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In such case, our net asset value, the trading price of our common stock and the value of our other securities could decline, and you may lose all or part of your investment.
+Added: The following is a summary of the principal risk factors associated with an investment in our securities.
+Added: Further details regarding each risk included in the below summary list can be found further below.
+Added: • We are dependent upon Barings’ access to its investment professionals for our success.
+Added: • Our investment portfolio is and will continue to be recorded at fair value as determined in good faith by our Board of Directors and, as a result, there is and will continue to be uncertainty as to the value of our portfolio investments.
+Added: • We operate in a highly competitive market for investment opportunities, which could reduce returns and result in losses.
+Added: • There are potential conflicts of interest, including the management of other investment funds and accounts by Barings, which could impact our investment returns.
+Added: • The fee structure under the Amended and Restated Advisory Agreement may induce Barings to pursue speculative investments and incur leverage, which may not be in the best interests of our stockholders.
+Added: • Regulations governing our operation as a BDC will affect our ability to, and the way in which we, raise additional capital.
+Added: • Our financing agreements contain various covenants, which, if not complied with, could accelerate our repayment obligations thereunder, thereby materially and adversely affecting our liquidity, financial condition, results of operations and ability to pay distributions.
+Added: • Incurring additional leverage may magnify our exposure to risks associated with changes in leverage, including fluctuations in interest rates that could adversely affect our profitability.
+Added: • Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity.
+Added: • Shares of closed-end investment companies, including BDCs, frequently trade at a discount to their net asset value, and may trade at premiums that may prove to be unsustainable.
Risks Relating to Our Business and Structure
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If these individuals do not maintain their existing relationships with Barings and its affiliates or do not develop new relationships with other sources of investment opportunities, we may not be able to identify appropriate replacements or grow our investment portfolio.
−Removed: The loss of any member of Barings’ investment committee or of other investment professionals of Barings and its affiliates would limit our ability to achieve our investment objectives and operate as we anticipate, which could have a material adverse effect on our financial condition, results of operations and cash flows.
−Removed: We expect that Barings will evaluate, negotiate, structure, close and monitor our investments in accordance with the terms of the Advisory Agreement.
−Removed: We can offer no assurance, however, that the investment professionals of Barings will continue to provide investment advice to us or that we will continue to have access to Barings’ investment professionals or its information and deal flow.
−Removed: Further, there can be no assurance that Barings will replicate its own historical success, and we caution you that our investment returns could be substantially lower than the returns achieved by other funds managed by Barings.
+Added: The loss of any member of Barings’ investment committee or of other investment professionals of Barings and its affiliates would limit our ability to achieve our
+Added: investment objectives and operate as we anticipate, which could have a material adverse effect on our financial condition, results of operations and cash flows.
Our financial condition and results of operations will depend on our ability to manage and deploy capital effectively.
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Furthermore, if we cannot successfully operate our business or implement our investment policies and strategies as described in this Annual Report on Form 10-K, it could negatively impact our ability to pay distributions and cause you to lose part or all of your investment.
−Removed: We are subject to risks associated with the current interest rate environment and, to the extent we use debt to finance our investments, changes in interest rates will affect our cost of capital and net investment income.
−Removed: To the extent we borrow money or issue debt securities or preferred stock to make investments, our net investment income will depend, in part, upon the difference between the rate at which we borrow funds or pay interest or dividends on such debt securities or preferred stock and the rate at which we invest these funds.
−Removed: In addition, all of our debt investments and borrowings, including our credit facility entered into in February 2019 with ING Capital LLC, as administrative agent, and the lenders party thereto, as amended in December 2019 (the "February 2019 Credit Facility"), the notes issued in our $449.3 million term debt securitization in May 2019 (the "Debt Securitization"), and Barings BDC Senior Funding I, LLC's ("BSF") credit facility entered into in August 2018 with Bank of America, N.A., as amended and restated in December 2018 (the "August 2018 Credit Facility"), have floating interest rates that reset on a periodic basis, and our investments are subject to interest rate floors.
−Removed: As a result, a change in market interest rates could have a material adverse effect on our net investment income.
−Removed: In periods of rising interest rates, our cost of funds will increase because the interest rates on the amounts we have borrowed are floating, which could reduce our net investment income.
−Removed: We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations.
−Removed: Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act and applicable commodities laws.
−Removed: These activities may limit our ability to participate in the benefits of lower interest rates with respect to the hedged borrowings.
−Removed: Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations.
−Removed: A rise in the general level of interest rates typically leads to higher interest rates applicable to our debt investments, which may result in an increase of the amount of incentive fees payable to Barings.
−Removed: Also, an increase in interest rates available to investors could make an investment in our common stock less attractive if we are not able to increase our distribution rate, which could reduce the value of our common stock.
−Removed: In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021.
−Removed: There is currently no definitive information regarding the future utilization of LIBOR or of any particular replacement rate.
−Removed: Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S.
−Removed: financial institutions, is considering replacing U.S.
−Removed: dollar LIBOR with a new index calculated by short term repurchase agreements, backed by Treasury securities, called the Secured Overnight Financing Rate ("SOFR").
−Removed: SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S.
−Removed: Treasury securities, and is based on directly observable U.S.
−Removed: Treasury-backed repurchase transactions.
−Removed: The first publication of SOFR was released in April 2018.
−Removed: Whether or not SOFR attains market traction as a LIBOR replacement remains a question and the future of LIBOR at this time is uncertain.
−Removed: As such, the potential effect of any such event on our cost of capital and net investment income cannot yet be determined.
−Removed: If LIBOR ceases to exist, we may need to renegotiate agreements extending beyond 2021 in connection with our borrowings, including with respect to the February 2019 Credit Facility, the Debt Securitization and the August 2018 Credit Facility, and with our portfolio companies that utilize LIBOR as a factor in determining the interest rate in order to replace LIBOR with the new standard that is established, which may have an adverse effect on our overall financial condition or results of operations.
−Removed: Following the replacement of LIBOR, some or all of these agreements may bear interest at a lower interest rate, which could have an adverse impact on our results of operations.
−Removed: Moreover, if LIBOR ceases to exist, we may need to renegotiate certain terms of our credit facilities.
−Removed: If we are unable to do so, amounts drawn under our credit facilities may bear interest at a higher rate, which would increase the cost of our borrowings and, in turn, affect our results of operations.
−Removed: In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market value for or value of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us and could have a material adverse effect on our business, financial condition and results of operations.
−Removed: Global capital markets could enter a period of severe disruption and instability or an economic recession.
−Removed: These conditions have historically affected and could again materially and adversely affect debt and equity capital markets in the United States and around the world and could impair our portfolio companies and harm our operating results.
−Removed: and global capital markets have from time to time experienced periods of disruption characterized by the freezing of available credit, a lack of liquidity in the debt capital markets, significant losses in the principal value of investments, the re-pricing of credit risk in the broadly syndicated credit market, the failure of major financial institutions and general volatility in the financial markets.
−Removed: During these periods of disruption, general economic conditions deteriorated with material and adverse consequences for the broader financial and credit markets, and the availability of debt and equity capital for the market as a whole, and financial services firms in particular, was reduced significantly.
−Removed: These conditions may reoccur for a prolonged period of time or materially worsen in the future.
−Removed: The Chinese capital markets have experienced periods of instability over the past several years.
−Removed: The current political climate has also intensified concerns about a potential trade war between the U.S.
−Removed: and China in connection with each country’s recent or proposed tariffs on the other country’s products.
−Removed: These market and economic disruptions, the potential trade war with China and the impact of public health epidemics like the coronavirus currently affecting China and the wider global community may have a material adverse impact on the ability of our portfolio companies to fulfill their end customers’ orders due to supply chain delays, limited access to key commodities or technologies or other events that impact their manufacturers or their suppliers.
−Removed: Such events have affected, and may in the future affect, the global and U.S.
−Removed: capital markets, and our business, financial condition or results of operations.
−Removed: In addition, the United Kingdom’s withdrawal agreement to leave the European Union (the so called “Brexit”) could lead to further market disruptions and currency volatility, potentially weakening consumer, corporate and financial confidence and resulting in lower economic growth for companies that rely significantly on Europe for their business activities and revenues.
−Removed: The implications of the United Kingdom’s withdrawal from the European Union, including the possibility of a “No-deal Brexit,” are unclear at present.
−Removed: Additionally, uncertainty regarding trade agreements and trade wars and volatility in the global markets for stocks and commodities may affect other financial markets worldwide.
−Removed: We may in the future have difficulty accessing debt and equity capital markets, and a severe disruption in the global financial markets, deterioration in credit and financing conditions or uncertainty regarding U.S.
−Removed: government spending and deficit levels, Brexit or other global economic conditions could have a material adverse effect on our business, financial condition and results of operations.
−Removed: Unfavorable economic conditions, including future recessions, also could increase our funding costs or result in a decision by lenders not to extend credit to us.
−Removed: Market conditions may in the future make it difficult to extend the maturity of or refinance our existing indebtedness, including the February 2019 Credit Facility, notes issued under the Debt Securitization and the August 2018 Credit Facility, and any failure to do so could have a material adverse effect on our business.
−Removed: If we are unable to raise or refinance debt, then our equity investors may not benefit from the potential for increased returns on equity resulting from leverage and we may be limited in our ability to make new commitments or to fund existing commitments to our portfolio companies.
−Removed: In addition, the illiquidity of our investments may make it difficult for us to sell such investments if required.
−Removed: As a result, we may realize significantly less than the value at which we have recorded our investments.
−Removed: Given the volatility and dislocation that the capital markets have historically experienced, many BDCs have faced, and may in the future face, a challenging environment in which to raise capital.
−Removed: We may in the future have difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption or instability in the global financial markets or deteriorations in credit and financing conditions may cause us to reduce the volume of the loans we originate and/or fund, adversely affect the value of our portfolio investments or otherwise have a material adverse effect on our business, financial condition, results of operations and cash flows.
−Removed: In addition, significant changes in the capital markets, including instances of extreme volatility and disruption, have had, and may in the future have, a negative effect on the valuations of our investments and on the potential for liquidity events involving our investments.
−Removed: An inability to raise capital, and any required sale of our investments for liquidity
−Removed: purposes, could have a material adverse impact on our business, financial condition or results of operations.
−Removed: We monitor developments and seek to manage our investments in a manner consistent with achieving our investment objective, but there can be no assurance that we will be successful in doing so, and we may not timely anticipate or manage existing, new or additional risks, contingencies or developments, including regulatory developments in the current or future market environment.
−Removed: Many of the portfolio companies in which we make investments may be susceptible to economic slowdowns or recessions and may be unable to repay the loans we made to them during these periods.
−Removed: Therefore, our non-performing assets may increase and the value of our portfolio may decrease during these periods as we are required to record our investments at their current fair value.
−Removed: Adverse economic conditions also may decrease the value of collateral securing some of our loans and the value of our equity investments.
−Removed: Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets.
−Removed: Unfavorable economic conditions also could increase our and our portfolio companies’ funding costs, limit our and our portfolio companies’ access to the capital markets or result in a decision by lenders not to extend credit to us or our portfolio companies.
−Removed: These events could prevent us from increasing investments and harm our operating results.
−Removed: A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, acceleration of the time when the loans are due and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize the portfolio company’s ability to meet its obligations under the debt that we hold.
−Removed: We may incur additional expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company.
−Removed: In addition, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, including the extent to which we will actually provide significant managerial assistance to that portfolio company, a bankruptcy court might subordinate all or a portion of our claim to that of other creditors.
Our investment portfolio is and will continue to be recorded at fair value as determined in good faith by our Board of Directors and, as a result, there is and will continue to be uncertainty as to the value of our portfolio investments.
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Typically there is not a public market for the securities of the privately held middle-market companies in which we have invested and will generally continue to invest.
−Removed: As a result, we value these securities quarterly at fair value as determined in good faith by the Board based on input from Barings, a nationally recognized independent third-party valuation firm and our audit committee.
−Removed: See "Valuation Process and Determination of Net Asset Value" included in Item 1 of Part 1 of this Annual Report on Form 10-K for a detailed description of our valuation process.
+Added: As a result, we value these securities quarterly at fair value as determined in good faith by the Board based on input from Barings, independent third-party valuation firms and our audit committee.
+Added: Business – Valuation Process and Determination of Net Asset Value" included in this Annual Report on Form 10-K for a detailed description of our valuation process.
The determination of fair value and consequently, the amount of unrealized appreciation and depreciation in our portfolio, is to a certain degree subjective and dependent on the judgment of the Board.
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Conversely, investors selling shares during a period in which the net asset value understates the value of our investments will receive a lower price for their shares than the value of our investments might warrant.
−Removed: Volatility or a prolonged disruption in the credit markets could materially damage our business.
−Removed: We are required to record our assets at fair value, as determined in good faith by the Board in accordance with our valuation policy.
−Removed: As a result, volatility in the capital markets may adversely affect our valuations and our net asset value, even if we intend to hold investments to maturity.
−Removed: Volatility or dislocation in the capital markets may depress our stock price and create a challenging environment in which to raise debt and equity capital.
−Removed: As a BDC, we are generally not able to issue additional shares of our common stock at a price less than net asset value without first obtaining approval for such issuance from our stockholders and our independent directors.
−Removed: Additionally, our ability to incur indebtedness (including by issuing preferred stock) is limited by applicable regulations such that our asset coverage under the 1940 Act must equal at least 150% of total indebtedness.
−Removed: Shrinking portfolio values negatively impact our ability to borrow additional funds or issue debt securities because our net asset value is reduced for purposes of the 150% asset leverage test.
