COVID-19 pandemic, the U.S.

As of September 30, 2020, approximately $929.3 million (principal amount) of our debt portfolio investments bore interest at variable rates, which generally are LIBOR-based (or based on an equivalent applicable currency rate), and many of which are subject to certain floors.

In connection with the COVID-19 pandemic, the U.S.

Federal Reserve and other central banks have reduced certain interest rates and LIBOR has decreased.

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Subject to the overall supervision of our board of directors, or the Board, Barings’ Global Private Finance Group, or BGPF, manages our day-to-day operations, and provides investment advisory and management services to us.

BGPF is part of Barings' $251.7 billion Global Fixed Income Platform that invests in liquid, private and structured credit.

BGPF is part of Barings' $269.6 b illion Global Fixed Income Platform that invests in liquid, private and structured credit.

BGPF manages private funds and separately managed accounts, along with multiple public vehicles.

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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 of June 30, 2020, our asset coverage ratio was 186.1%.

As of September 30, 2020, our asset coverage ratio was 176.0%.

Pending MVC Capital, Inc.

On August 10, 2020, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) among MVC Capital, Inc., a Delaware corporation (“MVC”), Mustang Acquisition Sub, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Acquisition Sub”), and Barings.

The Merger Agreement provides that, on the terms and subject to the conditions set forth in the Merger Agreement, Acquisition Sub will merge with and into MVC, with MVC continuing as the surviving company and as a wholly-owned subsidiary of us (the “First Step”) and, immediately thereafter, MVC will merge with and into us, and we continue as the surviving company (the “Second Step” and, together with the First Step, the “Merger”).

The boards of directors of both us and MVC, including all of the respective independent directors, have approved the Merger Agreement and the transactions contemplated therein.

The parties to the Merger Agreement intend the Merger to be treated as a “reorganization” within the meaning of Section 368(a)(1)(A) of the Code.

In the First Step, each share of MVC's common stock issued and outstanding immediately prior to the effective time of the First Step (excluding any shares cancelled pursuant to the Merger Agreement) will be converted into the right to receive (i) $0.39492 per share in cash, without interest, from Barings (such amount of cash, the “Cash Consideration”) and (ii) 0.94024 (the “Exchange Ratio,” such ratio as may be adjusted pursuant to the Merger Agreement) of a validly issued, fully paid and non-assessable share of the Company's common stock, par value $0.001 per share (the “Share Consideration” and together with the Cash Consideration, the “Merger Consideration”).

Pursuant to the Merger Agreement, total value of the consideration to be received by MVC stockholders at closing is subject to adjustment as set forth in the Merger Agreement and may be different than the estimated total consideration described herein depending on a number of factors, including the number of outstanding shares of our and MVC common stock, the payment of tax dividends by MVC, undistributed investment company taxable income and undistributed net capital gains of MVC and changes of the Euro-to-U.S.

dollar exchange rate relating to certain of MVC’s investments between April 30, 2020 and the closing date.

The Merger Agreement contains representations, warranties and covenants, including, among others, covenants relating to the operation of each of our and MVC’s businesses during the period prior to the closing of the Merger.

We and MVC have agreed to convene and hold stockholder meetings for the purpose of obtaining the approvals required of our and MVC’s stockholders, respectively, and the boards of directors of us and MVC have agreed to recommend that their respective stockholders approve the applicable proposals.

The Merger Agreement provides that MVC shall not, and shall cause its representatives and subsidiaries not to, solicit proposals relating to alternative transactions, or, subject to certain exceptions, initiate or participate in discussions or negotiations regarding, or provide information with respect to, any proposal for an alternative transaction.

However, the MVC board of directors may, subject to certain conditions, change its recommendation to the MVC stockholders or, on payment of a termination fee of approximately $2.94 million to us and the reimbursement of up to $1.18 million in expenses incurred by us and Barings, terminate the Merger Agreement and enter into an Alternative Acquisition Agreement (as defined in the Merger Agreement) for a Superior Proposal (as defined in the Merger Agreement) if it determines in good faith, after consultation with its outside legal counsel, that failure to do so would reasonably be expected to be inconsistent with its fiduciary duties or obligations under applicable law.

Consummation of the First Step, which is currently anticipated to occur during the fourth quarter of fiscal year 2020, is subject to certain customary closing conditions, including (1) adoption of the Merger Agreement by a majority of the outstanding shares of MVC common stock, (2) approval of the issuance of Company's common stock in the First Step by a majority of the votes cast by our stockholders on the matter, (3) approval of the issuance of our common stock in connection with the First Step at a price below the then-current net asset value per share of our common stock, if applicable, by the vote specified in Section 63(2)(A) of the 1940 Act, as amended, (4) the absence of certain legal impediments to the consummation of the Merger, (5) effectiveness of the registration statement for our common stock to be issued as consideration in the First Step, (6) approval for listing on the New York Stock Exchange of our common stock to be issued as consideration in the First Step, (7) subject to certain materiality standards, the accuracy of the representations and warranties and compliance with the covenants of each party to the Merger Agreement, and (8) required regulatory approvals (including expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act")).

Early termination of the waiting period under the HSR Act was granted on September 30, 2020.

In addition, the Company and MVC will take steps necessary to provide for the repayment at closing of MVC’s credit facilities and the redemption or assumption of MVC’s 6.25% senior notes due November 30, 2022.

The Merger Agreement also contains certain termination rights in favor of us and MVC, including if the First Step is not completed on or before February 10, 2021 or if the requisite approvals of our stockholders or MVC's stockholders are not obtained.

The Merger Agreement also provides that, upon the valid termination of the Merger Agreement under certain circumstances, we may be required to pay or cause to be paid to MVC a termination fee of approximately $4.70 million, or MVC may be required to pay or cause to be paid to us a termination fee of approximately $2.94 million.

Portfolio Investment Composition

The total value of our investment portfolio was $1,034.0 million as of June 30, 2020, as compared to $1,173.6 million as of December 31, 2019.

As of June 30, 2020, we had investments in 147 portfolio companies, 8 structured product investments and four money market funds with an aggregate cost of $1,107.8 million.

The total value of our investment portfolio was $1,116.3 million as of September 30, 2020, as compared to $1,173.6 million as of December 31, 2019.

As of September 30, 2020, we had investments in 115 portfolio companies, 11 structured product investments and four money market funds with an aggregate cost of $1,131.9 million.