−Removed: If the fair value of our assets declines substantially, we may fail to maintain the asset coverage ratio stipulated by the 1940 Act, which could, in turn, materially impair our business operations.
−Removed: A protracted disruption in the credit markets could also materially decrease demand for our investments.
We operate in a highly competitive market for investment opportunities, which could reduce returns and result in losses.
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However, if we match our competitors’ pricing, terms and structure, we may experience decreased net interest income, lower yields and increased risk of credit loss.
−Removed: We may also compete for investment opportunities with accounts managed or sponsored by Barings or its affiliates.
−Removed: Although Barings allocates opportunities in accordance with its allocation policy, allocations to such other accounts will reduce the amount and frequency of opportunities available to us and may not be in the best interests of us and our securityholders.
−Removed: Moreover, the performance of investments will not be known at the time of allocation.
There are potential conflicts of interest, including the management of other investment funds and accounts by Barings, which could impact our investment returns.
−Removed: The executive officers that manage the Company and the members of Barings' investment committee, as well as the other principals of Barings, manage other funds affiliated with Barings, including other closed-end investment companies.
+Added: Our executive officers and the members of Barings' investment committee, as well as the other principals of Barings, manage other funds affiliated with Barings, including other closed-end investment companies.
In addition, Barings' investment team has responsibilities for managing U.S.
−Removed: middle-market debt investments for certain other investment funds and accounts.
−Removed: Accordingly, they have obligations to investors in those entities, the fulfillment of which may not be in the best interests of, or may be adverse to the interests of, us or our stockholders.
−Removed: In addition, certain of the other funds and accounts managed by Barings may provide for higher management or incentive fees, greater expense reimbursements or overhead allocations, or permit Barings and its affiliates to receive higher origination and other transaction fees, all of which may contribute to this conflict of
−Removed: interest and create an incentive for Barings to favor such other funds or accounts.
−Removed: Although the professional staff of Barings will devote as much time to our management as appropriate to enable Barings to perform its duties in accordance with the Advisory Agreement, the investment professionals of Barings may have conflicts in allocating their time and services among us, on the one hand, and the other investment vehicles managed by Barings or one or more of its affiliates on the other hand.
+Added: and global middle-market debt investments for certain other investment funds and accounts.
+Added: Accordingly, they have obligations to investors in those entities, the fulfillment of which may not be in the best interests of, or may be adverse to our and our stockholders' interests.
+Added: In addition, certain of the other funds and accounts managed by Barings may provide for higher management or incentive fees, greater expense reimbursements or overhead allocations, or permit Barings and its affiliates to receive higher origination and other transaction fees, all of which may contribute to this conflict of interest and create an incentive for Barings to favor such other funds or accounts.
+Added: Although the professional staff of Barings will devote as much time to our management as appropriate to enable Barings to perform its duties in accordance with the Amended and Restated Advisory Agreement, the investment professionals of Barings may have conflicts in allocating their time and services among us, on the one hand, and the other investment vehicles managed by Barings or one or more of its affiliates on the other hand.
Barings may face conflicts in allocating investment opportunities between us and affiliated investment vehicles that have overlapping investment objectives with ours.
−Removed: Although Barings will endeavor to allocate investment opportunities in a fair and equitable manner in accordance with its allocation policies and procedures, it is possible that, in the future, we may not be given the opportunity to participate in investments made by investment funds managed by Barings or an investment manager affiliated with Barings if such investment is prohibited by the Exemptive Relief or the 1940 Act, and there can be no assurance that we will be able to participate in all investment opportunities that are suitable to us.
+Added: Although Barings will endeavor to allocate investment opportunities in a fair and equitable manner in accordance with its allocation policies and procedures, it is possible that, in the future, we may not be given the opportunity to participate in investments made by investment funds managed by Barings or an investment manager affiliated with Barings if such investment is prohibited by the 1940 Act, and there can be no assurance that we will be able to participate in all investment opportunities that are suitable to us.
Conflicts may also arise because portfolio decisions regarding our portfolio may benefit Barings' affiliates.
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Barings may exercise significant influence over us in connection with its ownership of our common stock.
−Removed: As of February 27, 2020 , Barings, our external investment adviser, beneficially owns approximately 27.9% of our outstanding common stock.
+Added: As of March 23, 2021, Barings, our external investment adviser, beneficially owns approximate ly 20.9% of our outstanding common stock.
As a result, Barings may be able to significantly influence the outcome of matters submitted for stockholder action, including the election of directors, approval of significant corporate transactions, such as amendments to our governing documents, business combinations, consolidations and mergers.
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The presence of a significant stockholder such as Barings may also have the effect of making it more difficult for a third party to acquire us or discourage a third party from seeking to acquire us.
−Removed: Barings’ investment committee, Barings or its affiliates may, from time to time, possess material non-public information, limiting our investment discretion.
+Added: Barings, its investment committee, or its affiliates may, from time to time, possess material non-public information, limiting our investment discretion.
Principals of Barings and its affiliates and members of Barings’ investment committee may serve as directors of, or in a similar capacity with, companies in which we invest, the securities of which are purchased or sold on our behalf.
In the event that material nonpublic information is obtained with respect to such companies, or we become subject to trading restrictions under the internal trading policies of those companies or as a result of applicable law or regulations, we could be prohibited for a period of time from purchasing or selling the securities of such companies, and this prohibition may have an adverse effect on us.
−Removed: Barings and its investment team have limited experience managing a BDC.
−Removed: Although Barings has experience managing closed-end investment companies, Barings and its investment team have limited experience managing a BDC, and the investment philosophy and techniques used by Barings to manage the Company may differ from the investment philosophy and techniques previously employed by Barings’ investment team in identifying and managing past investments.
−Removed: Accordingly, we can offer no assurance that we will replicate the Company’s own historical performance or the historical performance of other businesses or companies with which Barings’ investment team has been affiliated, and our investment returns could be substantially lower than the returns achieved by such other companies.
−Removed: Our ability to enter into transactions with affiliates of Barings are restricted.
−Removed: We and certain of our controlled affiliates are prohibited under the 1940 Act from knowingly participating in certain transactions with our upstream affiliates, or Barings and its affiliates, without the prior approval of our independent directors and, in some cases, the SEC.
−Removed: Any person that owns, directly or indirectly, 5% to 25% of our outstanding voting securities is our upstream affiliate for purposes of the 1940 Act, and we are generally prohibited from buying or selling any security (other than our securities) from or to such affiliate, absent the prior approval of our independent directors.
−Removed: The 1940 Act also prohibits“joint” transactions with an upstream affiliate, or Barings or
−Removed: its affiliates, which could include investments in the same portfolio company (whether at the same or different times), without prior approval of our independent directors.
−Removed: In addition, we and certain of our controlled affiliates will be prohibited from buying or selling any security from or to, or entering into joint transactions with, Barings and its affiliates, or any person who owns more than 25% of our voting securities or is otherwise deemed to control, or be under common control with us, absent the prior approval of the SEC through an exemptive order (other than in certain limited situations pursuant to current regulatory guidance as described below).
−Removed: The analysis of whether a particular transaction constitutes a joint transaction requires a review of the relevant facts and circumstances then existing.
−Removed: As a BDC, we are required to comply with certain regulatory requirements.
−Removed: For example, we will generally not be permitted to make loans to companies controlled by Barings or other funds managed by Barings.
−Removed: We will also not be permitted to make any co-investments with Barings or its affiliates (including any fund managed by Barings or an investment adviser controlling, controlled by or under common control with Barings) without exemptive relief from the SEC, subject to certain exceptions.
−Removed: The Exemptive Relief that the SEC has granted to Barings permits certain present and future funds, including the Company, advised by Barings (or an investment adviser controlling, controlled by or under common control with Barings) to co-invest in suitable negotiated investments.
+Added: Our ability to enter into transactions with Barings and its affiliates is restricted.
+Added: BDCs generally are prohibited under the 1940 Act from knowingly participating in certain transactions with their affiliates without the prior approval of their independent directors and, in some cases, of the SEC.
+Added: Those transactions include purchases and sales, and so-called “joint” transactions, in which a BDC and one or more of its affiliates engage in certain types of profit-making activities.
+Added: Any person that owns, directly or indirectly, 5.0% or more of a BDC’s outstanding voting securities will be considered an affiliate of the BDC for purposes of the 1940 Act, and a BDC generally is prohibited from engaging in purchases or sales of assets or joint transactions with such affiliates, absent the prior approval of the BDC’s independent directors.
+Added: Additionally, without the approval of the SEC, a BDC is prohibited from engaging in purchases or sales of assets or joint transactions with the BDC’s officers and directors, and investment adviser, including funds managed by the investment adviser and its affiliates.
+Added: BDCs may, however, invest alongside certain related parties or their respective other clients in certain circumstances where doing so is consistent with current law and SEC staff interpretations.
+Added: For example, a BDC may invest alongside such accounts consistent with guidance promulgated by the SEC staff permitting the BDC and such other accounts to purchase interests in a single class of privately placed securities so long as certain conditions are met, including that the BDC’s investment adviser, acting on the BDC’s behalf and on behalf of other clients, negotiates no term other than price.
+Added: Co-investment with such other accounts is not permitted or appropriate under this guidance when there is an opportunity to invest in different securities of the same issuer or where the different investments could be expected to result in a conflict between the BDC’s interests and those of other accounts.
+Added: The 1940 Act generally prohibits BDCs from making certain negotiated co-investments with certain affiliates absent an order from the SEC permitting the BDC to do so.
+Added: Pursuant to the Exemptive Relief, we are generally permitted to co-invest with funds affiliated with Barings if a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors make certain conclusions in connection with a co-investment transaction, including that (1) the terms of the transaction, including the consideration to be paid, are reasonable and fair to us and our stockholders and do not involve overreaching in respect of us or our stockholders on the part of any person concerned and (2) the transaction is consistent with the interests of our stockholders and is consistent with our investment objective and strategies.
Co-investments made under the Exemptive Relief are subject to compliance with the conditions and other requirements contained in the Exemptive Relief, which could limit our ability to participate in a co-investment transaction.
−Removed: We are subject to risks associated with investing alongside other third parties, including our joint venture.
−Removed: We have invested in a joint venture, and may invest in additional or different joint ventures alongside third parties through partnerships, joint ventures or other entities in the future.
+Added: In situations where co-investment with other affiliated funds or accounts is not permitted or appropriate, Barings will need to decide which account will proceed with the investment in accordance with its allocation policies and procedures.
+Added: Although Barings will endeavor to allocate investment opportunities in a fair and equitable manner in accordance with its allocation policies and procedures, it is possible that, in the future, we may not be
+Added: given the opportunity to participate in investments made by investment funds managed by Barings or an investment manager affiliated with Barings if such investment is prohibited by the 1940 Act.
+Added: These restrictions, and similar restrictions that limit our ability to transact business with our officers or directors or their affiliates, including funds managed by Barings, may limit the scope of investment opportunities that would otherwise be available to us.
+Added: We are subject to risks associated with investing alongside other third parties, including our joint ventures.
+Added: We have invested in joint ventures, and may invest in additional or different joint ventures alongside third parties through partnerships, joint ventures or other entities in the future.
Such investments may involve risks not present in investments where a third party is not involved, including the possibility that such third party may at any time have economic or business interests or goals which are inconsistent with ours, or may be in a position to take action contrary to our investment objectives.
In addition, we may in certain circumstances be liable for actions of such third party.
−Removed: More specifically, joint ventures involve a third party that has approval rights over activity of the joint venture.
+Added: More specifically, joint ventures involve a third party that has approval rights over certain activities of the joint venture.
The third party may take actions that are inconsistent with our interests.
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A joint venture may also use investment leverage which magnifies the potential for gain or loss on amounts invested.
−Removed: Generally, the amount of borrowing by the joint venture is not included when calculating our total borrowing and related leverage ratios and is not subject to asset coverage requirements imposed by the 1940 Act.
+Added: Generally, the amount of borrowings by the joint venture is not included when calculating our total borrowings and related leverage ratios and is not subject to asset coverage requirements imposed by the 1940 Act.
If the activities of the joint venture were required to be consolidated with our activities because of a change in GAAP rules or SEC staff interpretations, it is likely that we would have to reorganize any such joint venture.
−Removed: The fee structure under the Advisory Agreement may induce Barings to pursue speculative investments and incur leverage, which may not be in the best interests of our stockholders.
−Removed: The Base Management Fee will be payable even if the value of your investment declines.
+Added: The fee structure under the Amended and Restated Advisory Agreement may induce Barings to pursue speculative investments and incur leverage, which may not be in the best interests of our stockholders.
+Added: On December 23, 2020, we entered into the Amended and Restated Advisory Agreement, which became effective on January 1, 2021.
+Added: Pursuant to the Amended and Restated Advisory Agreement, the base management fee will be payable even if the value of your investment declines.
The base management fee is calculated based on our gross assets, including assets purchased with borrowed funds or other forms of leverage (but excluding cash or cash equivalents ).
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Such a practice could result in our investing in more speculative securities than would otherwise be the case, which may not be in the best interests of our stockholders and could result in higher investment losses, particularly during economic downturns.
−Removed: Barings' liability is limited under the Advisory Agreement, and we are required to indemnify Barings against certain liabilities, which may lead Barings to act in a riskier manner on our behalf than it would when acting for its own account.
−Removed: Under the Advisory Agreement, Barings does not assume any responsibility to us other than to render the services described in the Advisory Agreement, and it is not responsible for any action of the Board in declining to follow Barings' advice or recommendations.
−Removed: Pursuant to the Advisory Agreement, Barings and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with Barings will not be liable to us for their acts under the Advisory Agreement, absent fraud, willful misfeasance, bad faith, gross negligence or reckless disregard in the performance of their duties.
−Removed: We have agreed to indemnify, defend and protect Barings and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with Barings with respect to all damages, liabilities, costs and expenses arising out of or otherwise based upon the performance of any of Barings' duties or obligations under the Advisory Agreement or otherwise, and not arising out of fraud, willful misfeasance, bad faith, gross negligence or reckless disregard in the performance of their duties under the Advisory Agreement.
+Added: Barings' liability is limited under the Amended and Restated Advisory Agreement, and we are required to indemnify Barings against certain liabilities, which may lead Barings to act in a riskier manner on our behalf than it would when acting for its own account.
+Added: Pursuant to the Amended and Restated Advisory Agreement, Barings and its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with Barings will not be liable to us, and we have agree to indemnify them, for their acts under the Amended and Restated Advisory Agreement, absent fraud, willful misfeasance, bad faith, gross negligence or reckless disregard in the performance of their duties.
These protections may lead Barings to act in a riskier manner when acting on our behalf than it would when acting for its own account.
Barings is able to resign as our investment adviser and/or our administrator upon 60 days’ notice, and we may not be able to find a suitable replacement within that time, or at all, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.
−Removed: Pursuant to the Advisory Agreement, Barings has the right to resign as our investment adviser upon 60 days' written notice, whether a replacement has been found or not.
+Added: Pursuant to the Amended and Restated Advisory Agreement, Barings has the right to resign as our investment adviser upon 60 days' written notice, whether a replacement has been found or not.
Similarly, Barings has the right under the Administration Agreement to resign upon 60 days’ written notice, whether a replacement has been found or not.
3 unchanged sentences
Even if a comparable service provider or individuals performing such services are retained, whether internal or external, their integration into our business and lack of familiarity with our investment objective may result in additional costs and time delays that may materially adversely affect our business, results of operations and financial condition.
−Removed: Our business model depends to a significant extent upon strong referral relationships, and our inability to maintain or develop these relationships, as well as the failure of these relationships to generate investment opportunities, could adversely affect our business.
−Removed: We depend upon Barings and its affiliates' relationships with sponsors, and we intend to rely to a significant extent upon these relationships to provide us with potential investment opportunities.
−Removed: If Barings or its affiliates fail to maintain such relationships, or to develop new relationships with other sponsors or sources of investment opportunities, we will not be able to grow our investment portfolio.
−Removed: In addition, individuals with whom the principals of Barings have relationships are not obligated to provide us with investment opportunities, and, therefore, we can offer no assurance that these relationships will generate investment opportunities for us in the future.
−Removed: Our long-term ability to fund new investments and make distributions to our stockholders could be limited if we are unable to renew, extend, replace or expand either the August 2018 Credit Facility or the February 2019 Credit Facility, or if financing becomes more expensive or less available.
−Removed: On August 3, 2018, our wholly-owned subsidiary, BSF, entered into the August 2018 Credit Facility, which initially provided for borrowings in an aggregate amount up to $750.0 million, consisting of up to $250.0 million borrowed under the Class A Loan Commitments and up to $500.0 million borrowed under the Class A-1 Loan Commitments.
−Removed: Over time, we have reduced our Class A Loan Commitments to zero and reduced our Class A-1 Loan Commitments, and therefore total commitments, under the August 2018 Credit Facility to $80.0 million.
−Removed: Any amounts borrowed under the Class A-1 Loan Commitments will mature, and all accrued and unpaid interest thereunder will be due and payable, on August 3, 2020, or upon earlier termination of the August 2018 Credit Facility.
−Removed: If the facility is not renewed or extended, all principal and interest will be due and payable.
−Removed: On February 21, 2019, we entered into the February 2019 Credit Facility, which provides us with a revolving credit line of up to $800.0 million, with an accordion feature that allows for an increase in the total commitments of up to $400.0 million, subject to certain conditions and the satisfaction of specified financial covenants.
−Removed: 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.
−Removed: There can be no guarantee that we or BSF will be able to renew, extend or replace the August 2018 Credit Facility or the February 2019 Credit Facility when principal payments are due and payable on terms that are favorable to us, if at all.
−Removed: Our ability to obtain replacement financing when principal payments are due and payable will be constrained by then-current economic conditions affecting the credit markets.
−Removed: Any inability of us or BSF to renew, extend or replace the August 2018 Credit Facility or the February 2019 Credit Facility when principal payments are due and payable could have a material adverse effect on our liquidity and ability to fund new investments, our ability to make distributions to our stockholders and our ability to qualify for tax treatment as a RIC under the Code.
−Removed: Regulations governing our operation as a business development company will affect our ability to, and the way in which we raise additional capital.
+Added: Our long-term ability to fund new investments and make distributions to our stockholders could be limited if we are unable to renew, extend, replace or expand our current borrowing arrangements, or if financing becomes more expensive or less available.
+Added: There can be no guarantee that we will be able to renew, extend, replace or expand our current borrowing arrangements on terms that are favorable to us, if at all.
+Added: Our ability to obtain replacement financing will be constrained by then-current economic conditions affecting the credit markets.
+Added: Our inability to renew, extend, replace or expand these borrowing arrangements could have a material adverse effect on our liquidity and ability to fund new investments, our ability to make distributions to our stockholders and our ability to qualify for tax treatment as a RIC under the Code.
+Added: Regulations governing our operation as a BDC will affect our ability to, and the way in which we, raise additional capital.
Our business will require capital to operate and grow.
−Removed: We may acquire such additional capital from the following sources:
−Removed: Senior Securities .
−Removed: In the future, we may issue debt securities or preferred stock, and/or borrow money from banks or other financial institutions (including borrowings under the August 2018 Credit Facility and the February 2019 Credit Facility), which we refer to collectively as "senior securities." As a result of issuing senior securities, we will be exposed to additional risks, including, but not limited to, the following:
+Added: In the future, we may issue debt securities or preferred stock, and/or borrow money from banks or other financial institutions, which we refer to collectively as "senior securities." As a result of issuing senior securities, we will be exposed to additional risks, including, but not limited to, the following:
• Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue senior securities only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 150% after each issuance of senior securities.
If the value of our assets declines, we may be unable to satisfy this test.
−Removed: If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our debt at a time when such sales and/or repayments may be disadvantageous.
−Removed: Further we may not be permitted to declare a dividend or make any distribution to stockholders or repurchase shares until such time as we satisfy this test.
+Added: If that happens, we may be prohibited from declaring a dividend or making any distribution to stockholders or repurchasing our shares until such time as we satisfy this test.
• Any amounts that we use to service our debt or make payments on preferred stock will not be available for distributions to our common stockholders.
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• Preferred stock or any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common stock, including separate voting rights and could delay or prevent a transaction or a change in control to the detriment of the holders of our common stock.
−Removed: Additional Common Stock .
Under the provisions of the 1940 Act, we are not generally able to issue and sell our common stock at a price below then-current net asset value per share.
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Moreover, we can offer no assurance that we will be able to issue and sell additional equity securities in the future on favorable terms, or at all.
−Removed: In addition to regulatory limitations on our ability to raise capital, the August 2018 Credit Facility and the February 2019 Credit Facility contain various covenants, which, if not complied with, could accelerate our repayment obligations under the August 2018 Credit Facility or the February 2019 Credit Facility, thereby materially and adversely affecting our liquidity, financial condition, results of operations and ability to pay distributions.
+Added: We generally seek approval from our stockholders so that we have the flexibility to issue up to a specified percentage of our then-outstanding shares of our common stock at a price below net asset value.
+Added: Pursuant to approval granted at an annual meeting of stockholders held on April 30, 2020, we are permitted to issue and sell shares of our common stock at a price below our then-current net asset value per share in one or more offerings, subject to certain limitations and determinations that must be made by the Board (including, without limitation, that the number of shares issued and sold pursuant to such authority does not exceed 25% of our then-outstanding common stock immediately prior to each such offering).
+Added: Such stockholder approval expires on April 30, 2021.
+Added: Our financing agreements contain various covenants, which, if not complied with, could accelerate our repayment obligations thereunder, thereby materially and adversely affecting our liquidity, financial condition, results of operations and ability to pay distributions.
We will have a continuing need for capital to finance our investments.
−Removed: Our wholly-owned subsidiary, BSF, is party to the August 2018 Credit Facility and as of December 31, 2019 , BSF had borrowings of $107.2 million outstanding under the August 2018 Credit Facility.
−Removed: Under the August 2018 Credit Facility, BSF is required to comply with various covenants, reporting requirements and other customary requirements for similar credit facilities.
−Removed: In addition to other customary events of default included in financing transactions, the August 2018 Credit Facility contains the following events of default:
−Removed: (i) the failure to make principal payments when due or interest payments within two business days of when due;
−Removed: (ii) borrowings under the credit facility exceeding the applicable advance rates;
−Removed: (iii) the purchase by BSF of certain ineligible assets;
−Removed: (iv) the insolvency or bankruptcy of BSF and (v) the decline of BSF’s net asset value below a specified threshold.
−Removed: During the continuation of an event of default, BSF must pay interest at a default rate.
−Removed: We are also party to the February 2019 Credit Facility, which provides for a revolving credit line of up to $800.0 million, with an accordion feature that allows for an increase in the total commitments of up to $400.0 million, subject to certain conditions and the satisfaction of specified financial covenants.
−Removed: As of December 31, 2019 , we had borrowings of $245.3 million outstanding under the February 2019 Credit Facility.
−Removed: The February 2019 Credit Facility contains customary terms and conditions, including, without limitation, affirmative and negative covenants such as information reporting requirements, minimum shareholders' equity, minimum obligators’ net worth, minimum asset coverage, minimum liquidity and maintenance of RIC and BDC status.
−Removed: The February 2019 Credit Facility also contains customary events of default with customary cure and notice provisions, including, without limitation, nonpayment, misrepresentation of representations and warranties in a material respect, breach of covenant, cross-default to other indebtedness, bankruptcy, change of control, and material adverse effect.
−Removed: BSF’s continued compliance with the covenants under the August 2018 Credit Facility, and our continued compliance with the covenants under the February 2019 Credit Facility, depend on many factors, some of which are beyond our control, and there can be no assurance that BSF or we will continue to comply with such covenants.
−Removed: BSF’s or our failure to satisfy the respective covenants could result in foreclosure by the lenders under the applicable credit facility, which would accelerate BSF’s and our repayment obligations under the facilities and thereby have a material adverse effect on our business, liquidity, financial condition, results of operations and ability to pay distributions to our stockholders.
−Removed: We are subject to certain risks as a result of our interests in the Subordinated 2019 Notes.
−Removed: On May 9, 2019, in connection with the Debt Securitization, Barings BDC Static CLO Ltd.
−Removed: 2019-I, or BBDC Static CLO Ltd., and Barings BDC Static CLO 2019-I, LLC, our wholly-owned and consolidated subsidiaries, issued the 2019 Notes.
−Removed: BBDC Static CLO Ltd.
−Removed: and Barings BDC Static CLO 2019-I, LLC are collectively referred to herein as the Issuers.
−Removed: Under the terms of the Debt Securitization, we sold and/or contributed to the Issuers all of our ownership interest in certain of our portfolio investments and participation interests therein.
−Removed: Following these sales/transfers, the Issuers held all of the ownership interests in such portfolio investments, and we held the Subordinated 2019 Notes.
−Removed: As a result, we consolidate the Issuers for financial reporting purposes.
−Removed: As the Issuers are disregarded as entities separate from their owner for U.S.
−Removed: federal income tax purposes, the sale or contribution by us to the Issuers did not constitute a taxable event for U.S.
−Removed: federal income tax purposes.
−Removed: Internal Revenue Service were to take a contrary position, there could be a material adverse effect on our business, financial condition, results of operations or cash flows.
−Removed: The Subordinated 2019 Notes are subordinated obligations of BBDC Static CLO Ltd.
−Removed: and we may not receive cash from BBDC Static CLO Ltd.
−Removed: The Subordinated 2019 Notes are unsecured and rank behind all of the secured creditors, known or unknown, of BBDC Static CLO Ltd., including the holders of the Class A-1 2019 Notes and the Class A-2 2019 Notes the Issuers have issued and are subject to certain payment restrictions set forth in the indenture governing the 2019 Notes.
−Removed: Consequently, to the extent that the value of BBDC Static CLO Ltd.’s portfolio of investments declines as a result of conditions in the credit markets, or as a result of defaulted loans or individual fund assets, the value of the Subordinated 2019 Notes at their redemption could be reduced.
−Removed: In addition, if BBDC Static CLO Ltd.
−Removed: does not meet the asset coverage or interest coverage tests set forth in the documents governing the Debt Securitization, cash would be diverted from the Subordinated 2019 Notes to first pay the Class A-1 2019 Notes and the Class A-2 2019 Notes in amounts sufficient to cause such tests to be satisfied.
−Removed: The interests of holders of senior classes of securities issued by the Issuers may not be aligned with our interests.
−Removed: The Class A-1 2019 Notes rank senior in right of payment to other securities issued by the Issuers in the Debt Securitization.
−Removed: As such, there are circumstances in which the interests of holders of the Class A-1 2019 Notes may not be aligned with the interests of holders of the other classes of notes issued by the Issuers.
−Removed: For example, under the terms of the Class A-1 2019 Notes, holders of the Class A-1 2019 Notes have the right to receive payments of principal and interest prior to holders of the Class A-2 2019 Notes and the Subordinated 2019 Notes.