As of December 31, 2019, we had investments in 147 portfolio companies and two money market fund with an aggregate cost of $1,192.6 million.

As of both June 30, 2020 and December 31, 2019, none of our portfolio investments represented greater than 10% of the total fair value of our investment portfolio.

As of June 30, 2020 and December 31, 2019, our investment portfolio consisted of the following investments:

As of both September 30, 2020 and December 31, 2019, none of our portfolio investments represented greater than 10% of the total fair value of our investment portfolio.

As of September 30, 2020 and December 31, 2019, our investment portfolio consisted of the following investments:

Cost Percentage of

Portfolio Fair Value Percentage of

June 30, 2020:

September 30, 2020:

Senior debt and 1 st lien notes

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Investment Activity

During the six months ended June 30, 2020, we purchased $38.3 million in syndicated senior secured loans, purchased $11.5 million in structured product investments, made new investments in 12 middle-market portfolio companies totaling $91.3 million, consisting of 12 senior secured private debt investments, one subordinated debt investment and two minority equity investment, made one new joint venture equity investment totaling $1.5 million, made additional debt investments in 14 existing portfolio companies totaling $19.0 million and made an additional investment in one joint venture equity portfolio company totaling $5.0 million.

We had 11 syndicated senior secured loans repaid at par totaling total $43.6 million, had one middle-market portfolio company loan repaid at par totaling $8.4 million, received $3.3 million of syndicated senior secured loan principal payments and received $3.1 million of middle-market portfolio company principal payments.

In addition, we sold $105.5 million of syndicated senior secured loans, recognizing a net realized loss on these transactions of $16.4 million, and sold $30.8 million of middle-market portfolio company debt investments to our joint venture.

In addition, one broadly syndicated loan investment was restructured.

During the nine months ended September 30, 2020, we made 47 new investments totaling $263.9 million, made investments in 18 existing portfolio companies totaling $39.8 million, made one new joint venture equity investment totaling $3.1 million and made an additional investment in one existing joint venture equity portfolio company totaling $5.0 million.

We had 15 loans repaid at par totaling total $58.5 million and received $10.0 million of portfolio company principal payments.

In addition, we sold $307.4 million of loans, recognizing a net realized loss on these transactions of $36.4 million, and sold $71.0 million of middle-market portfolio company debt investments to our joint venture and realized a loss on these transactions of $1.1 million.

In addition, one loan investment was restructured.

GAAP, this restructuring was considered a material modification and as a result, we recognized a loss of approximately $0.6 million related to this restructuring.

Lastly, we received $0.3 million in escrow distributions from legacy portfolio companies, which were recognized as realized gains.

During the six months ended June 30, 2019, we purchased $3.6 million in syndicated senior secured loans, made thirteen new middle-market debt investments totaling $130.1 million, consisting of 12 senior secured private debt investments and one second lien private debt investment, made one joint venture equity investment totaling $5.2 million and made additional debt investments in four existing portfolio companies totaling $6.9 million.

We had four portfolio company loans repaid at par totaling $26.6 million, received $20.8 million of principal payments and sold $33.7 million of syndicated secured loans and senior secured private debt investments, recognizing a net realized loss on these transactions of $0.5 million.

In addition, w e received $0.5 million in escrow distributions from three portfolio companies, which were recognized as realized gains.

Total portfolio investment activity for the six months ended June 30, 2020 and 2019 was as follows:

Six Months Ended

June 30, 2020:

During the nine months ended September 30, 2019, we made 26 new investments totaling $245.9 million, six investments in existing portfolio companies totaling $12.2 million and made one new joint venture equity investment totaling $10.2 million.

We had nine loans repaid at par totaling total $71.1 million, received $28.8 million of portfolio company principal payments.

In addition, we sold $148.4 million of loans, recognizing a net realized loss on these transactions of $0.9 million and sold $10.2 million of middle-market portfolio company debt investments to our joint venture.

In addition, certain terms of one broadly syndicated loan investment were amended.

GAAP, this amendment was considered a material modification and as a result, we recognized a loss of approximately $0.2 million related to the amendment.

Lastly, we received $0.5 million in escrow distributions from four portfolio companies, which were recognized as realized gains, and recognized a net loss of $0.5 million related to royalty payments due from a legacy Triangle Capital Corporation portfolio company.

Total portfolio investment activity for the nine months ended September 30, 2020 and 2019 was as follows:

Nine Months Ended

September 30, 2020:

Notes Subordinated debt and 2nd Lien Notes Structured Products Equity

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Realized gain (loss) (36,473,291) (26,253) 3,684 247,908 — 14,285 (36,233,667)

Unrealized depreciation (53,139,679) (1,346,538) 744,762 (202,605) (795,968) (353) (54,740,381)

Unrealized appreciation (depreciation) 1,387,984 (213,197) 1,646,453 (297,965) 828,262 (486) 3,351,051

Fair value, end of period $ 833,101,689 $ 19,369,286 $ 33,164,151 $ 975,050 $ 19,158,075 $ 210,503,390 $ 1,116,271,641

Six Months Ended

June 30, 2019:

Nine Months Ended

September 30, 2019:

Notes Subordinated debt and 2nd Lien Notes Equity

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Accretion of deferred loan origination revenue 1,190,821 63,413 — — — 1,254,234

Realized gain (loss) (548,570) — 468,819 — — (79,751)

Realized loss (1,090,219) — (56,068) — — (1,146,287)

Unrealized appreciation (depreciation) 24,897,740 124,484 179,835 (121,970) — 25,080,089

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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 of June 30, 2020, the fair value of our non-accrual asset was $1.8 million, which comprised 0.2% of the total fair value of our portfolio, and the cost of our non-accrual asset was $10.1 million, which comprised 0.9% of the total cost of our portfolio.

As of December 31, 2019, we had no non-accrual assets.

Our non-accrual asset as of June 30, 2020 was as follows:

Fieldwood Energy LLC

Effective with the quarterly payment due April 30, 2020, we placed our debt investment in Fieldwood Energy LLC, or Fieldwood, on non-accrual status.

As a result, under U.S.

GAAP, we no longer recognize interest income on our debt investment in Fieldwood for financial reporting purposes.

As of June 30, 2020, the cost of our debt investment in Fieldwood was $10.1 million and the fair value of such investment was $1.8 million.

As of both September 30, 2020 and December 31, 2019, we had no non-accrual assets.

Results of Operations

Three and Six months ended June 30, 2020 and June 30, 2019

Operating results for the three and six months ended June 30, 2020 and 2019 were as follows:

Three and Nine months ended September 30, 2020 and September 30, 2019

Operating results for the three and nine months ended September 30, 2020 and 2019 were as follows:

Ended Three Months

Ended Six Months Ended Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

Ended Nine Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Total investment income $ 16,329,142 $ 19,304,107 $ 51,148,504 $ 57,245,553

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Net investment income 7,960,166 7,987,175 21,783,364 23,357,344

Net realized gains (losses) (16,514,997) 50,024 (16,817,369) (79,751)

Net realized losses (20,506,085) (983,499) (37,323,454) (1,063,250)

Net unrealized appreciation (depreciation) 55,947,382 (1,794,828) 1,594,639 25,454,367

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Ended Three Months

Ended Six Months Ended Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

Ended Nine Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Investment income:

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Total investment income $ 16,329,142 $ 19,304,107 $ 51,148,504 $ 57,245,553

The change in investment income for the three and six months ended June 30, 2020, as compared to the three and six months ended June 30, 2019, was primarily due to a decrease in LIBOR from June 30, 2019 to June 30, 2020 and a decrease in the average size of our portfolio.

These decreases were partially offset by increases in fee income from June 30, 2019 to June 30, 2020 and the continued rotation of our portfolio from syndicated senior secured loans to senior secured private debt investments in middle-market businesses.

As of June 30, 2019, we had investments in 142 portfolio companies, which included 30 middle-market debt investment, 111 syndicated senior secured loans and one joint venture equity investment as compared to investments in eight structured product investments and 147 portfolio companies as of June 30, 2020, which included 64 middle-market debt investments, 81 syndicated senior secured loans and two joint venture equity investments.

The weighted average yield on our investments was 5.3% as of June 30, 2020, as compared to 6.0% as of June 30, 2019.

The change in investment income for the three and nine months ended September 30, 2020, as compared to the three and nine months ended September 30, 2019, was primarily due to a decrease in LIBOR from September 30, 2019 to September 30, 2020 and a decrease in the average size of our portfolio.

These decreases were partially offset by increases in fee income

from September 30, 2019 to September 30, 2020 and the continued rotation of our portfolio from syndicated senior secured loans to senior secured private debt investments in middle-market businesses, structured products and special situation loans.

The weighted average yield on the principal amount of our outstanding debt investments was 6.2% as of September 30, 2020, as compared to 5.9% as of September 30, 2019.

Operating Expenses

Ended Three Months

Ended Six Months Ended Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

Ended Nine Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Operating expenses:

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Interest and Other Financing Fees

Interest and other financing fees during the three and six months ended June 30, 2020 were attributable to borrowings under the August 2018 Credit Facility, the February 2019 Credit Facility and the Debt Securitization (each as defined below under "Liquidity and Capital Resources").

Interest and other financing fees during the three and six months ended June 30, 2019 were attributable to borrowings under the August 2018 Credit Facility, the February 2019 Credit Facility and the Debt Securitization.

The decrease in interest and other financing fees for the three and six months ended June 30, 2020 as compared to the three and six months ended June 30, 2019 was primarily attributable to the decrease in average borrowings outstanding and the decrease in interest rates associated with the February 2019 Credit Facility and the Debt Securitization as a result of a decrease in LIBOR.

Interest and other financing fees during the three months ended September 30, 2020 were attributable to borrowings under the February 2019 Credit Facility, the Debt Securitization and the 2025 Notes (each as defined below under "Liquidity and Capital Resources").

Interest and other financing fees during the nine months ended September 30, 2020 were attributable to borrowings under the August 2018 Credit Facility, the February 2019 Credit Facility, the Debt Securitization and the 2025 Notes.

Interest and other financing fees during the three and nine months ended September 30, 2019 were attributable to borrowings under the August 2018 Credit Facility, the February 2019 Credit Facility and the Debt Securitization.

The decrease in interest and other financing fees for both the three and nine months ended September 30, 2020 as compared to the three and nine months ended September 30, 2019 was primarily attributable to the decrease in interest rates as result of decreases in LIBOR, STIBOR, GBP LIBOR and EURIBOR, as well as a reduction in the applicable margin on borrowings under the February 2019 Credit Facility from 2.25% to 2.00% in July 2020 as a result of our investment grade credit rating.

Base Management Fees

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See Note 2 to our unaudited consolidated financial statements for additional information regarding the Advisory Agreement and the fee arrangement thereunder.

For the three and six months ended June 30, 2020, the amount of base management fee incurred was approximately $3.6 million and $7.5 million, respectively.

For the three and six months ended June 30, 2019, the amount of base management fee incurred was approximately $3.1 million and $5.6 million, respectively.

The increase between periods was primarily due to the increase in the base management fee rate to 1.375% for the three and six months ended June 30, 2020, pursuant to the terms of the Advisory Agreement, as compared to 1.125% for the three and six months ended June 30, 2019.

Compensation Expenses

The compensation expenses for the six months ended June 30, 2020 and June 30, 2019 related to salaries, benefits and discretionary compensation.

As of March 31, 2020, all of our employees had been terminated in connection with our transition to an externally managed structure.

For the three and nine months ended September 30, 2020, the amount of base management fee incurred was approximately $3.4 million and $10.9 million, respectively.

For the three and nine months ended September 30, 2019, the amount of base management fee incurred was approximately $3.3 million and $8.8 million, respectively.

The increase between periods was primarily due to the increase in the base management fee rate to 1.375% for the three and nine months ended September 30, 2020, pursuant to the terms of the Advisory Agreement, as compared to 1.125% for the three and nine months ended September 30, 2019.

General and Administrative Expenses

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See Note 2 to our unaudited consolidated financial statements for additional information regarding the Administration Agreement.

For the three and six months ended June 30, 2020, the amount of administration expense incurred and invoiced by Barings for expenses was approximately $0.2 million and $0.6 million, respectively.

For the three and six months ended June 30, 2019, the amount of administration expense incurred and invoiced by the Adviser for expenses was approximately $0.9 million and $1.4 million, respectively.

For the three and nine months ended September 30, 2020, the amount of administration expense incurred and invoiced by Barings for expenses was approximately $0.3 million and $0.9 million, respectively.

For the three and nine months ended September 30, 2019, the amount of administration expense incurred and invoiced by the Adviser for expenses was approximately $0.5 million and $1.9 million, respectively.