−Removed: As long as the Class A-1 2019 Notes remain outstanding, holders of the Class A-1 2019 Notes comprise the “Controlling Class” under the Debt Securitization.
−Removed: If the Class A-1 2019 Notes are paid in full, the Class A-2 2019 Notes would comprise the Controlling Class under the Debt Securitization.
−Removed: Holders of the Controlling Class under the Debt Securitization have the right to act in certain circumstances with respect to the portfolio loans in ways that may benefit their interests but may not benefit holders of more junior classes of the 2019 Notes, including by exercising remedies under the indenture in the Debt Securitization.
−Removed: If an event of default has occurred and acceleration occurs in accordance with the terms of the indenture for the Debt Securitization, the Controlling Class, as the most senior class of the 2019 Notes then outstanding, will be paid in full before any further payment or distribution to holders of the more junior classes of the 2019 Notes.
−Removed: In addition, if an event of default under the Debt Securitization occurs, holders of a majority of the Controlling Class may be entitled to determine the remedies to be exercised under the indenture, subject to the terms of such indenture.
−Removed: For example, upon the occurrence of an event of default with respect to the 2019 Notes issued by the Issuers, the trustee or holders of a majority of the Controlling Class may declare the principal, together with any accrued interest, of all the 2019 Notes of such class and any junior classes to be immediately due and payable.
−Removed: This would have the effect of accelerating the principal on such 2019 Notes, triggering a repayment obligation on the part of the Issuers.
−Removed: If at such time the portfolio loans were not performing well, the Issuers may not have sufficient proceeds available to enable the trustee under the indenture to repay the obligations to holders of the Subordinated 2019 Notes.
−Removed: Remedies pursued by the Controlling Class could be adverse to the interests of the holders of the notes that are subordinated to the Controlling Class (which would include the Subordinated 2019 Notes to the extent the Class A-1 2019 Notes or the Class A-2 2019 Notes constitute the Controlling Class), and the Controlling Class will have no obligation to consider any possible adverse effect on such other interests.
−Removed: In a liquidation under the Debt Securitization, the Subordinated 2019 Notes will be subordinated to payment of the Class A-1 2019 Notes and the Class A-2 2019 Notes and may not be paid in full to the extent funds remaining after payment of the Class A-1 2019 Notes and the Class A-2 2019 Notes are insufficient.
−Removed: Any failure of the Issuers to make distributions on the 2019 Notes we indirectly or directly hold, whether as a result of an event of default, liquidation or otherwise, could have a material adverse effect on our business, financial condition, results of operations and cash flows and may prevent us from making distributions sufficient to maintain our ability to be subject to tax as a RIC, or at all.
−Removed: The Issuers may fail to meet certain asset coverage tests.
−Removed: Under the documents governing the Debt Securitization, there are two asset coverage tests applicable to the Class A-1 2019 Notes and the Class A-2 2019 Notes.
−Removed: The first such test compares the amount of interest received on the portfolio loans held by BBDC Static CLO Ltd.
−Removed: to the amount of interest payable in respect of the Class A-1 2019 Notes and the Class A-2 2019 Notes.
−Removed: To meet this first test interest received on the portfolio loans must equal at least 120% of the interest payable in respect of the Class A-1 2019 Notes and the Class A-2 2019 Notes.
−Removed: The second such test compares the principal amount of the portfolio loans of the Debt Securitization to the aggregate outstanding principal amount of the Class A-1 2019 Notes and the Class A-2 2019 Notes.
−Removed: To meet this second test at any time, the aggregate principal amount of the portfolio loans must equal at least 121.72% of the Class A-1 2019 Notes and the Class A-2 2019 Notes.
−Removed: If any asset coverage test with respect to the Class A-1 2019 Notes or the Class A-2 2019 Notes is not met, proceeds from the portfolio of loan investments that otherwise would have been distributed to the holders of the Subordinated 2019 Notes and the Issuers will instead be used to redeem first the Class A-1 2019 Notes and then the Class A-2 2019 Notes, to the extent necessary to satisfy the applicable asset coverage tests on a pro forma basis after giving effect to all payments made in respect of the 2019 Notes, which we refer to as a mandatory redemption, or to obtain the necessary ratings confirmation.
−Removed: We may be required to assume liabilities of the Issuers and are indirectly liable for certain representations and warranties in connection with the Debt Securitization.
−Removed: The structure of the Debt Securitization is intended to prevent, in the event of our bankruptcy, the consolidation of the Issuers with our operations.
−Removed: If the true sale of the assets in the Debt Securitization was not respected in the event of our insolvency, a trustee or debtor-in-possession might reclaim the assets of the Issuers for our estate.
−Removed: However, in doing so, we would become directly liable for all of the indebtedness then outstanding under the Debt Securitization, which would equal the full amount of debt of the Issuers reflected on our consolidated balance sheet.
−Removed: In addition, we cannot assure you that the recovery in the event we were consolidated with the Issuers for purposes of any bankruptcy proceeding would exceed the amount to which we would otherwise be entitled as the holder of the Subordinated 2019 Notes had we not been consolidated with the Issuers.
−Removed: Incurring additional leverage may magnify our exposure to risks associated with changes in interest rates, including fluctuations in interest rates that could adversely affect our profitability.
−Removed: As part of our business strategy, we borrow under the August 2018 Credit Facility, the February 2019 Credit Facility and the Debt Securitization, and in the future may borrow money and issue debt securities to banks, insurance companies and other lenders.
−Removed: The lender party to the August 2018 Credit Facility is secured by the assets of BSF and the noteholders party to the Debt Securitization are secured by the assets of Barings BDC Static CLO Ltd.
−Removed: 2019-I and Barings BDC Static CLO 2019-I, LLC, our wholly-owned and consolidated subsidiaries.
−Removed: The lenders party to the February 2019 Credit Facility are secured primarily by a material portion of our assets and guaranteed by certain of our subsidiaries.
−Removed: The lenders and noteholders party to the August 2018 Credit Facility, the February 2019 Credit Facility and the Debt Securitization have claims that are superior to the claims of our common stockholders, and holders of any future loans or debt securities would have fixed-dollar claims on our assets that are superior to the claims of our stockholders.
−Removed: If the value of our assets decreases, leverage will cause our net asset
−Removed: value to decline more sharply than it otherwise would have without leverage.
+Added: We are party to various financing agreements from time to time which contain customary terms and conditions, including, without limitation, affirmative and negative covenants such as information reporting requirements, minimum stockholders' equity, minimum obligators’ net worth, minimum asset coverage, minimum liquidity and maintenance of RIC and BDC status.
+Added: These financing arrangements also contain customary events of default with customary cure and notice provisions, including, without limitation, nonpayment, misrepresentation of representations and warranties in a material respect, breach of covenant, cross-default to other indebtedness, bankruptcy, change of control, and material adverse effect.
+Added: Our continued compliance with the covenants under these financing agreements depends on many factors, some of which are beyond our control, and there can be no assurance that we will continue to comply with such covenants.
+Added: Our failure to satisfy the respective covenants or otherwise default under one of our financing arrangements could result in foreclosure by the lenders thereunder, which would accelerate our repayment obligations under the financing arrangement and thereby have a material adverse effect on our business, liquidity, financial condition, results of operations and ability to pay distributions to our stockholders.
+Added: Incurring additional leverage may magnify our exposure to risks associated with changes in leverage, including fluctuations in interest rates that could adversely affect our profitability.
+Added: As part of our business strategy, we borrow under financing agreements with certain banks, and in the future may borrow money and issue debt securities to banks, insurance companies and other lenders.
+Added: Our obligations under these arrangements are or may be secured by a material portion of our assets.
+Added: As a result, these lenders are or may have claims that are superior to the claims of our common stockholders, and have or may have fixed-dollar claims on our assets that are superior to the claims of our stockholders.
+Added: Also, if the value of our assets decreases, leverage will cause our net asset value to decline more sharply than it otherwise would have without leverage.
Similarly, any decrease in our income would cause our net income to decline more sharply than it would have if we had not borrowed.
This decline could negatively affect our ability to make dividend payments on our common stock.
−Removed: If we incur additional leverage, general interest rate fluctuations may have a more significant negative impact on our investments than they would have absent such additional leverage and, accordingly, may have a material adverse effect on our investment objective and rate of return on investment capital.
+Added: Because we incur additional leverage, general interest rate fluctuations may have a more significant negative impact on our investments than they would have absent such additional leverage and, accordingly, may have a material adverse effect on our operating results.
A portion of our income will depend upon the difference between the rate at which we borrow funds and the interest rate on the debt securities in which we invest.
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(Net of Expenses)
+Added: (10.0) % (5.0) % 0.0 % 5.0 % 10.0 %
Corresponding return to common stockholder assuming actual asset coverage as of December 31, 2020(1) (27.0) % (15.3) % (3.6) % 8.1 % 19.8 %
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(1) Assumes $1,677.0 million in total assets, $946.2 million in debt outstanding, $717.8 million in net assets and an average cost of funds of 2.725%, which was the weighted average borrowing cost of our outstanding borrowings at December 31, 2020.
−Removed: The assumed amount of debt outstanding for this example includes $352.5 million of outstanding borrowings under both the August 2018 Credit Facility and the February 2019 Credit Facility as of December 31, 2019 , $318.2 million of outstanding indebtedness under the Debt Securitization as of December 31, 2019 , and assumed additional borrowings of $4.9 million to settle our payable from unsettled transactions as of December 31, 2019 .
+Added: The assumed amount of debt outstanding for this example includes $719.7 million of outstanding borrowings under the February 2019 Credit Facility as of December 31, 2020, $50.0 million aggregate principal amount of August 2025 Notes (as defined below under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” included in Item 7 of Part II of this Annual Report on Form 10-K) outstanding, $175.0 million aggregate principal amount of November Notes (as defined below under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” included in Item 7 of Part II of this Annual Report on Form 10-K) outstanding, and assumed additional borrowings of $1.5 million to settle our payable from unsettled transactions as of December 31, 2020.
(2) Assumes $2,168.0 million in total assets, $1,435.6 million in debt outstanding and $717.8 million in net assets as of December 31, 2020, and an average cost of funds of 2.725%, which was the weighted average borrowing cost of our borrowings at December 31, 2020.
−Removed: Based on our total outstanding indebtedness of $670.7 million as of December 31, 2019 , assumed additional borrowings of $4.9 million to settle our net payable from unsettled transactions as of December 31, 2019 and an average cost of funds of 3.306% , which was the weighted average borrowing cost of our outstanding borrowings at December 31, 2019 , our investment portfolio must experience an annual return of at least 1.78% to cover annual interest payments on our outstanding indebtedness.
+Added: Based on our total outstanding indebtedness of $944.7 million as of December 31, 2020, assumed additional borrowings of $1.5 million to settle our payable from unsettled transactions as of December 31, 2020 and an average cost of funds of 2.725%, which was the weighted average borrowing cost of our outstanding borrowings at December 31, 2020, our investment portfolio must experience an annual return of at least 1.54% to cover annual interest payments on our outstanding indebtedness.
Based on outstanding indebtedness of $1,435.6 million calculated assuming a 150% asset coverage ratio and an average cost of funds of 2.725%, which was the weighted average borrowing cost of our outstanding borrowings at December 31, 2020, our investment portfolio must experience an annual return of at least 1.80% to cover annual interest payments on our outstanding indebtedness.
−Removed: Our interests in BSF are subordinated, and we may not receive cash on our equity interests in BSF.
−Removed: We own directly or indirectly 100% of the equity interests in BSF.
−Removed: We consolidate the financial statements of BSF in our consolidated financial statements and treat BSF’s indebtedness under the August 2018 Credit Facility as our indebtedness.
−Removed: Our equity interests in BSF are subordinated in priority of payment to all of the secured and unsecured creditors, known or unknown, of BSF and are subject to certain payment restrictions set forth in the August 2018 Credit Facility, which generally provides that payments on the interests may not be made on any payment date unless all amounts owing to the lenders and other secured parties are paid in full.
−Removed: As a result, we may receive cash distributions on our equity interests in BSF only if BSF has made all required cash interest payments to the lenders and no default exists under the August 2018 Credit Facility.
−Removed: In the event of a default under the August 2018 Credit Facility, cash may be diverted from us to pay the applicable lender and other secured parties or otherwise remedy the default.
−Removed: We cannot assure you that distributions on the assets held by BSF will be sufficient to make any distributions to us or that such distributions will meet our expectations.
−Removed: In the event that we fail to receive cash from BSF, we could be unable to make distributions to our stockholders in amounts sufficient to maintain our status as a RIC, or at all.
−Removed: We also could be forced to sell investments in portfolio companies at less than their fair value in order to continue making such distributions.
−Removed: In addition, to the extent that the value of BSF’s portfolio of loan investments has been reduced as a result of conditions in the credit markets, defaulted loans, capital gains and losses on the underlying assets, prepayment or changes in interest rates, the returns on our investment in BSF could be reduced.
−Removed: Accordingly, our investment in BSF may be subject to up to 100% loss.
We may in the future determine to fund a portion of our investments with preferred stock, which would magnify the potential for gain or loss and the risks of investing in us in the same way as our borrowings.
1 unchanged sentence
Payment of such dividends and repayment of the liquidation preference of such preferred stock must take preference over any dividends or other payments to our common stockholders, and preferred stockholders are not subject to any of our expenses or losses and are not entitled to participate in any income or appreciation in excess of their stated preference.
−Removed: We may experience fluctuations in our quarterly results.