In addition to expenses incurred under the Administration Agreement, general and administrative expenses include Board fees, D&O insurance costs, as well as legal and accounting expenses.

Net Realized Gains (Losses)

Net realized gains (losses) during the three and six months ended June 30, 2020 and 2019 were as follows:

Net realized gains (losses) during the three and nine months ended September 30, 2020 and 2019 were as follows:

Ended Three Months

Ended Six Months Ended Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

Ended Nine Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Net realized gain (losses):

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Foreign currency transactions (1,028,262) 83,037 (1,089,787) 83,037

Net realized gains (losses) $ (16,514,997) $ 50,024 $ (16,817,369) $ (79,751)

In the three months ended June 30, 2020, we recognized net realized losses totaling $16.5 million, which consisted primarily of a net loss on our loan portfolio of $16.7 million, partially offset by a net gain on foreign currency transactions of $0.1 million, and by $0.1 million in escrow distributions we received from legacy portfolio companies, which were recognized as realized gains.

In the six months ended June 30, 2020, we recognized net realized losses totaling $16.8 million, which consisted primarily of a net loss on our loan portfolio of $17.0 million and a net loss on foreign currency transactions of $0.1 million, partially offset by $0.2 million in escrow distributions we received from legacy portfolio companies, which were recognized as realized gains.

In the three months ended June 30, 2019, we recognized net realized gains totaling $0.1 million, which consisted primarily of a net gain on escrow payments received of $0.2 million, partially offset by a net loss on our syndicated senior secured loan portfolio of $0.1 million.

In the six months ended June 30, 2019, we recognized a net realized loss totaling $0.1 million, which consisted primarily of a net loss on our syndicated senior secured loan portfolio of $0.5 million, partially offset by a net gain on escrow payments received of $0.5 million.

Net realized losses $ (20,506,085) $ (983,499) $ (37,323,454) $ (1,063,250)

In the three months ended September 30, 2020, we recognized net realized losses totaling $20.5 million, which consisted primarily of a net loss on our loan portfolio of $19.5 million and a net loss on foreign currency transactions of $1.0 million.

In the nine months ended September 30, 2020, we recognized net realized losses totaling $37.3 million, which consisted primarily of a net loss on our loan portfolio of $36.5 million and a net loss on foreign currency transactions of $1.1 million, partially offset by $0.2 million in escrow distributions we received from legacy portfolio companies, which were recognized as realized gains.

In the three months ended September 30, 2019, we recognized net realized losses totaling $1.0 million, which consisted primarily of a net loss on our syndicated senior secured loan portfolio of $0.5 million and a net loss of $0.5 million related to royalty payments due from a legacy Triangle Capital portfolio company, partially offset by a net gain on foreign currency

transactions of $0.1 million.

In the nine months ended September 30, 2019, we recognized a net realized loss totaling $1.1 million, which consisted primarily of a net loss on our syndicated senior secured loan portfolio of $1.1 million and a net loss of $0.5 million related to royalty payments due from a legacy Triangle Capital portfolio company, partially offset by $0.5 million in escrow distributions we received from four portfolio companies, which were recognized as realized gains, and a net gain on foreign currency transactions of $0.1 million.

Net Unrealized Appreciation (Depreciation)

Net unrealized appreciation (depreciation) during three and six months ended June 30, 2020 and 2019 was as follows:

Net unrealized appreciation (depreciation) during three and nine months ended September 30, 2020 and 2019 was as follows:

Ended Three Months

Ended Six Months Ended Six Months Ended

2020 June 30,

2019 June 30,

2020 June 30,

Ended Nine Months Ended Nine Months Ended

September 30,

2020 September 30,

2019 September 30,

2020 September 30,

Net unrealized appreciation (depreciation):

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Net unrealized appreciation (depreciation) $ 55,947,382 $ (1,794,828) $ 1,594,639 $ 25,454,367

During the three months ended June 30, 2020, we recorded net unrealized appreciation totaling $65.0 million, consisting of net unrealized appreciation on our current portfolio of $43.8 million, net unrealized depreciation related to foreign currency transactions of $1.4 million and net unrealized appreciation reclassification adjustments of $22.7 million related to the net realized losses on the sales / repayments of certain syndicated secured loans.

The net unrealized appreciation on the Company’s current portfolio of $43.8 million was driven by broad market moves for liquid syndicated secured loans and structured products totaling $31.6 million, broad market moves for middle-market debt investments of $5.1 million, the credit or fundamental performance of middle-market debt investments totaling $2.9 million, the impact of foreign currency exchange rates on middle-market debt investments of $1.3 million, and net unrealized appreciation on the Company’s total equity and joint venture investments of $3.0 million.

During the six months ended June 30, 2020, we recorded net unrealized depreciation totaling $54.4 million, consisting of net unrealized depreciation on our current portfolio of $77.8 million, net unrealized appreciation related to foreign currency transactions of $0.4 million and net unrealized appreciation reclassification adjustments of $23.0 million related to the net realized losses on the sales / repayments of certain syndicated secured loans.

The net unrealized depreciation on the Company’s current portfolio of $77.8 million was driven by broad market moves for liquid syndicated secured loans and structured products totaling $51.0 million, broad market moves for middle-market debt investments of $20.4 million, the credit or fundamental performance of middle-market debt investments totaling $5.3 million and net unrealized depreciation on the Company’s total equity and joint venture investments of $1.0 million.

During the three months ended June 30, 2019, we recorded net unrealized appreciation totaling $1.9 million, consisting of net unrealized appreciation on our current portfolio of $1.7 million and net unrealized appreciation reclassification adjustments of $0.2 million related predominately to the net realized losses on the sales / repayments of certain syndicated secured loans.

During the six months ended June 30, 2019, we recorded net unrealized appreciation totaling $27.2 million, consisting of net unrealized appreciation on our current portfolio of $25.5 million and net unrealized appreciation reclassification adjustments of $1.8 million related predominately to the net realized losses on the sales / repayments of certain syndicated secured loans.

During the three months ended September 30, 2020, we recorded net unrealized appreciation totaling $55.9 million, consisting of net unrealized appreciation on our current portfolio of $29.7 million, net unrealized depreciation related to foreign currency transactions of $2.1 million and net unrealized appreciation reclassification adjustments of $28.4 million related to the net realized losses on the sales / repayments of certain investments.