−Removed: We could experience fluctuations in our quarterly operating results due to a number of factors, including our ability or inability to make investments in companies that meet our investment criteria, the interest rate payable on the debt securities we acquire, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions.
−Removed: As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.
Our Board of Directors may change our investment objectives, operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse.
5 unchanged sentences
We will be subject to corporate-level U.S.
−Removed: federal income tax if we are unable to maintain our tax treatment as a regulated investment company under Subchapter M of the Code, which will adversely affect our results of operations and financial condition.
+Added: federal income tax if we are unable to maintain our tax treatment as a RIC under Subchapter M of the Code, which will adversely affect our results of operations and financial condition.
We have elected to be treated as a RIC under the Code, which generally will allow us to avoid being subject to corporate-level U.S.
1 unchanged sentence
To obtain and maintain RIC tax treatment under the Code, we must meet the following annual distribution, income source and asset diversification requirements:
−Removed: The Annual Distribution Requirement for a RIC will be satisfied if we distribute to our stockholders on an annual basis at least 90.0% of our net ordinary income and net short-term capital gain in excess of net long-term capital loss, or ICTI.
+Added: • The Annual Distribution Requirement for a RIC will be satisfied if we distribute to our stockholders on an annual basis at least 90.0% of our net ordinary income and net short-term capital gain in excess of net long-term capital loss, or ICTI, if any.
We will be subject to a 4.0% nondeductible U.S.
5 unchanged sentences
• The asset diversification requirement will be satisfied if we meet certain asset diversification requirements at the end of each quarter of our taxable year.
−Removed: To satisfy this requirement, at least 50.0% of the value of our assets must consist of cash, cash equivalents, U.S.
+Added: To satisfy this requirement, at least 50.0% of
+Added: the value of our assets must consist of cash, cash equivalents, U.S.
government securities, securities of other RICs, and other acceptable securities, provided such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10% of the outstanding voting securities of the issuer;
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In addition, the inability to satisfy the asset coverage test applicable to us as a BDC could, in the future, limit our ability to pay distributions.
−Removed: All distributions will be paid at the discretion of the Board and will depend on our earnings, our financial condition, maintenance of our RIC tax treatment, compliance with applicable BDC regulations, compliance with the covenants of the August 2018 Credit Facility and any debt securities we may issue and such other factors as the Board may deem relevant from time to time.
+Added: All distributions will be paid at the discretion of the Board and will depend on our earnings, our financial condition, maintenance of our RIC tax treatment, compliance with applicable BDC regulations, compliance with the covenants under our financing agreements and any debt securities we may issue and such other factors as the Board may deem relevant from time to time.
We cannot assure you that we will pay distributions to our stockholders in the future.
−Removed: The above-referenced restrictions on distributions may also inhibit our ability to make required interest payments to holders of any debt securities we may issue, which may cause a default under the terms of our debt agreements.
−Removed: Such a default could materially increase our cost of raising capital, as well as cause us to incur penalties under the terms of our debt agreements.
+Added: Some of the above-described risks may also inhibit our ability to make required interest payments to holders of any debt securities we may issue, which may cause a default under the terms of our debt agreements.
+Added: Such a default could materially increase our cost of raising capital, as well as cause us to incur penalties or trigger cross-default provisions under the terms of our debt agreements.
When we make quarterly distributions, we will be required to determine the extent to which such distributions are paid out of current or accumulated earnings and profits, recognized capital gain or capital.
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federal income tax purposes, we may be required to recognize taxable income in circumstances in which we do not receive a corresponding payment in cash.
−Removed: For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with contractual PIK interest or, in certain cases, increasing interest rates or debt instruments that were issued with warrants), we must include in income 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.
+Added: For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments with contractual PIK interest or debt instruments that were issued with warrants), we must include in income 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.
Investments structured with these features may represent a higher level of credit risk compared to investments generating income which must be paid in cash on a current basis.
−Removed: We may also have to include in income other amounts that we have not yet received in cash, such as deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as warrants or stock.
−Removed: We anticipate that a portion of our income may constitute original issue discount or other income required to be included in taxable income prior to receipt of cash.
+Added: We may also have to include in income other amounts that we have not yet received in cash, such as deferred loan origination fees that are paid after origination of the loan or are paid in non-cash compensation such as PIK interest.
+Added: We anticipate that a portion of our income may constitute original issue discount or other income required to be included in taxable
+Added: income prior to receipt of cash.
Further, we may elect to amortize market discounts and include such amounts in our taxable income in the current year, instead of upon disposition, as an election not to do so would limit our ability to deduct interest expenses for U.S.
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As a result, we may have difficulty meeting the annual distribution requirement necessary to obtain and maintain RIC tax treatment under the Code.
−Removed: We may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise debt or additional equity capital or forgo new investment opportunities for this purpose.
+Added: We may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise debt or additional equity capital or forego new investment opportunities for this purpose.
If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level U.S.
federal income tax.
−Removed: For additional discussion regarding the tax implications of a RIC, see “Material U.S.
−Removed: Federal Income Tax Considerations — Taxation as a RIC” included in Item 1 of Part 1 of this Annual Report on Form 10-K.
−Removed: Because we intend to distribute substantially all of our income to our stockholders to maintain our tax treatment as a regulated investment company, we will continue to need additional capital to finance our growth, and regulations governing our operation as a business development company will affect our ability to, and the way in which we, raise additional capital and make distributions.
+Added: Because we intend to distribute substantially all of our income to our stockholders to maintain our tax treatment as a RIC, we will continue to need additional capital to finance our growth.
In order to satisfy the requirements applicable to a RIC, and to avoid payment of U.S.
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If the value of our assets declines, we may be unable to satisfy this test.
−Removed: If that happens, we may be required to sell a portion of our investments or sell additional securities and, depending on the nature of our leverage, to repay a portion of our
−Removed: indebtedness at a time when such sales may be disadvantageous.
+Added: If that happens, we may be required to sell a portion of our investments or sell additional securities and, depending on the nature of our leverage, to repay a portion of our indebtedness at a time when such sales may be disadvantageous.
In addition, issuance of additional securities could dilute the percentage ownership of our current stockholders in us.
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If additional funds are not available to us, we could be forced to curtail or cease new investment activities, and our net asset value could decline.
−Removed: In addition, as a BDC, we generally are not permitted to issue equity securities priced below our then-current net asset value per share without stockholder approval.
There is no assurance that any future share repurchase plans will result in future repurchases of our common stock or enhance long-term stockholder value, and repurchases, if any, could affect our stock price and increase its volatility and will diminish our cash reserves.
In February 2019, pursuant to authorization from our Board, we adopted the share repurchase plan (the "2019 Share Repurchase Plan") for the purpose of repurchasing in 2019 up to a maximum of 5.0% of our outstanding shares of our common stock on the open market.
−Removed: Under the Share Repurchase Plan, we could repurchase a maximum of 2.5% of the amount of shares of our common stock outstanding if shares traded below NAV per share but in excess of 90% of NAV per share;
−Removed: and a maximum of 5.0% of the amount of shares of our common stock outstanding if shares traded below 90% of NAV per share.
+Added: Under the 2019 Share Repurchase Plan, we could repurchase a maximum of 2.5% of the amount of shares of our common stock outstanding if shares traded below net asset value per share but in excess of 90% of net asset value per share;
+Added: and a maximum of 5.0% of the amount of shares of our common stock outstanding if shares traded below 90% of net asset value per share.
We were not obligated to repurchase any specific number or dollar amount of our common stock under the 2019 Share Repurchase Plan, and we could modify, suspend or discontinue the 2019 Share Repurchase Plan at any time.
During the year ended December 31, 2019, we repurchased a total of 2,333,261 shares of our common stock in the open market under the 2019 Share Repurchase Plan at an average price of $10.01 per share, including broker commissions.
+Added: On February 27, 2020, the Board approved an open-market share repurchase program for the 2020 fiscal year (the "2020 Share Repurchase Program").
+Added: Under the 2020 Share Repurchase Program, we were authorized during fiscal year 2020 to repurchase up to a maximum of 5.0% of the amount of shares outstanding as of February 27, 2020 if shares traded below net asset value per share, subject to liquidity and regulatory constraints.
+Added: There was no assurance that we would purchase shares at any specific discount levels or in any specific amounts.
+Added: During the year ended December 31, 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.
+Added: On December 23, 2020, as part of the MVC Acquisition, the Board affirmed its commitment under the Merger Agreement to 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 net asset value per share.
+Added: Any repurchases pursuant to the authorized program will occur during the 12-month period commencing upon the filing of our quarterly report on Form 10-Q for the quarter ending March 31, 2021 and are expected to be 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.
There can be no assurance that any future share repurchases will occur, or, if they occur, that they will enhance stockholder value.
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federal income taxes.
−Removed: Repurchases may cause our non-compliance with covenants under the August 2018 Credit Facility or the February 2019 Credit Facility, which could have an adverse effect on our operating results and financial condition.
−Removed: We cannot predict how tax reform legislation will affect us, our investments, or our stockholders, and any such legislation could adversely affect our business.
−Removed: Legislative or other actions relating to taxes could have a negative effect on us.
−Removed: On December 22, 2017, the Tax Cuts and Jobs Act was enacted into law.
−Removed: The Tax Cuts and Jobs Act made changes to the Internal Revenue Code, including significant changes to, among other things, the taxation of business entities, the deductibility of interest expense, and the tax treatment of capital investment.
−Removed: We cannot predict with certainty how any future changes in the tax laws might affect us, our stockholders, our subsidiaries or our portfolio investments.
−Removed: New legislation and any U.S.
−Removed: Treasury regulations, administrative interpretations or court decisions interpreting such legislation could significantly and negatively affect our ability to qualify for tax treatment as a RIC or the U.S.
−Removed: federal income tax consequences to us and our stockholders of such qualification, or could have other adverse consequences.
−Removed: Stockholders are urged to consult with their tax advisor regarding tax legislative, regulatory, or administrative developments and proposals and their potential effect on an investment in our securities.
−Removed: Changes to U.S.
−Removed: tariff and import/export regulations may have a negative effect on our portfolio companies and, in turn, harm us.
−Removed: There have been significant changes to U.S.
−Removed: trade policies, treaties and tariffs.
−Removed: The current U.S.
−Removed: presidential administration, along with the U.S.
−Removed: Congress, has created significant uncertainty about the future relationship between the United States and other countries with respect to trade policies, treaties and tariffs.
−Removed: These developments, or the perception that more of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted nations and the United States.
−Removed: Any of these factors could depress economic activity and restrict our portfolio companies’ access to suppliers or customers and have a material adverse effect on their business, financial condition and results of operations, which in turn would negatively impact us.
−Removed: Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy.
−Removed: We, our subsidiaries and our portfolio companies are subject to regulation at the local, state and federal level.
−Removed: New legislation may be enacted or new interpretations, rulings or regulations could be adopted, including those governing the types of investments we are permitted to make, any of which could harm us and our stockholders, potentially with retroactive effect.
−Removed: Additionally, any changes to the laws and regulations governing our operations relating to permitted investments may cause us to alter our investment strategy in order to avail ourselves of new or different opportunities.
−Removed: Such changes could result in material differences to the strategies and plans set forth in this Annual Report on Form 10-K and may result in our investment focus shifting from the areas of expertise of our management team to other types of investments in which our management team may have less expertise or little or no experience.
−Removed: Thus, any such changes, if they occur, could have a material adverse effect on our results of operations and the value of your investment.
−Removed: Efforts to comply with the Sarbanes-Oxley Act involve significant expenditures, and non-compliance with the Sarbanes-Oxley Act may adversely affect us and the market price of our securities.
−Removed: We are subject to the Sarbanes-Oxley Act and the related rules and regulations promulgated by the SEC.
−Removed: Among other requirements, under Section 404 of the Sarbanes-Oxley Act and rules and regulations of the SEC thereunder, our management is required to report on our internal control over financial reporting.
−Removed: We are required to review, on an annual basis, our internal control over financial reporting, and to evaluate and disclose, on a quarterly and annual basis, significant changes in our internal control over financial reporting.
−Removed: We have and expect to continue to incur significant expenses related to compliance with the Sarbanes-Oxley Act.
−Removed: In addition, this process results in a diversion of management’s time and attention.
−Removed: In the event that we are unable to maintain compliance with the Sarbanes-Oxley Act and related rules, we may be adversely affected.
−Removed: We are highly dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect our liquidity, financial condition, results of operations, the market price of our common stock and our ability to pay dividends and other distributions.
+Added: • Repurchases may cause our non-compliance with covenants under our financing agreements, which could have an adverse effect on our operating results and financial condition.
+Added: We are highly dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect our liquidity, financial condition and results of operations.
Our business depends on the communications and information systems of Barings, its affiliates and our or Barings' third-party service providers.
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Our or Barings’ financial, accounting, data processing, backup or other operating systems and facilities may fail to operate properly or become disabled or damaged as a result of a number of factors including events that are wholly or partially beyond our control and adversely affect our business.
−Removed: Among other things, there could be sudden electrical or telecommunications outages, natural disasters, disease pandemics, events arising from local or larger scale political or social matters and/or cyber-attacks, any one or more of which could have a material adverse effect on our business, financial condition and operating results and negatively affect the market price of our common stock and our ability to pay dividends to our stockholders.
+Added: Among other things, there could be sudden electrical or telecommunications outages, natural disasters, disease pandemics, events arising from local or larger scale political or social matters and/or cyber-attacks, any one or more of which could have a material adverse effect on our business, financial condition and operating results and negatively affect the market price of our common stock.