The net unrealized appreciation on our current portfolio of $29.7 million was driven primarily by the credit or fundamental performance of middle-market debt investments of $1.1 million, the impact of foreign currency exchange rates on middle-market debt investments of $1.9 million and the broad market moves for the entire investment portfolio of $26.7 million.

During the nine months ended September 30, 2020, we recorded net unrealized appreciation totaling $1.6 million, consisting of net unrealized depreciation on our current portfolio of $48.1 million, net unrealized depreciation related to foreign currency transactions of $1.8 million and net unrealized appreciation reclassification adjustments of $51.4 million related to the net realized losses on the sales / repayments of certain investments.

The net unrealized depreciation on our current portfolio of $48.0 million was driven primarily by the credit or fundamental performance of middle-market debt investments of $4.2 million and broad market moves for the entire investment portfolio of $45.7 million, partially offset by the impact of foreign currency exchange rates on middle-market debt investments of $1.9 million.

During the three months ended September 30, 2019, we recorded net unrealized depreciation totaling $1.8 million, consisting of net unrealized depreciation on our current portfolio of $3.1 million, net unrealized appreciation related to foreign currency transactions of $0.4 million and net unrealized appreciation reclassification adjustments of $0.9 million related predominately to the net realized losses on the sales / repayments of certain syndicated secured loans.

During the nine months ended September 30, 2019, we recorded net unrealized appreciation totaling $25.5 million, consisting of net unrealized appreciation on our current portfolio of $19.6 million, net unrealized appreciation related to foreign currency transactions of $0.4 million and net unrealized appreciation reclassification adjustments of $5.5 million related predominately to the net realized losses on the sales / repayments of certain syndicated secured loans.

Liquidity and Capital Resources

We believe that our current cash and cash equivalents on hand, our short-term investments, sales of our syndicated senior secured loans, our available borrowing capacity under the February 2019 Credit Facility (as defined below under "Financing Transactions") 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.

We believe that our current cash and cash equivalents on hand, our short-term investments, sales of our syndicated senior secured loans, our available borrowing capacity under the February 2019 Credit Facility and August 2020 Notes (as defined below under "Financing Transactions") 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 "COVID-19 Developments" above.

For the six months ended June 30, 2020, we experienced a net decrease in cash in the amount of $3.5 million.

For the nine months ended September 30, 2020, we experienced a net decrease in cash in the amount of $7.2 million.

During that period, our operating activities provided $4.8 million in cash, consisting primarily of proceeds from sales of portfolio investments totaling $417.0 million and sales of short-term investments of $583.2 million, partially offset by purchases of portfolio investments of $316.7 million and purchases of short-term investments of $697.1 million.

In addition, our financing activities used $123.5 million of cash, consisting primarily of net repayments under the August 2018 Credit Facility and the

February 2019 Credit Facility of $9.1 million, repayments of the Debt Securitization of $91.8 million, share repurchases of $7.1 million and dividends paid in the amount of $15.5 million.

As of June 30, 2020, we had $18.5 million of cash on hand.

For the six months ended June 30, 2019, we experienced a net increase in cash in the amount of $0.5 million.

In addition, our financing activities used $12.0 million of cash, consisting primarily of repayments of the Debt Securitization of $139.9 million, share repurchases of $7.1 million and dividends paid in the amount of $23.2 million, partially offset by net borrowings under the August 2018 Credit Facility and the February 2019 Credit Facility of $108.7 million and net proceeds from the 2025 Notes issuance of $49.5 million.

As of September 30, 2020, we had $14.8 million of cash on hand.

For the nine months ended September 30, 2019, we experienced a net increase in cash in the amount of $0.4 million.

During that period, our operating activities used $16.2 million in cash, consisting primarily of purchases of portfolio investments of $294.2 million and purchases of short-term investments of $577.5 million, partially offset by proceeds from sales of investments totaling $251.1 million and sales of short-term investments of $571.1 million.

In addition, our financing activities provided $33.2 million of cash, consisting primarily of net proceeds from our $449.3 million term debt securitization, or the Debt Securitization, of $348.3 million, partially offset by net repayments under the August 2018 Credit Facility and the February 2019 Credit Facility of $284.5 million, purchases of shares in the share repurchase plan of $9.6 million, financing fees of $8.2 million and dividends paid in the amount of $12.6 million.

As of June 30, 2019, we had $12.9 million of cash on hand.

In addition, our financing activities provided $16.6 million of cash, consisting primarily of net proceeds from our $449.3 million term debt securitization, or the Debt Securitization, of $348.3 million, partially offset by net repayments under the August 2018 Credit Facility and the February 2019 Credit Facility of $277.8 million, repayments of the Debt Securitization of $7.5 million, purchases of shares in the share repurchase plan of $18.5 million, financing fees paid of $8.2 million and dividends paid in the amount of $19.6 million.

As of September 30, 2019, we had $12.8 million of cash on hand.

Financing Transactions

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On February 21, 2020, we extended the maturity date of the August 2018 Credit Facility from August 3, 2020 to August 3, 2021.

On June 30, 2020, following the repayment of all borrowings, interest, and fees payable thereunder and at our election, the August 2018 Credit Facility was terminated, including all commitments and obligations of Bank of America, N.A.

On June 30, 2020, following the repayment of all borrowings, interest, and fees payable thereunder and at our election,

the August 2018 Credit Facility was terminated, including all commitments and obligations of Bank of America, N.A.

to lend or make advances to BSF.

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The applicable LIBOR rate depended on the term of the borrowing under the August 2018 Credit Facility, which could be either one month or three months.

BSF was required to pay commitment fees on the unused portion of the August

2018 Credit Facility.

BSF was required to pay commitment fees on the unused portion of the August 2018 Credit Facility.

BSF could prepay any borrowing at any time without premium or penalty, except that BSF could have been liable for certain funding breakage fees if prepayments occurred prior to expiration of the relevant interest period.

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The revolving period of the February 2019 Credit Facility ends on February 21, 2023, followed by a one-year repayment period with a final maturity date of February 21, 2024.

Borrowings under the February 2019 Credit Facility bear interest, subject to our election, on a per annum basis equal to (i) the applicable base rate plus 1.25% (or 1.00% if we receive an investment grade credit rating), (ii) the applicable LIBOR rate plus 2.25% (or 2.00% if we receive an investment grade credit rating), (iii) 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 2.25% (or 2.00% if we receive an investment grade credit rating), or (iv) for borrowings denominated in Australian dollars, the applicable Australian dollars Screen Rate, plus 2.45% (or 2.20% if we receive an investment grade credit rating).

Borrowings under the February 2019 Credit Facility bear interest, subject to our election, on a per annum basis equal to (i) the applicable base rate plus 1.00% (or 1.25% if we no longer maintain an investment grade credit rating), (ii) the applicable LIBOR rate plus 2.00% (or 2.25% if we no longer maintain an investment grade credit rating), (iii) 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 (iv) 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 applicable 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) the adjusted three-month applicable currency rate plus 1.0% and (v) 1%.

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We pay a commitment fee of (x) 0.5% per annum on undrawn amounts if the unused portion of the February 2019 Credit Facility is greater than two-thirds of total commitments or (y) 0.375% per annum on undrawn amounts if the unused portion of the February 2019 Credit Facility is equal to or less than two-thirds of total commitments.

As of June 30, 2020, we were in compliance with all covenants under the February 2019 Credit Facility and had U.S.

As of September 30, 2020, we were in compliance with all covenants under the February 2019 Credit Facility and had U.S.

dollar borrowings of $325.0 million outstanding under the February 2019 Credit Facility with a weighted average interest rate of 2.188%, borrowings denominated in Swedish kronas of 12.8kr million ($1.4 million U.S.

dollars) with an interest rate of 2.00%, borrowings denominated in British pounds sterling of £40.3 million ($52.1 million U.S.

dollars) with an interest rate of 2.375%, borrowings denominated in Euros of €38.0 million ($55.0 million U.S.

dollars) with an interest rate of 2.25% and borrowings denominated in Canadian dollars of C$13.6 million ($10.0 million U.S.

dollars) with an interest rate of 2.78%.

dollars) with a weighted average interest rate of 2.063% and borrowings denominated in Euros of €72.6 million ($85.1 million U.S.

dollars) with a weighted average interest rate of 2.00%.

The borrowings denominated in foreign currencies were translated into U.S.

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The fair values of the borrowings outstanding under the February 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 of June 30, 2020, the total fair value of the borrowings outstanding under the February 2019 Credit Facility was $342.9 million.

As of September 30, 2020, the total fair value of the borrowings outstanding under the February 2019 Credit Facility was $463.7 million.

See Note 5 to our Unaudited Consolidated Financial Statements for additional information regarding the February 2019 Credit Facility.

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BBDC Static CLO Ltd.

and Barings BDC Static CLO 2019-I, LLC are collectively referred to herein as the Issuers.

The 2019 Notes are secured by a diversified portfolio of senior secured loans and participation interests therein.

The Debt Securitization was executed through a private placement of approximately $296.8 million of AAA(sf) Class A-1 Senior Secured Floating Rate 2019 Notes, or the Class A-1 2019 Notes, which bear interest at the three-month LIBOR plus 1.02%;

$51.5 million of AA(sf) Class A-2 Senior Secured Floating Rate 2019 Notes, or the Class A-2 2019 Notes, which bear interest at the three-month LIBOR plus 1.65%;

and $101.0 million of Subordinated 2019 Notes which do not bear interest and are not rated.

and Barings BDC

Static CLO 2019-I, LLC are collectively referred to herein as the Issuers.

The 2019 Notes were secured by a diversified portfolio of senior secured loans and participation interests therein.

$51.5 million of AA(sf) Class A-2 Senior Secured Floating Rate 2019 Notes, or the Class A-2 2019 Notes, which bore interest at the three-month LIBOR plus 1.65%;

and $101.0 million of Subordinated 2019 Notes which did not bear interest and were not rated.

We retained all of the Subordinated 2019 Notes issued in the Debt Securitization in exchange for our sale and contribution to BBDC Static CLO Ltd.

of the initial closing date portfolio, which included senior secured loans and participation interests.

The 2019 Notes are scheduled to mature on April 15, 2027;

however the 2019 Notes may be redeemed by the Issuers, at our direction as holder of the Subordinated 2019 Notes, on any

business day after May 9, 2020.

The 2019 Notes were scheduled to mature on April 15, 2027;

however the 2019 Notes could be redeemed by the Issuers, at our direction as holder of the Subordinated 2019 Notes, on any business day after May 9, 2020.

In connection with the sale and contribution, we made customary representations, warranties and covenants to the Issuers.

The Class A-1 2019 Notes and Class A-2 2019 Notes are the secured obligations of the Issuers, the Subordinated 2019 Notes are the unsecured obligations of BBDC Static CLO Ltd., and the indenture governing the 2019 Notes includes customary covenants and events of default.

The 2019 Notes have not been, and will not be, registered under the Securities Act of 1933, as amended, or the Securities Act, or any state securities or “blue sky” laws and may not be offered or sold in the United States absent registration with the Securities and Exchange Commission or an applicable exemption from registration.

The Class A-1 2019 Notes and Class A-2 2019 Notes were the secured obligations of the Issuers, the Subordinated 2019 Notes are the unsecured obligations of BBDC Static CLO Ltd., and the indenture governing the 2019 Notes included customary covenants and events of default.

The 2019 Notes were not registered under the Securities Act of 1933, as amended, or the Securities Act, or any state securities or “blue sky” laws and could not be offered or sold in the United States absent registration with the Securities and Exchange Commission or an applicable exemption from registration.

We serve as collateral manager to BBDC Static CLO Ltd.

under a collateral management agreement and we have agreed to irrevocably waive all collateral management fees payable pursuant to the collateral management agreement.

During the three months ended June 30, 2020, $64.8 million of the Class A-1 2019 Notes were repaid.

As of June 30, 2020, we had borrowings of $174.9 million outstanding under the Class A-1 2019 Notes with an interest rate of 2.239% and borrowings of $51.5 million outstanding under the Class A-2 2019 Notes with an interest rate of 2.869%.

During the three months ended September 30, 2020, $48.1 million of the Class A-1 2019 Notes were repaid.

As of September 30, 2020, we had borrowings of $126.8 million outstanding under the Class A-1 2019 Notes with an interest rate of 1.295% and borrowings of $51.5 million outstanding under the Class A-2 2019 Notes with an interest rate of 1.925%.

The fair value determinations of the 2019 Notes were based on market yield approach and current interest rates, which are Level 3 inputs to the market yield model.