Cybersecurity risks and cyber incidents may adversely affect our business or the business of our portfolio companies by causing a disruption to our operations or the operations of our portfolio companies, a compromise or corruption of our confidential information or the confidential information of our portfolio companies and/or damage to our business relationships or the business relationships of our portfolio companies, all of which could negatively impact the business, financial condition and operating results of us or our portfolio companies.
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In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been brought against that company.
−Removed: In addition, stockholder activism, which could take many forms, including making public demands that we consider strategic alternatives, engaging in public campaigns to attempt to influence our corporate governance and/or our management, and commencing proxy contests to attempt to elect the activists' representatives or others to the Board, or arise in a variety of situations, has been increasing in the BDC space recently.
−Removed: For example, we and certain of our former executive officers have been named defendants in two separate class-action lawsuits asserting claims under Section 10(b) and Section 20(a) of the Exchange Act, and, due to the potential volatility of our stock price and for a variety of other reasons, we may in the future become the target of further securities litigation or stockholder activism.
+Added: In addition, stockholder activism, which could take many forms or arise in a variety of situations, including making public demands that we consider strategic alternatives, engaging in public campaigns to attempt to influence our corporate governance and/or our management, and commencing proxy contests to attempt to elect the activists' representatives or others to the Board, has increased in the BDC space in recent years.
+Added: For example, we and certain of our former executive officers have been named defendants in a class-action lawsuit asserting claims under Section 10(b) and Section 20(a) of the Exchange Act, and, due to the potential volatility of our stock price and for a variety of other reasons, we may in the future become the target of further securities litigation or stockholder activism.
See “Legal Proceedings” in Item 3 of Part I of this Annual Report on Form 10-K for more information.
−Removed: Securities litigation and stockholder activism, including
−Removed: potential proxy contests, may result in substantial costs and divert management’s and the Board's attention and resources from our business.
+Added: Securities litigation and stockholder activism, including potential proxy contests, may result in substantial costs and divert management’s and the Board's attention and resources from our business.
Additionally, such securities litigation and stockholder activism could give rise to perceived uncertainties as to our future, adversely affect our relationships with service providers and make it more difficult for Barings to attract and retain qualified personnel.
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Further, our stock price could be subject to significant fluctuation or otherwise be adversely affected by the events, risks and uncertainties of any securities litigation and stockholder activism.
+Added: We may be unable to realize the benefits anticipated by the MVC Acquisition, including estimated cost savings, or it may take longer than anticipated to realize such benefits.
+Added: The realization of certain benefits anticipated as a result of the MVC Acquisition will depend in part on the integration of MVC’s investment portfolio with our portfolio and the integration of MVC’s business with our business.
+Added: There can be no assurance that MVC’s investment portfolio or business can be operated profitably or integrated successfully into our operations in a timely fashion or at all.
+Added: The dedication of management resources to
+Added: such integration may divert attention from the day-to-day business, and there can be no assurance that there will not be substantial costs associated with the transition process or there will not be other material adverse effects as a result of these integration efforts.
+Added: Such effects, including incurring unexpected costs or delays in connection with such integration and failure of MVC’s investment portfolio to perform as expected, could have a material adverse effect on our financial results.
+Added: We also expect to achieve certain cost savings from the MVC Acquisition when the two companies have fully integrated their portfolios.
+Added: It is possible that the estimates of the potential cost savings could ultimately be incorrect.
+Added: If the estimates turn out to be incorrect or if we are not able to successfully combine MVC’s investment portfolio or business with our operations, the anticipated cost savings may not be fully realized, or realized at all, or may take longer to realize than expected.
Risks Relating to Our Investments
Our investments in portfolio companies may be risky, and we could lose all or part of our investment.
−Removed: Our portfolio consists primarily of syndicated senior secured loans and senior secured private middle-market debt and equity investments.
+Added: Our portfolio consists primarily of senior secured private, middle-market debt and equity investments.
Investing in private and middle-market companies involves a number of significant risks.
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The illiquidity of these investments may make it difficult for us to sell these investments when desired.
−Removed: In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded these investments.
−Removed: Our investments may be subject to contractual or legal restrictions on resale or are otherwise illiquid because there may be no established trading market for certain investments.
−Removed: The illiquidity of certain of our investments may make it difficult for us to dispose of them at a favorable price, and, as a result, we may suffer losses.
+Added: In addition, if we
+Added: are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we had previously recorded these investments.
Price declines and illiquidity in the corporate debt markets may adversely affect the fair value of our portfolio investments, reducing our net asset value through increased net unrealized depreciation.
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Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we may not want to increase our level of risk, because we prefer other opportunities or because of regulatory or other considerations.
−Removed: Our ability to make follow-on investments may also be limited by Barings’ allocation policy.
Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies and such portfolio companies may not generate sufficient cash flow to service their debt obligations to us.
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Our portfolio companies may have, or be permitted to incur, other debt that ranks equally with, or senior to, the debt securities in which we invest.
−Removed: Such subordinated investments are subject to greater risk of default than senior obligations as a result of adverse changes in the financial condition of the obligor or in general economic conditions.
+Added: Such subordinated investments are subject to greater risk of default than senior obligations as a
+Added: result of adverse changes in the financial condition of the obligor or in general economic conditions.
If we make a subordinated investment in a portfolio company, the portfolio company may be highly leveraged, and its relatively high debt-to-equity ratio may create increased risks that its operations might not generate sufficient cash flow to service all of its debt obligations.
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There may be circumstances where our debt investments could be subordinated to claims of other creditors or we could be subject to lender liability claims.
−Removed: Even though we have structured the majority of our investments as senior loans, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances and based upon principles of equitable subordination as defined by existing case law, a bankruptcy court could subordinate all or a portion of our claim to that of other creditors and transfer any lien securing such subordinated claim to the bankruptcy estate.
+Added: Even if we structure an investment as a senior loan, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances and based upon principles of equitable subordination as defined by existing case law, a bankruptcy court could subordinate all or a portion of our claim to that of other creditors and transfer any lien securing such subordinated claim to the bankruptcy estate.
The principles of equitable subordination defined by case law have generally indicated that a claim may be subordinated only if its holder is guilty of misconduct or where the senior loan is re-characterized as an equity investment and the senior lender has actually provided significant managerial assistance to the bankrupt debtor.
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Therefore, there can be no assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the loan obligations secured by our second priority liens after payment in full of all obligations secured by the senior lender’s first priority liens on the collateral.
−Removed: There is also a risk that such collateral securing our investments may decrease in
−Removed: value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the portfolio company and market conditions.
+Added: There is also a risk that such collateral securing our investments may decrease in value over time, may be difficult to sell in a timely manner, may be difficult to appraise and may fluctuate in value based upon the success of the portfolio company and market conditions.
If such proceeds are not sufficient to repay amounts outstanding under the loan obligations secured by our second priority liens, then we, to the extent not repaid from the proceeds from the sale of the collateral, will only have an unsecured claim against the company’s remaining assets, if any.
+Added: Covenant-Lite Loans may expose us to different risks, including with respect to liquidity, price volatility, ability to restructure loans, credit risks and less protective loan documentation, than is the case with loans that contain financial maintenance covenants.
+Added: A significant number of high yield loans in the market, in particular the broadly syndicated loan market, may consist of covenant-lite loans, or “Covenant-Lite Loans.” A significant portion of the loans in which we may invest or get exposure to through our investments may be deemed to be Covenant-Lite Loans and it is possible that such
+Added: loans may comprise a majority of our portfolio.
+Added: Such loans do not require the borrower to maintain debt service or other financial ratios and do not include terms which allow the lender to monitor the performance of the borrower and declare a default if certain criteria are breached.
+Added: Ownership of Covenant-Lite Loans may expose us to different risks, including with respect to liquidity, price volatility, ability to restructure loans, credit risks and less protective loan documentation, than is the case with loans that contain financial maintenance covenants.
Our investments in foreign companies may involve significant risks in addition to the risks inherent in U.S.
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currencies because the value of those securities is likely to fluctuate as a result of factors not related to currency fluctuations.
−Removed: If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a business development company or be precluded from investing according to our current business strategy.
+Added: If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC or be precluded from investing according to our current business strategy.
As a BDC, we may not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70.0% of our total assets are qualifying assets.
−Removed: For further detail, see “Regulation of Business Development Companies” included in Item 1 of Part I of this Annual Report on Form 10-K.
+Added: For further detail, see “Item 1.
+Added: Business — Regulation of Business Development Companies” included in this Annual Report on Form 10-K.
We may be precluded from investing in what we believe are attractive investments if such investments are not qualifying assets for purposes of the 1940 Act.
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We are classified as a non-diversified investment company within the meaning of the 1940 Act, which means that we are not limited by the 1940 Act with respect to the proportion of our assets that we may invest in securities of a single issuer.
−Removed: To the extent that we assume large positions in the securities of a small number of issuers, our net asset value may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer.
+Added: To the extent that we assume large positions in the securities of a small number of issuers, our net asset value may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer or industry in which it operates.
We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company.
−Removed: Beyond our RIC asset diversification requirements under the Code, we do not have fixed guidelines for diversification, and our investments could be concentrated in relatively few portfolio companies.
+Added: Beyond our RIC asset diversification requirements under the Code and certain investment diversification requirements under our financial agreements, we do not have fixed guidelines for diversification, and our investments could be concentrated in relatively few portfolio companies.
We generally will not control our portfolio companies.
−Removed: We do not, and do not expect to, control most of our portfolio companies, even though we or Barings may have board representation or board observation rights, and our debt agreements may contain certain restrictive covenants.
+Added: We do not, and do not expect to, control most of our portfolio companies, even though we or Barings may have board representation or board observation rights, and our debt agreements with such portfolio companies may contain certain restrictive covenants.
As a result, we are subject to the risk that a portfolio company in which we invest may make business decisions with which we disagree, and the management of such company, as representatives of the holders of their common equity, may take risks or otherwise act in ways that do not serve our interests as debt investors.
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As a result, a portfolio company may make decisions that could decrease the value of our portfolio holdings.
−Removed: Economic recessions or downturns could impair our portfolio companies and harm our operating results.
−Removed: Many of our portfolio companies may be susceptible to economic downturns or recessions and may be unable to repay our loans during these periods.
−Removed: Therefore, during these periods our non-performing assets may increase and the value of these assets may decrease.
−Removed: Adverse economic conditions may also decrease the value of collateral securing some of our loans and the value of our equity investments.
−Removed: Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets.
−Removed: Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us.
−Removed: These events could prevent us from increasing investments and harm our operating results.
−Removed: A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its assets, which could trigger cross-defaults under other agreements and jeopardize our portfolio company’s ability to meet its obligations under the debt securities that we hold.
−Removed: We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company.
Prepayments of our debt investments by our portfolio companies could adversely impact our results of operations and reduce our return on equity.
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Additionally, prepayments could negatively impact our return on equity, which could result in a decline in the market price of our securities.
−Removed: Potential writedowns or losses with respect to portfolio investments existing and to be made in the future could adversely affect our results of operations, cash flows, dividend level, net asset value and stock price.
−Removed: In light of current economic conditions, in the future, certain of our portfolio companies may be unable to service our debt investments on a timely basis.
−Removed: These conditions may also decrease the value of collateral securing some of our debt investments, as well as the value of our equity investments.
−Removed: As a result, the number of non-performing assets in our portfolio may increase, and the overall value of our portfolio may decrease, which could lead to financial losses in our portfolio and a decrease in our investment income, net investment income, dividends and assets.
−Removed: Any unrealized losses we experience on our loan portfolio may be an indication of future realized losses, which could reduce our income available for distribution.
−Removed: As a BDC, we are required to carry our investments at market value or, if no market value is ascertainable, at the fair value as determined in good faith by the Board.
−Removed: Decreases in the market values or fair values of our investments will be recorded as unrealized depreciation.
−Removed: Any unrealized losses in our loan portfolio could be an indication of a portfolio company’s inability to meet its repayment obligations to us with respect to the affected loans.
−Removed: This could result in realized losses in the future and ultimately in reductions of our income available for distribution in future periods.
−Removed: Defaults by our portfolio companies may harm our operating results.
−Removed: A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize a portfolio company’s ability to meet its obligations under the debt or equity securities that we hold.
−Removed: We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms, which may include the waiver of certain financial covenants, with a defaulting portfolio company.
−Removed: Changes in interest rates may affect our cost of capital, the value of our investments and results of operations.
−Removed: An increase in interest rates would make it more expensive to use debt to finance our investments.
−Removed: As a result, a significant increase in market interest rates could both reduce the value of our portfolio investments and increase our cost of capital, which would reduce our net investment income.
−Removed: Also, an increase in interest rates available to investors could make an investment in our common stock less attractive if we are not able to increase our distribution rate, a situation which could reduce the value of our common stock.
−Removed: Conversely, a decrease in interest rates may have an adverse impact on our returns by requiring us to seek lower yields on our debt investments and by increasing the risk that our portfolio companies will prepay our debt investments, resulting in the need to redeploy capital at potentially lower rates.
−Removed: Our portfolio may be concentrated in a limited number of portfolio companies and industries, which will subject us to a risk of significant loss if any of these companies defaults on its obligations under any of its debt instruments or if there is a downturn in a particular industry.
−Removed: Our portfolio may be concentrated in a limited number of portfolio companies and industries.
−Removed: As a result, the aggregate returns we realize may be significantly and adversely affected if a small number of investments perform poorly or if we need to write down the value of any one investment.
−Removed: Additionally, while we are not targeting any specific industries, our investments may be concentrated in relatively few industries.