As of June 30, 2020, the total fair value of the Class A-1 2019 Notes and the Class A-2 2019 Notes was $174.2 million and $51.2 million, respectively.

As of September 30, 2020, the total fair value of the Class A-1 2019 Notes and the Class A-2 2019 Notes was $126.1 million and $51.0 million, respectively.

On October 15, 2020, the remaining 2019 Notes were repaid in full.

See Note 5 to our Unaudited Consolidated Financial Statements for additional information regarding the Debt Securitization.

On August 3, 2020, we entered into a Note Purchase Agreement (the "Note Purchase Agreement") with Massachusetts Mutual Life Insurance Company governing the issuance of (i) $50.0 million in aggregate principal amount of Series A senior unsecured notes (the "Series A Notes") due August 2025 with a fixed interest rate of 4.66% per year, and (ii) up to $50.0 million in aggregate principal amount of additional senior unsecured notes (the "Additional Notes" and, collectively with the Series A Notes, the "August 2025 Notes") due August 2025 with a fixed interest rate per year to be determined, in each case, to qualified institutional investors in a private placement.

An aggregate principal amount of $25.0 million of the Series A Notes was issued on September 24, 2020 and an aggregate principal amount of $25.0 million of the Series A Notes was issued on September 29, 2020, both of which will mature on August 4, 2025 unless redeemed, purchased or prepaid prior to such date by us or our affiliates in accordance with their terms.

Interest on the August 2025 Notes will be due semiannually in March and September, beginning in March 2021.

In addition, we are obligated to offer to repay the August 2025 Notes at par if certain change in control events occur.

The August 2025 Notes are our general unsecured obligations that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by us.

The Note Purchase Agreement contains customary terms and conditions 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, minimum shareholders’ equity, maximum net debt to equity ratio and minimum asset coverage ratio.

The Note Purchase Agreement 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.

As of September 30, 2020, we were in compliance with all covenants of the Note Purchase Agreement.

The August 2025 Notes were offered in reliance on Section 4(a)(2) of the Securities Act.

The August 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 in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, as applicable.

Share Repurchases

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A broker selected by us was delegated the authority to repurchase shares on our behalf in the open market, pursuant to, and under the terms and limitations of, the 2019 Share Repurchase Plan.

During the six months ended June 30, 2019, we repurchased a total of 969,789 shares of our common stock in the open market under the 2019 Share Repurchase Plan at an average price of $9.95 per share, including broker commissions.

During the nine months ended September 30, 2019, we repurchased a total of 1,865,522 shares of our common stock in the open market under the Share Repurchase Plan at an average price of $9.94 per share, including broker commissions.

On February 27, 2020, the Board approved an open-market share repurchase program for the 2020 fiscal year, or the 2020 Share Repurchase Program.

2 unchanged sentences

There is no assurance that we will purchase shares at any specific discount levels or in any specific amounts.

During the six months ended June 30, 2020, we repurchased a total of 989,050 shares of our common stock in the open market under the 2020 Share Repurchase Program at an average price of $7.21 per share, including broker commissions.

During the nine months ended September 30, 2020, we repurchased a total of 989,050 shares of our common stock in the open market under the 2020 Share Repurchase Program at an average price of $7.21 per share, including broker commissions.

Distributions to Stockholders

2 unchanged sentences

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

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 and related supplements.

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Recent Developments

Subsequent to June 30, 2020, we made approximately $60.6 million of new private debt commitments, of which $15.7 million closed and funded.

The $15.7 million of investments consist of two first lien senior secured debt investments with a weighted average yield of 14.0%.

Subsequent to September 30, 2020, we made approximately $155.4 million of new commitments, of which $130.6 million closed and funded.

The $130.6 million of investments consist of $128.5 million of first lien senior secured debt investments and a $2.1 million second lien senior secured term loan with a combined weighted average yield of 6.2%.

In addition, we funded $8.7 million of previously committed delayed draw term loans.

On August 3, 2020, we entered into a Note Purchase Agreement (the “Note Purchase Agreement”) with Massachusetts Mutual Life Insurance Company governing the issuance of (i) $50,000,000 in aggregate principal amount of Series A senior unsecured notes (the “Series A Notes”) due August 2025 with a fixed interest rate of 4.66% per year, and (ii) up to $50,000,000 in aggregate principal amount of additional senior unsecured notes (the “Additional Notes” and, collectively with the Series A Notes, the “August 2025 Notes”) due August 2025 with a fixed interest rate per year to be determined, in each case, to qualified institutional investors in a private placement.

An aggregate principal amount of $25,000,000 of the Series A Notes is expected to be issued in September 2020 (subject to the satisfaction of customary closing conditions contained in the Note Purchase Agreement) and will mature on August 4, 2025, and an aggregate principal amount of $25,000,000 of the Series A Notes is expected to be issued in December 2020 (subject to the satisfaction of customary closing conditions contained in the Note Purchase Agreement) and mature on August 4, 2025, in each case unless redeemed, purchased or prepaid prior to such date by us or our affiliates in accordance with their terms.

Interest on the August 2025 Notes will be due semiannually.

In addition, we are obligated to offer to repay the August 2025 Notes at par if certain change in control events occur.

On October 15, 2020, the 2019 Notes were repaid in full.

On November 4, 2020,we entered into a Note Purchase Agreement (the “November NPA”) governing the issuance of (1) $62.5 million in aggregate principal amount of Series B senior unsecured notes (“Series B Notes”) due November 2025 with a fixed interest of 4.25% per year and (2) $112.5 million in aggregate principal amount of Series C senior unsecured notes (“Series C Notes” and, collectively with the Series B Notes, the “November Notes”) due November 2027 with a fixed interest 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 secured debt to total assets exceeds specified thresholds, measured as of each fiscal quarter end.

The November Notes were delivered and paid for on November 5, 2020.

The Series B Notes will mature on November 4, 2025 and the Series C Notes will mature on November 4, 2027 unless redeemed, purchased or prepaid prior to such date by us or its affiliates in accordance with their terms.

Interest on the November Notes will be due semiannually.

In addition, we are obligated to offer to repay the November Notes at par if certain change in control events occur.

The August 2025 Notes will be our general unsecured obligations that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by us.

See "Part II.

Other Information" of this Quarterly Report on Form 10-Q for more information.

On August 5, 2020 our Board declared a quarterly distribution of $0.16 per share payable on September 16, 2020 to holders of record as of September 9, 2020.