−Removed: For example, although we classify the industries of our portfolio companies by end-market (such as healthcare or business services) and not by the products or services (such as software) directed to those end-markets, many of our portfolio companies principally provide software products or services, which exposes us to downturns in that sector.
−Removed: As a result, a downturn in any particular industry in which we are invested could also significantly impact the aggregate returns we realize.
We may not realize gains from our equity investments.
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We also may be unable to realize any value if a portfolio company does not have a liquidity event, such as a sale of the business, recapitalization or public offering, which would allow us to sell the underlying equity interests.
+Added: Our investments in asset-backed securities are subject to additional risks.
+Added: Asset-backed securities often involve risks that are different from or more acute than risks associated with other types of debt instruments.
+Added: For instance, asset-backed securities may be particularly sensitive to changes in prevailing interest rates.
+Added: In addition, the underlying assets may be subject to prepayments that shorten the securities' weighted average maturity and may lower their return.
+Added: Asset-backed securities are also subject to risks associated with their structure and the nature of the assets underlying the security and the servicing of those assets.
+Added: Payment of interest and repayment of principal on asset-backed securities is largely dependent upon the cash flows generated by the assets backing the securities.
+Added: Certain asset-backed securities are supported by letters of credit, surety bonds or other credit enhancements.
+Added: However, if many borrowers on the underlying assets default, losses could exceed the credit enhancement level and result in losses to investors, such as the Company.
+Added: The values of asset-backed securities may be substantially dependent on the servicing of the underlying asset pools, and are therefore subject to risks associated with the negligence by, or defalcation of, their servicers.
+Added: Furthermore, debtors may be entitled to the protection of a number of state and federal consumer credit laws with respect to the assets underlying these securities, which may give the debtor the right to avoid or reduce payment.
Risks Relating to Our Securities
−Removed: Shares of closed-end investment companies, including business development companies, frequently trade at a discount to their net asset value, and may trade at premiums that may prove to be unsustainable.
+Added: Shares of closed-end investment companies, including BDCs, frequently trade at a discount to their net asset value, and may trade at premiums that may prove to be unsustainable.
Shares of closed-end investment companies, including BDCs, frequently trade at a discount from net asset value, and may trade at premiums that may prove to be unsustainable.
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In addition, at times when our common stock trades below net asset value, we will generally not be able to issue additional common stock at the market price without first obtaining the approval of our stockholders and our independent directors.
+Added: We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the current net asset value per share of our common stock if our board of directors determines that such sale is in our best interests and the best interests of our stockholders, and our stockholders approve such sale.
+Added: Any such sale would be dilutive to the net asset value per share of our common stock.
+Added: In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our board of directors, closely approximates the market value of such securities (less any commission or discount).
+Added: If our common stock trades at a discount to net asset value, this restriction could adversely affect our
+Added: ability to raise capital.
+Added: Pursuant to approval granted at an annual meeting of stockholders held on April 30, 2020, we are permitted to issue and sell shares of our common stock at a price below our then-current net asset value per share in one or more offerings, subject to certain limitations and determinations that must be made by the Board (including, without limitation, that the number of shares issued and sold pursuant to such authority does not exceed 25% of our then-outstanding common stock immediately prior to each such offering).
+Added: Such stockholder approval expires on April 30, 2021.
Investing in our securities may involve an above average degree of risk.
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We cannot assure you that we will be able to identify any investments that meet our investment objective or that any investment that we make will produce a positive return.
−Removed: We may be unable to invest the net proceeds from any offering on acceptable terms within the time period that we anticipate or at all, which could harm our financial condition and operating results.
+Added: We may be unable to invest the net proceeds from any offering on
+Added: acceptable terms within the time period that we anticipate or at all, which could harm our financial condition and operating results.
We anticipate that, depending on market conditions, it may take a substantial period of time to invest substantially all of the net proceeds from any offering in securities meeting our investment objective.
2 unchanged sentences
As a result, any dividends or distributions that we pay during such period may be substantially lower than the dividends or distributions that we may be able to pay when our portfolio is fully invested in securities meeting our investment objective.
−Removed: In addition, until such time as the net proceeds from any offering are invested in securities meeting our investment objective, the
−Removed: market price for our securities may decline.
+Added: In addition, until such time as the net proceeds from any offering are invested in securities meeting our investment objective, the market price for our securities may decline.
Thus, the return on your investment may be lower than when, if ever, our portfolio is fully invested in securities meeting our investment objective.
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In addition, such issuances or sales may adversely affect the price at which our common stock trades.
+Added: Pursuant to approval granted at an annual meeting of stockholders held on April 30, 2020, we are permitted to issue and sell shares of our common stock at a price below our then-current net asset value per share in one or more offerings, subject to certain limitations and determinations that must be made by the Board (including, without limitation, that the number of shares issued and sold pursuant to such authority does not exceed 25% of our then-outstanding common stock immediately prior to each such offering).
+Added: Such stockholder approval expires on April 30, 2021.
Provisions of the Maryland General Corporation Law and our charter and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock.
2 unchanged sentences
In addition, our charter classifies the Board in three classes serving staggered three-year terms and provides that a director may be removed only for cause by the vote of at least two-thirds of the votes entitled to be cast for the election of directors generally.
−Removed: In addition, our bylaws provide that, subject to the satisfaction of certain procedural and informational requirements by the stockholders requesting the meeting, a special meeting of stockholders will be called by our secretary to act upon any matter that may properly be considered at a meeting of stockholders only upon the written request of the stockholders entitled to cast at least a majority of all the votes entitled to be cast on such matter at the meeting.
+Added: our bylaws provide that, subject to the satisfaction of certain procedural and informational requirements by the stockholders requesting the meeting, a special meeting of stockholders will be called by our secretary to act upon any matter that may properly be considered at a meeting of stockholders only upon the written request of the stockholders entitled to cast at least a majority of all the votes entitled to be cast on such matter at the meeting.
In addition, subject to the provisions of the 1940 Act, our charter permits the Board, without stockholder action, to authorize the issuance of shares of stock in one or more classes or series, including preferred stock.
6 unchanged sentences
If the dividend rate on the preferred stock, or the interest rate on the debt securities, were to approach the net rate of return on our investment portfolio, the benefit of leverage to the holders of our common stock would be reduced.
−Removed: If the dividend rate on the
−Removed: preferred stock, or the interest rate on the debt securities, were to exceed the net rate of return on our portfolio, the use of leverage would result in a lower rate of return to the holders of common stock than if we had not issued the preferred stock or debt securities.
+Added: If the dividend rate on the preferred stock, or the interest rate on the debt securities, were to exceed the net rate of return on our portfolio, the use of leverage would result in a lower rate of return to the holders of common stock than if we had not issued the preferred stock or debt securities.
Any decline in the net asset value of our investment would be borne entirely by the holders of our common stock.
−Removed: Therefore, if the market value of our portfolio were to decline, the leverage would result in a greater decrease in net asset value to the holders of our common stock than if we were not leveraged through the issuance of preferred stock.
+Added: Therefore, if the market value of our portfolio were to decline, the leverage would result in a greater decrease in net asset value to the holders of our common stock than if we were not leveraged through the issuance of preferred stock or debt securities.
This decline in net asset value would also tend to cause a greater decline in the market price for our common stock.
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If we declare a dividend and if more stockholders opt to receive cash distributions rather than participate in our dividend reinvestment plan, we may be forced to sell some of our investments in order to make cash dividend payments.
−Removed: In addition, due to the asset coverage and net asset value tests applicable to us as a BDC and under covenants under the August 2018 Credit Facility and the February 2019 Credit Facility, we may be limited in our ability to make distributions.
+Added: In addition, due to the asset coverage and net asset value tests applicable to us as a BDC and under covenants under our financing agreements, we may be limited in our ability to make distributions.
Further, if we invest a greater amount of assets in equity securities that do not pay current dividends, it could reduce the amount available for distribution.
−Removed: See “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Distribution Policy” included in Item 5 of Part II of this Annual Report on Form 10-K for further discussion of distributions.
−Removed: The above-referenced restrictions on distributions may also inhibit our ability to make required interest payments to holders of any future debt we may issue, which may cause a default under the terms of the relevant debt agreements.
+Added: — Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Distribution Policy” of this Annual Report on Form 10-K for further discussion of distributions.
+Added: The above-referenced restrictions on distributions may also inhibit our ability to make required interest payments to holders of our current debt including the August 2025 Notes, the November Notes and the February Notes (as defined below under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments” included in Item 7 of Part II of this Annual Report on Form 10-K), and any future debt we may issue, which may cause a default under the terms of the relevant debt agreements.
Such a default could materially increase our cost of raising capital, as well as cause us to incur penalties under the terms of our debt agreements.
−Removed: Our stockholders may experience dilution in their ownership percentage if they opt out of our dividend reinvestment plan.
−Removed: All dividends declared in cash payable to stockholders that are participants in our dividend reinvestment plan are automatically reinvested in shares of our common stock.
−Removed: As a result, our stockholders that opt out of our dividend reinvestment plan may experience dilution in their ownership percentage of our common stock over time.
+Added: Terms relating to redemption may materially adversely affect your return on any debt securities that we may issue.
+Added: If you are holding debt securities issued by us and such securities are redeemable at our option, we may choose to redeem your debt securities at times when prevailing interest rates are lower than the interest rate paid on your debt securities.
+Added: In addition, if you are holding debt securities issued by us and such securities are subject to mandatory redemption, we may be required to redeem your debt securities at times when prevailing interest rates are lower than the interest rate paid on your debt securities.
+Added: In this circumstance, you may not be able to reinvest the redemption proceeds in a comparable security at an effective interest rate as high as your debt securities being redeemed.
+Added: Subject to the terms of the August 2020 NPA (as defined below under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” included in Item 7 of Part II of this Annual Report on Form 10-K) , we may redeem the August 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 before November 3, 2024, a make-whole premium.
+Added: Subject to the terms of the November 2020 NPA (as defined below under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” included in Item 7 of Part II of this Annual Report on Form 10-K) , 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 before May 4, 2025, with respect to the Series B Notes, or on or before May 4, 2027, with respect to the Series C Notes, a make-whole premium.
+Added: Subject to the terms of the February 2021 NPA (as defined below under “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Recent Developments” included in Item 7 of Part II of this Annual Report on Form 10-K) , 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 before August 26, 2025, with respect to the Series D Notes, or on or before August 26, 2027, with respect to the Series E Notes, a make-whole premium.
+Added: If we choose to redeem any of the August 2025 Notes, the November Notes or the February Notes when the fair market value of the August 2025 Notes, the November Notes or the February Notes is above par value, you would experience a loss of any potential premium.
+Added: We may not be able to prepay the August 2025 Notes, the November Notes or the February Notes upon a change in control.
+Added: The note purchase agreements governing the August 2025 Notes, the November Notes and the February Notes require us to offer to prepay all of the issued and outstanding notes upon the occurrence of certain change in control events, which could have a material adverse effect on our business, financial condition and results of operations.
+Added: Upon a change in control event, holders of the notes may require us to prepay for cash some or all of the notes at a prepayment price equal to 100% of the aggregate principal amount of the notes being prepaid, plus accrued and unpaid interest to, but not including, the date of prepayment.
+Added: If a change in control were to occur, we may not have sufficient funds to prepay any such accelerated indebtedness.
Future offerings of debt securities, which would be senior to our common stock upon liquidation, or equity securities, which could dilute our existing stockholders and may be senior to our common stock for the purposes of distributions, may harm the value of our common stock.
−Removed: In the future, we may attempt to increase our capital resources by making offerings of debt securities or additional equity securities, including commercial paper, medium-term notes, senior or subordinated notes and classes of preferred stock or common stock subject to the restrictions of the 1940 Act.
+Added: In the future, we may attempt to increase our capital resources by making offerings of additional debt securities or additional equity securities, including commercial paper, medium-term notes, senior or subordinated notes and classes of preferred stock or common stock subject to the restrictions of the 1940 Act.
Upon a liquidation of our company, holders of our debt securities and shares of preferred stock and lenders with respect to other borrowings would receive a distribution of our available assets prior to the holders of our common stock.
−Removed: Additional equity
−Removed: offerings by us may dilute the holdings of our existing stockholders or reduce the value of our common stock, or both.
+Added: Additional equity offerings by us may dilute the holdings of our existing stockholders or reduce the value of our common stock, or both.
Any preferred stock we may issue would have a preference on distributions that could limit our ability to make distributions to the holders of our common stock.
8 unchanged sentences
In addition, in order to satisfy the annual distribution requirement applicable to RICs, we have the ability to declare a large portion of a dividend in shares of our common stock instead of in cash.
−Removed: As long as a portion of such dividend is paid in cash (which portion may be as low as 20% of such dividend) and certain requirements are met, the entire distribution will be treated as a dividend for U.S.
+Added: As long as a portion of such dividend is paid in cash (which portion may be as low as 20% of the aggregate declared dividend) and certain requirements are met, the entire distribution will be treated as a dividend for U.S.
federal income tax purposes.
1 unchanged sentence
We currently do not intend to pay dividends in shares of our common stock other than in connection with our dividend reinvestment plan.
−Removed: Terrorist attacks, acts of war or national disasters may affect any market for our securities, impact the businesses in which we invest and harm our business, operating results and financial condition.
−Removed: Terrorist acts, acts of war or national disasters may disrupt our operations, as well as the operations of the businesses in which we invest.
+Added: A downgrade, suspension or withdrawal of the credit rating, if any, assigned by a rating agency to us or any of our outstanding unsecured notes, or change in the debt markets could cause the liquidity or market value of our securities to decline significantly.
+Added: Our credit ratings are an assessment by rating agencies of our ability to pay our debts when due.
+Added: Consequently, real or anticipated changes in our credit ratings will generally affect the value and trading prices, if any, of our outstanding unsecured notes.
+Added: These credit ratings may not reflect the potential impact of risks relating to the structure or marketing of the notes.
+Added: Credit ratings are not a recommendation to buy, sell or hold any security, and may be revised or withdrawn at any time by the issuing organization in its sole discretion.
+Added: We undertake no obligation to maintain our credit ratings or to advise any holders of our unsecured notes of any changes in our credit ratings, except as may be required under the terms of any applicable indenture or other governing document, including the August 2020 NPA, the November 2020 NPA and the February 2021 NPA.
+Added: There can be no assurance that our credit ratings will remain for any given period of time or that such credit ratings will not be lowered or withdrawn entirely by the rating agency if in their judgment future circumstances relating to the basis of the credit ratings, such as adverse changes in our business or operations, so warrant.
+Added: Any downgrades to us or our securities could increase our cost of capital or otherwise have a negative effect on our results of operations and financial condition.
+Added: In this regard, the fixed rates of the November Notes and the February Notes are subject to increase in the event that a Below Investment Grade Event (as defined in relevant note purchase agreement) occurs, which risk is increased as a result of the impact of the COVID-19 pandemic.
+Added: The conditions of the financial markets and
+Added: prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future, which could have an adverse effect on the market prices and value of our unsecured notes.
+Added: General Risk Factors
+Added: Global capital markets could enter a period of severe disruption and instability or an economic recession.
+Added: These conditions have historically affected and could again materially and adversely affect debt and equity capital markets in the United States and around the world and could impair our portfolio companies and harm our operating results.
+Added: and global capital markets have from time to time experienced periods of disruption characterized by the freezing of available credit, a lack of liquidity in the debt capital markets, significant losses in the principal value of investments, the re-pricing of credit risk in the broadly syndicated credit market, the failure of major financial institutions and general volatility in the financial markets.
+Added: During these periods of disruption, general economic conditions deteriorated with material and adverse consequences for the broader financial and credit markets, and the availability of debt and equity capital for the market as a whole, and financial services firms in particular, was reduced significantly.
+Added: These conditions may reoccur for a prolonged period of time or materially worsen in the future.
+Added: In June 2016, the United Kingdom held a referendum in which voters approved an exit from the European Union.
+Added: The United Kingdom formally left the European Union on January 31, 2020, and the United Kingdom reached the end of the transition period in December 2020.
+Added: There will likely continue to be considerable uncertainty as to the United Kingdom's post-transition and post-withdrawal framework, in particular as to the arrangements which will apply to its relationships with the European Union and with other countries.
+Added: The new Trade and Cooperation Agreement reached between the European Union and United Kingdom in late 2020 is untested and may lead to ongoing political and economic uncertainty and periods of exacerbated volatility in both the United Kingdom and in wider European and global markets for some time.
+Added: This process and/or the uncertainty associated with it may adversely affect the return on investments economically tied to the United Kingdom or European Union (including investments made pursuant to the European Direct Lending strategy).
+Added: This may be due to, among other things:
+Added: (i) increased uncertainty and volatility in the United Kingdom, European Union and other financial markets;
+Added: (ii) fluctuations in asset values;
+Added: (iii) fluctuations in exchange rates;
+Added: (iv) increased illiquidity of investments located, listed or traded within the United Kingdom, the European Union or elsewhere;
+Added: (v) changes in the willingness or ability of financial and other counterparties to enter into transactions, or the price at which and terms on which they are prepared to transact;
+Added: and/or (vi) changes in legal and regulatory regimes to which our investments are or become subject.
+Added: Market conditions may in the future make it difficult to extend the maturity of or refinance our existing indebtedness and any failure to do so could have a material adverse effect on our business.
+Added: If we are unable to raise or refinance debt, then our equity investors may not benefit from the potential for increased returns on equity resulting from leverage and we may be limited in our ability to make new commitments or to fund existing commitments to our portfolio companies.
+Added: Given the volatility and dislocation that the capital markets have historically experienced, many BDCs have faced, and may in the future face, a challenging environment in which to raise capital.
+Added: We may in the future have difficulty accessing debt and equity capital on attractive terms, or at all, and a severe disruption or instability in the global financial markets or deteriorations in credit and financing conditions may cause us to reduce the volume of the loans we originate and/or fund, which may adversely affect the value of our portfolio investments or otherwise have a material adverse effect on our business, financial condition, results of operations and cash flows.
+Added: In addition, significant changes in the capital markets, including instances of extreme volatility and disruption, have had, and may in the future have, a negative effect on the valuations of our investments and on the potential for liquidity events involving our investments.
+Added: We monitor developments and seek to manage our investments in a manner consistent with achieving our investment objective, but there can be no assurance that we will be successful in doing so, and we may not timely anticipate or manage existing, new or additional risks, contingencies or developments, including regulatory developments in the current or future market environment.
+Added: An inability to raise capital, and any required sale of our investments for liquidity purposes, could have a material adverse impact on our business, financial condition or results of operations.
+Added: The debt capital that will be available to us in the future, if at all, may be at a higher cost and on less favorable terms and conditions than what we currently experience, including being at a higher cost in rising rate environments.
+Added: If we are unable to raise or refinance debt, then our equity investors may not benefit from the potential for increased returns on equity resulting from leverage and we may be limited in our ability to make new commitments or to fund existing commitments to our portfolio companies.
+Added: In addition, equity capital may be difficult to raise during periods of adverse or volatile market conditions because, subject to some limited exceptions, as a BDC, we are generally not able to issue additional shares of our common stock at a price less than net asset value without first obtaining approval for such issuance from our stockholders and our independent directors.
+Added: We generally seek approval from our stockholders so that we have the flexibility to issue up to a specified percentage of our then-outstanding shares of our common stock at a price below net asset value.
+Added: Pursuant to approval granted at an annual meeting of stockholders held on April 30, 2020, we are permitted to issue and sell shares of our common stock at a price below our then-current net asset value per share in one or more offerings, subject to certain limitations and determinations that must be made by the Board (including, without limitation, that the number of shares issued and sold pursuant to such authority does not exceed 25% of our then-outstanding common stock immediately prior to each such offering).
+Added: Such stockholder approval expires on April 30, 2021.
+Added: Many of the portfolio companies in which we make investments may be susceptible to economic slowdowns or recessions and may be unable to repay the loans we made to them during these periods.
+Added: Therefore, our non-performing assets may increase and the value of our portfolio may decrease during these periods as we are required to record our investments at their current fair value.
+Added: Adverse economic conditions also may decrease the value of collateral securing some of our loans and the value of our equity investments.
+Added: Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets.
+Added: Unfavorable economic conditions also could increase our and our portfolio companies’ funding costs, limit our and our portfolio companies’ access to the capital markets or result in a decision by lenders not to extend credit to us or our portfolio companies.
+Added: These events could prevent us from increasing investments and harm our operating results.
+Added: A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, acceleration of the time when the loans are due and foreclosure on its secured assets, which could trigger cross-defaults under other agreements and jeopardize the portfolio company’s ability to meet its obligations under the debt that we hold.
+Added: We may incur additional expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company.
+Added: In addition, if one of our portfolio companies were to go bankrupt, depending on the facts and circumstances, including the extent to which we will actually provide significant managerial assistance to that portfolio company, a bankruptcy court might subordinate all or a portion of our claim to that of other creditors.
+Added: Terrorist attacks, acts of war, national disasters, outbreaks or pandemics may affect any market for our securities, impact the businesses in which we invest and harm our business, operating results and financial condition.
+Added: Terrorist acts, acts of war, national disasters, outbreaks or pandemics may disrupt our operations, as well as the operations of the businesses in which we invest.
Such acts have created, and continue to create, economic and political uncertainties and have contributed to global economic instability.
−Removed: Future terrorist activities, military or security operations, or natural disasters could further weaken the domestic/global economies and create additional uncertainties, which may negatively impact the businesses in which we invest directly or indirectly and, in turn, could have a material adverse impact on our business, operating results and financial condition.
−Removed: Losses from terrorist attacks and natural disasters are generally uninsurable.
+Added: For example, many countries have experienced outbreaks of infectious illnesses in recent decades, including swine flu, avian influenza, SARS and COVID-19.
+Added: Since the initial outbreak of COVID-19 in December 2019, a large and growing number of cases have been confirmed around the world.
+Added: The COVID-19 outbreak has resulted in numerous deaths and the imposition of both local and more widespread “work from home” and other quarantine measures, border closures and other travel restrictions, causing social unrest and commercial disruption on a global scale.
+Added: In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic.
+Added: The ongoing spread of COVID-19 has had, and will continue to have, a material adverse impact on local economies in the affected jurisdictions and also on the global economy, as cross-border commercial activity and market sentiment are increasingly impacted by the outbreak and government and other measures seeking to contain its spread.
+Added: With respect to U.S.
+Added: and global credit markets and the economy in general, this outbreak has resulted in,
+Added: and until fully resolved is likely to continue to result in, the following (among other things):
+Added: (i) restrictions on travel and the temporary closure of many corporate offices, retail stores, and manufacturing facilities and factories, resulting in significant disruption to the business of many companies, including supply chains and demand, as well as layoffs of employees;
+Added: (ii) increased draws by borrowers on revolving lines of credit;
+Added: (iii) increased requests by borrowers for amendments or waivers of their credit agreements to avoid default, increased defaults by borrowers and/or increased difficulty in obtaining refinancing;
+Added: (iv) volatility in credit markets, including greater volatility in pricing and spreads;
+Added: and (v) rapidly evolving proposals and actions by state and federal governments to address the problems being experienced by markets, businesses and the economy in general, which may not adequately address the underlying problems.
+Added: In addition to these developments having adverse consequences in the businesses in which we invest, the operations of the Adviser (including those relating to the Company) have been, and could continue to be, adversely impacted, including through quarantine measures and travel restrictions imposed on Barings personnel or service providers based or temporarily located in affected countries, or any related health issues of such personnel or service providers.
+Added: Any of the foregoing events could materially and adversely affect our ability to source, manage and divest its investments and its ability to fulfill its investment objectives.
+Added: Similar consequences could arise with respect to other comparable infectious diseases.
+Added: Although it is impossible to predict the precise nature and consequences of these events, or of any political or policy decisions and regulatory changes occasioned by emerging events or uncertainty on applicable laws or regulations that impact us and our portfolio companies and investments, it is clear that these types of events are impacting and will, for at least some time, continue to impact us and our portfolio companies.
+Added: Any potential impact to our results of operations will depend to a large extent on future developments and new information that could emerge regarding the duration and severity of the COVID-19 pandemic and the actions taken by authorities and other entities to contain the spread or treat its impact, all of which are beyond our control.
+Added: These potential impacts, while uncertain, could adversely affect our and our portfolio companies' operating results.
+Added: We may experience fluctuations in our quarterly results.
+Added: We could experience fluctuations in our quarterly operating results due to a number of factors, including our ability or inability to make investments in companies that meet our investment criteria, the interest rate payable on the debt securities we acquire, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions.
+Added: As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.
+Added: Economic recessions or downturns could impair our portfolio companies and harm our operating results.
+Added: Many of our portfolio companies may be susceptible to economic downturns or recessions and may be unable to repay our loans during these periods.
+Added: Therefore, during these periods our non-performing assets may increase and the value of these assets may decrease.
+Added: Adverse economic conditions may also decrease the value of collateral securing some of our loans and the value of our equity investments.
+Added: Economic slowdowns or recessions could lead to financial losses in our portfolio and a decrease in revenues, net income and assets.
+Added: Unfavorable economic conditions also could increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us.
+Added: These events could prevent us from increasing investments and harm our operating results.
+Added: A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its assets, which could trigger cross-defaults under other agreements and jeopardize our portfolio company’s ability to meet its obligations under the debt securities that we hold.
+Added: We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company.
+Added: Changes to U.S.
+Added: tariff and import/export regulations may have a negative effect on our portfolio companies and, in turn, harm us.
+Added: There have been ongoing discussion and commentary regarding potential significant changes to U.S.
+Added: trade policies, treaties and tariffs, creating significant uncertainty about the future relationship between the United States
+Added: and other countries with respect to trade policies, treaties and tariffs.
+Added: These developments, or the perception that more of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted nations and the United States.
+Added: Any of these factors could depress economic activity and restrict our portfolio companies’ access to suppliers or customers and have a material adverse effect on their business, financial condition and results of operations, which in turn would negatively impact us.
+Added: Changes in laws or regulations governing our operations may adversely affect our business or cause us to alter our business strategy.
+Added: We, our subsidiaries and our portfolio companies are subject to regulation at the local, state and federal level.
+Added: New legislation may be enacted or new interpretations, rulings or regulations could be adopted, including those governing the types of investments we are permitted to make, any of which could harm us and our stockholders, potentially with retroactive effect.
+Added: Additionally, new regulatory initiatives related to ESG could adversely affect our business.
+Added: Additionally, any changes to the laws and regulations governing our operations relating to permitted investments may cause us to alter our investment strategy in order to avail ourselves of new or different opportunities.
+Added: Such changes could result in material differences to the strategies and plans set forth in this Annual Report on Form 10-K and may result in our investment focus shifting from the areas of expertise of our management team to other types of investments in which our management team may have less expertise or little or no experience.
+Added: Thus, any such changes, if they occur, could have a material adverse effect on our results of operations and the value of your investment.
Unresolved Staff Comments.
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.