In connection with the November NPA, also on November 4, 2020, we amended the Note Purchase Agreement entered into on August 3, 2020 to reduce the aggregate principal amount of unissued Additional Notes from $50.0 million to $25.0 million.

On November 9, 2020 our Board declared a quarterly distribution of $0.17 per share payable on December 2, 2020 to holders of record as of November 25, 2020.

Critical Accounting Policies and Use of Estimates

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The most significant estimate inherent in the preparation of our financial statements is the valuation of investments and the related amounts of unrealized appreciation and depreciation of investments recorded.

We have a 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, or ASC Topic 820.

We have a 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, or ASC Topic 820.

Our current valuation policy and processes were established by Barings and were approved by the Board.

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June 30, 2020 33 53%

September 30, 2020 66 100%

(1) Exclusive of the fair value of new middle-market investments made during the quarter for which the Procedures were not performed and certain middle-market investments repaid subsequent to the end of the reporting period.

For September 30, 2020, the Procedures were performed on two of the seven investments made during the quarter.

Upon completion of the Procedures, the valuation firm concluded that, with respect to each investment reviewed by the valuation firm, the fair value of those investments subjected to the Procedures appeared reasonable.

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Income Approach

We utilize an Income Approach model in valuing our private debt investment portfolio, which consists of middle-market senior secured loans with floating reference rates.

We utilize an Income Approach model in valuing our private debt investment portfolio, which consists primarily of middle-market senior secured loans with floating reference rates.

As independent pricing service provider and broker quotes have not historically been consistently relevant and reliable, the fair value is determined using an internal index-based pricing model that takes into account both the movement in the spread of one or more performing credit indices as well as changes in the credit profile of the borrower.

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Since commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements.

The balances of unused commitments to extend financing as of June 30, 2020 and December 31, 2019 were as follows:

Portfolio Company Investment Type June 30,

The balances of unused commitments to extend financing as of September 30, 2020 and December 31, 2019 were as follows:

Portfolio Company Investment Type September 30,

2020 December 31, 2019

8 unchanged sentences

Contabo Finco S.À R.L(4) Delayed Draw Term Loan 218,718 1,013,849

CSL Dualcom(5) Delayed Draw Term Loan 3,421,195 —

Dart Buyer, Inc.(1) Delayed Draw Term Loan 2,430,569 4,294,503

DreamStart Bidco SAS(6) Acquisition Facility 954,222 —

Foundation Risk Partners, Corp.

Delayed Draw Term Loan 15,555,555 —

Heartland, LLC(1) Delayed Draw Term Loan 8,729,695 8,729,695

11 unchanged sentences

Springbrook Software (SBRK Intermediate, Inc.)(1) Delayed Draw Term Loan 3,896,663 3,896,663

Stairway BidCo GmbH(10) Delayed Draw Term Loan 2,134,276 —

The Hilb Group, LLC(1) Delayed Draw Term Loan 1,923,114 2,904,066

3 unchanged sentences

Truck-Lite Co., LLC(1) Delayed Draw Term Loan 2,884,615 3,205,128

USLS Acquisition, Inc.(1) Delayed Draw Term Loan 450,466 —

Utac Ceram(11) Delayed Draw Term Loan 3,166,156 —

Validity, Inc.(1) Delayed Draw Term Loan — 898,298

Total unused commitments to extend financing $ 134,303,981 $ 89,496,985

(1) Represents a commitment to extend financing to a portfolio company where one or more of the Company's current investments in the portfolio company are carried at less than cost.

The Company's estimate of the fair value of the current investments in this portfolio company includes an analysis of the fair value of any unfunded commitments.

(1) 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.

Our estimate of the fair value of the current investments in this portfolio company includes an analysis of the fair value of any unfunded commitments.

(2) Actual commitment amount is denominated in Euros (€75,039) which was translated into U.S.

dollars using the June 30, 2020 spot rate.

dollars using the September 30, 2020 spot rate.

(3) Actual commitment amount is denominated in Euros (€405,337) which was translated into U.S.

dollars using the June 30, 2020 spot rate.

(4) June 30, 2020 commitment amount is denominated in Euros (€186,516) which was translated into U.S.

dollars using the June 30, 2020 spot rate.

dollars using the September 30, 2020 spot rate.

(4) September 30, 2020 commitment amount is denominated in Euros (€186,516) which was translated into U.S.

dollars using the September 30, 2020 spot rate.

December 31, 2019 commitment amount was denominated in Euros (€903,207) which was translated into U.S.

dollars using the December 31, 2019 spot rate.

(5) Actual commitment amount is denominated in British pounds sterling (£2,646,346) which was translated into U.S.

dollars using the using the September 30, 2020 spot rate.

(6) Actual commitment amount is denominated in Euros (€813,731) which was translated into U.S.

dollars using the June 30, 2020 spot rate.

dollars using the September 30, 2020 spot rate.

(7) September 30, 2020 commitment amount is denominated in Euros (€8,356,897) which was translated into U.S.

dollars using the September 30, 2020 spot rate.

December 31, 2019 commitment amount was denominated in Euros (€2,321,187) which was translated into U.S.

dollars using the December 31, 2019 spot rate.

(7) June 30, 2020 commitment amount is denominated in British pounds sterling (£876,042) which was translated into U.S.

dollars using the June 30, 2020 spot rate.

(8) September 30, 2020 commitment amount is denominated in British pounds sterling (£876,042) which was translated into U.S.

dollars using the September 30, 2020 spot rate.

December 31, 2019 commitment amount was denominated in British pounds sterling (£979,743) which was translated into U.S.

dollars using the December 31, 2019 spot rate.

(8) June 30, 2020 commitment amount is denominated in British pounds sterling (£336,466) which was translated into U.S.

dollars using the June 30, 2020 spot rate.

(9) September 30, 2020 commitment amount is denominated in British pounds sterling (£146,466) which was translated into U.S.

dollars using the September 30, 2020 spot rate.

December 31, 2019 commitment amount was denominated in British pounds sterling (£762,941) which was translated into U.S.

dollars using the December 31, 2019 spot rate.

(10) September 30, 2020 commitment amount is denominated in British pounds sterling (€1,820,044) which was translated into U.S.

dollars using the September 30, 2020 spot rate.

(11) September 30, 2020 commitment amount is denominated in British pounds sterling (€2,700,000) which was translated into U.S.

dollars using the September 30, 2020 spot rate.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis