Barings BDC, Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion is designed to provide a better understanding of our unaudited consolidated financial statements for the three months ended March 31, 2021, including a brief discussion of our business, key factors that impacted our performance and a summary of our operating results. The following discussion should be read in conjunction with the Unaudited Consolidated Financial Statements and the notes thereto included in Item 1 of this Quarterly Report on Form 10-Q, and the Consolidated Financial Statements and notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2020. Historical results and percentage relationships among any amounts in the financial statements are not necessarily indicative of trends in operating results for any future periods. Forward-Looking Statements Some of the statements in this Quarterly Report constitute forward-looking statements because they relate to future events or our future performance or financial condition. Forward-looking statements may include, among other things, statements as to our future operating results, our business prospects and the prospects of our portfolio companies, the impact of the investments that we expect to make, the ability of our portfolio companies to achieve their objectives, our expected financings and investments, the adequacy of our cash resources and working capital, and the timing of cash flows, if any, from the operations of our portfolio companies. Words such as "expect," "anticipate," "target," "goals," "project," "intend," "plan," "believe," "seek," "estimate," "continue," "forecast," "may," "should," "potential," variations of such words, and similar expressions indicate a forward-looking statement, although not all forward-looking statements include these words. Readers are cautioned that the forward-looking statements contained in this Quarterly Report are only predictions, are not guarantees of future performance, and are subject to risks, events, uncertainties and assumptions that are difficult to predict. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including the items discussed herein, in Item 1A entitled "Risk Factors" in Part I of our Annual Report on Form 10-K for the year ended December 31, 2020 and in Item 1A entitled "Risk Factors" in Part II of our subsequently filed Quarterly Reports on Form 10-Q. Other factors that could cause our actual results and financial condition to differ materially include, but are not limited to, changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets, including with respect to changes from the impact of the COVID-19 pandemic; the length and duration of the COVID-19 outbreak in the United States as well as worldwide and the magnitude of the economic impact of that outbreak; the effect of the COVID-19 pandemic on our business prospects and the prospects of our portfolio companies, including our and their ability to achieve our respective objectives; the effect of the disruptions caused by the COVID-19 pandemic on our ability to continue to effectively manage our business and on the availability of equity and debt capital and our use of borrowed money to finance a portion of our investments; risks associated with possible disruption due to terrorism in our operations or the economy generally; and future changes in laws or regulations and conditions in our operating areas. These statements are based on our current expectations, estimates, forecasts, information and projections about the industry in which we operate and the beliefs and assumptions of our management as of the date of filing of this Quarterly Report. We assume no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, unless we are required to do so by law. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Overview of Our Business We are a Maryland corporation incorporated on October 10, 2006. In August 2018, in connection with the closing of an externalization transaction through which Barings LLC (“Barings”) agreed to become our external investment adviser, we entered into an investment advisory agreement (the “Original Advisory Agreement”) and an administration agreement (the “Administration Agreement”) with Barings. In connection with the completion of our acquisition of MVC Capital, Inc., a Delaware corporation, on December 23, 2020 (the “MVC Acquisition”), we entered into an amended and restated investment advisory agreement (the “Amended and Restated Advisory Agreement”) with Barings on December 23, 2020, following approval of the Amended and Restated Advisory Agreement by our stockholders at our December 23, 2020 special meeting of stockholders. The terms of the Amended and Restated Advisory Agreement became effective on January 1, 2021. Under the terms of the Amended and Restated Advisory Agreement and the Administration Agreement, Barings serves as our investment adviser and administrator and manages our investment portfolio and performs (or oversees, or arranges for, the performance of) the administrative services necessary for our operation. An externally-managed BDC generally does not have any employees, and its investment and management functions are provided by an outside investment adviser and administrator under an advisory agreement and administration agreement. 63 Instead of directly compensating employees, we pay Barings for investment and management services pursuant to the terms of the Amended and Restated Advisory Agreement (and, prior to January 1, 2021, pursuant to the terms of the Original Advisory Agreement) and the Administration Agreement. Under the terms of the Amended and Restated Advisory Agreement (and, prior to January 1, 2021, under the terms of the Original Advisory Agreement), the fees paid to Barings for managing our affairs are determined based upon an objective and fixed formula, as compared with the subjective and variable nature of the costs associated with employing management and employees in an internally-managed BDC structure, which include bonuses that cannot be directly tied to Company performance because of restrictions on incentive compensation under the 1940 Act. Beginning in August 2018, Barings shifted our investment focus to invest in syndicated senior secured loans, bonds and other fixed income securities. Since that time, Barings has transitioned our portfolio to primarily senior secured private debt investments in well-established middle-market businesses that operate across a wide range of industries. Barings’ existing SEC co-investment exemptive relief under the 1940 Act (the “Exemptive Relief”) permits us and Barings’ affiliated private and SEC-registered funds to co-invest in Barings-originated loans, which allows Barings to efficiently implement its senior secured private debt investment strategy for us. Barings employs fundamental credit analysis, and targets investments in businesses with relatively low levels of cyclicality and operating risk. The holding size of each position will generally be dependent upon a number of factors including total facility size, pricing and structure, and the number of other lenders in the facility. Barings has experience managing levered vehicles, both public and private, and will seek to enhance our returns through the use of leverage with a prudent approach that prioritizes capital preservation. Barings believes this strategy and approach offers attractive risk/return with lower volatility given the potential for fewer defaults and greater resilience through market cycles. We generate revenues in the form of interest income, primarily from our investments in debt securities, loan origination and other fees and dividend income. Fees generated in connection with our debt investments are recognized over the life of the loan using the effective interest method or, in some cases, recognized as earned. Our syndicated senior secured loans generally bear interest between LIBOR plus 300 basis points and LIBOR plus 400 points. Our senior secured, middle-market, private debt investments generally have terms of between five and seven years. Our senior secured, middle-market, first lien private debt investments generally bear interest between LIBOR (or the applicable currency rate for investments in foreign currencies) plus 450 basis points and LIBOR plus 650 basis points per annum. Our subordinated middle-market, private debt investments generally bear interest between LIBOR (or the applicable currency rate for investments in foreign currencies) plus 700 basis points and LIBOR plus 900 basis points per annum if floating rate, and between 8% and 15% if fixed rate. From time to time, certain of our investments may have a form of interest, referred to as payment-in-kind, or PIK, interest, which is not paid currently but is instead accrued and added to the loan balance and paid at the end of the term. As of March 31, 2021 and December 31, 2020, the weighted average yield on the principal amount of our outstanding debt investments other than non-accrual debt investments was approximately 7.2% and 7.1%, respectively. The weighted average yield on the principal amount all of our outstanding investments (including equity and equity-linked investments and short-term investments but excluding non-accrual debt investments) was approximately 6.4% as of both March 31, 2021 and December 31, 2020. The weighted average yield on the principal amount all of our outstanding investments (including equity and equity-linked investments and short-term investments) was approximately 6.4% and 6.5% as of March 31, 2021 and December 31, 2020, respectively. COVID-19 Developments The spread of the Coronavirus and the COVID-19 pandemic, and the related effect on the U.S. and global economies, has had adverse consequences for the business operations of some of our portfolio companies and has adversely affected, and threatens to continue to adversely affect, our operations and the operations of Barings, including with respect to us. Barings has taken proactive steps around COVID-19 to address the potential impacts on their people, clients, communities and everyone they come in contact with, directly or through their premises. Protecting their employees and supporting the communities in which they live and work is a priority. Barings continues to operate with the majority of employees globally working remotely while maintaining service levels to our partners and clients. In the United States, the firm’s global headquarters in Charlotte and the office in Hartford, Connecticut are currently the only offices that are open. In Europe the regional headquarters in London is open while the majority of other offices in Europe are currently closed. In Asia, all offices remain open. Barings return-to-office taskforce continues to plan for the safe return of employees to all office locations with a target date for a widespread return of associates to all office locations globally planned for September 2021. This date is subject to the continued success of the global vaccination program and reduction in COVID-19 case numbers. Barings’ cybersecurity policies are applied consistently when working remotely or in the office. 64 While we have been carefully monitoring the COVID-19 pandemic and its impact on our business and the business of our portfolio companies, we have continued to fund our existing debt commitments. In addition, we have continued to make and originate, and expect to continue to make and originate, new loans. We cannot predict the full impact of the COVID-19 pandemic, including its duration in the United States and worldwide and the magnitude of the economic impact of the outbreak, including with respect to the travel restrictions, business closures and other quarantine measures imposed on service providers and other individuals by various local, state, and federal governmental authorities, as well as non-U.S. governmental authorities. We are unable to predict the duration of any business and supply-chain disruptions, the extent to which COVID-19 will negatively affect our portfolio companies’ operating results or the impact that such disruptions may have on our results of operations and financial condition. Depending on the duration and extent of the disruption to the operations of our portfolio companies, certain portfolio companies could experience financial distress and possibly default on their financial obligations to us and their other capital providers. Some of our portfolio companies may significantly curtail business operations, furlough or lay off employees and terminate service providers, and defer capital expenditures if subjected to prolonged and severe financial distress, which would likely impair their business on a permanent basis. These developments would likely result in a decrease in the value of our investment in any such portfolio company. We will continue to monitor the situation relating to the COVID-19 pandemic and guidance from U.S. and international authorities, including federal, state and local public health authorities and may take additional actions based on their recommendations. In these circumstances, there may be developments outside our control requiring us to adjust our plan of operation. As such, given the dynamic nature of this situation, we cannot reasonably estimate the impacts of COVID-19 on our financial condition, results of operations or cash flows in the future. However, to the extent our portfolio companies are adversely impacted by the effects of the COVID-19 pandemic, it may have a material adverse impact on our future net investment income, the fair value of our portfolio investments, our financial condition and the results of operations and financial condition of our portfolio companies. Relationship with Our Adviser, Barings Our investment adviser, Barings, a wholly-owned subsidiary of Massachusetts Mutual Life Insurance Company, is a leading global asset management firm and is registered with the SEC as an investment adviser under the Investment Advisers Act of 1940, as amended. Barings’ primary investment capabilities include fixed income, private credit, real estate, equity, and alternative investments. Subject to the overall supervision of our board of directors (the “Board”), Barings’ Global Private Finance Group (“BGPF”) manages our day-to-day operations, and provides investment advisory and management services to us. BGPF is part of Barings’ $244.2 b illion Global Fixed Income Platform that invests in liquid, private and structured credit. BGPF manages private funds and separately managed accounts, along with multiple public vehicles. Among other things, Barings (i) determines the composition of our portfolio, the nature and timing of the changes therein and the manner of implementing such changes; (ii) identifies, evaluates and negotiates the structure of the investments made by us; (iii) executes, closes, services and monitors the investments that we make; (iv) determines the securities and other assets that we will purchase, retain or sell; (v) performs due diligence on prospective portfolio companies and (vi) provides us with such other investment advisory, research and related services as we may, from time to time, reasonably require for the investment of our funds. Under the terms of the Administration Agreement, Barings has agreed to perform (or oversee, or arrange for, the performance of) the administrative services necessary for our operation, including, but not limited to, office facilities, equipment, clerical, bookkeeping and record keeping services at such office facilities and such other services as Barings, subject to review by the Board, will from time to time determine to be necessary or useful to perform its obligations under the Administration Agreement. Barings will also, on our behalf and subject to the Board’s oversight, arrange for the services of, and oversee, custodians, depositories, transfer agents, dividend disbursing agents, other stockholder servicing agents, accountants, attorneys, underwriters, brokers and dealers, corporate fiduciaries, insurers, banks and such other persons in any such other capacity deemed to be necessary or desirable. Barings is responsible for the financial and other records that we are required to maintain and will prepare all reports and other materials required to be filed with the SEC or any other regulatory authority. 65 Stockholder Approval of Reduced Asset Coverage Ratio On July 24, 2018, our stockholders voted at a special meeting of stockholders (the “2018 Special Meeting”) to approve a proposal to authorize us to be subject to a reduced asset coverage ratio of at least 150% under the 1940 Act. As a result of the stockholder approval at the 2018 Special Meeting, effective July 25, 2018, our applicable asset coverage ratio under the 1940 Act has been decreased to 150% from 200%. As a result, we are permitted under the 1940 Act to incur indebtedness at a level which is more consistent with a portfolio of senior secured debt. As of March 31, 2021, our asset coverage ratio was 173.8%. Portfolio Investment Composition The total value of our investment portfolio was $1,602.1 million as of March 31, 2021, as compared to $1,495.8 million as of December 31, 2020. As of March 31, 2021, we had investments in 150 portfolio companies and two money market funds with an aggregate cost of $1,588.6 million. As of December 31, 2020, we had investments in 146 portfolio companies and two money market funds with an aggregate cost of $1,486.1 million. As of both March 31, 2021 and December 31, 2020, none of our portfolio investments represented greater than 10% of the total fair value of our investment portfolio. As of March 31, 2021 and December 31, 2020, our investment portfolio consisted of the following investments: Cost Percentage of Total Portfolio Fair Value Percentage of Total Portfolio March 31, 2021: Senior debt and 1 st lien notes $ 1,228,983,292 77 % $ 1,238,178,055 77 % Subordinated debt and 2nd lien notes 150,273,105 10 150,597,961 9 Structured products 23,163,888 1 26,153,607 2 Equity shares 42,543,214 3 39,617,746 2 Equity warrants 1,235,383 — 1,434,309 — Investment in joint ventures / PE fund 68,782,532 4 72,576,383 5 Short-term investments 73,569,174 5 73,565,676 5 $ 1,588,550,588 100 % $ 1,602,123,737 100 % December 31, 2020: Senior debt and 1 st lien notes $ 1,167,436,742 79 % $ 1,171,250,512 79 % Subordinated debt and 2nd lien notes 137,776,808 9 138,767,120 9 Structured products 30,071,808 2 32,508,845 2 Equity shares 44,693,645 3 44,651,114 3 Equity warrants 1,235,383 — 1,300,197 — Investment in joint ventures / PE fund 39,282,532 3 41,759,922 3 Short-term investments 65,558,227 4 65,558,227 4 $ 1,486,055,145 100 % $ 1,495,795,937 100 % Investment Activity During the three months ended March 31, 2021, we made 18 new investments totaling $172.2 million, made investments in existing portfolio companies totaling $73.2 million, made one new investment in a joint venture equity portfolio company totaling $4.5 million and made additional investments in existing joint venture equity portfolio companies totaling $25.0 million. We had six loans repaid at par totaling $26.2 million and received $6.0 million of portfolio company principal payments. In addition, we sold $57.1 million of loans, recognizing a net realized gain on these transactions of $2.4 million, and sold $94.7 million of middle-market portfolio company debt investments to one of our joint ventures and realized a gain on these transactions of $0.5 million. Lastly, we received proceeds related to the sale of an equity investment totaling $5.9 million and recognized a net realized loss on such sale totaling $0.1 million. During the three months ended March 31, 2020, we made 30 new investments totaling $111.2 million and made investments in existing portfolio companies totaling $20.9 million. We had nine loans repaid at par totaling total $41.1 million, received $3.0 million of portfolio company principal payments. In addition, we sold $39.6 million of syndicated senior secured loans, recognizing a net realized loss on these transactions of $0.2 million and sold $30.8 million of middle-market portfolio company debt investments to our joint venture. Lastly, we received $0.2 million in escrow distributions from two legacy portfolio companies, which were recognized as realized gains. 66 Total portfolio investment activity for the three months ended March 31, 2021 and 2020 was as follows: Three Months Ended March 31, 2021: Senior Debt and 1st Lien Notes Subordinated Debt and 2nd Lien Notes Structured Products Equity Shares Equity Warrants Investments in Joint Ventures / PE Fund Short-term Investments Total Fair value, beginning of period $ 1,171,250,512 $ 138,767,120 $ 32,508,845 $ 44,651,114 $ 1,300,197 $ 41,759,922 $ 65,558,227 $ 1,495,795,937 New investments 227,056,942 14,477,877 — 3,872,210 — 29,500,000 198,550,029 473,457,058 Proceeds from sales of investments (144,892,665) — (6,823,471) (5,971,996) — — (190,541,780) (348,229,912) Loan origination fees received (4,176,205) (402,163) — — — — — (4,578,368) Principal repayments received (21,392,290) (10,120,108) (752,526) — — — — (32,264,924) Payment-in-kind interest earned 828,659 7,007,695 — — — — — 7,836,354 Accretion of loan discounts 645,409 1,318,620 15,758 — — — — 1,979,787 Accretion of deferred loan origination revenue 1,269,802 211,236 — — — — — 1,481,038 Realized gain (loss) 2,206,896 3,140 652,320 (50,645) — — 2,698 2,814,409 Unrealized appreciation (depreciation) 5,380,995 (665,456) 552,681 (2,882,937) 134,112 1,316,461 (3,498) 3,832,358 Fair value, end of period $ 1,238,178,055 $ 150,597,961 $ 26,153,607 $ 39,617,746 $ 1,434,309 $ 72,576,383 $ 73,565,676 $ 1,602,123,737 Three Months Ended March 31, 2020: Senior Debt and 1st Lien Notes Subordinated Debt and 2nd Lien Notes Structured Products Equity Shares Investment in Joint Venture Short-term Investments Total Fair value, beginning of period $ 1,050,863,370 $ 15,220,969 $ — $ 760,716 $ 10,229,813 $ 96,568,939 $ 1,173,643,807 New investments 118,056,710 2,160,082 11,518,233 403,774 — 221,916,363 $ 354,055,162 Proceeds from sales of investments (70,448,795) — — (152,467) — (218,025,496) $ (288,626,758) Loan origination fees received (2,684,615) (19,808) — — — — $ (2,704,423) Principal repayments received (44,108,598) — — — — — $ (44,108,598) Accretion of loan discounts 180,698 4,465 3,239 — — — $ 188,402 Accretion of deferred loan origination revenue 649,654 8,351 — — — — $ 658,005 Realized gain (loss) (310,445) — — 152,467 — — $ (157,978) Unrealized depreciation (113,033,296) (1,389,918) (2,816,526) (121,316) (3,833,223) — $ (121,194,279) Fair value, end of period $ 939,164,683 $ 15,984,141 $ 8,704,946 $ 1,043,174 $ 6,396,590 $ 100,459,806 $ 1,071,753,340 67 Non-Accrual Assets Generally, when interest and/or principal payments on a loan become past due, or if we otherwise do not expect the borrower to be able to service its debt and other obligations, we will place the loan on non-accrual status and will generally cease recognizing interest income on that loan for financial reporting purposes until all principal and interest have been brought current through payment or due to a restructuring such that the interest income is deemed to be collectible. As of March 31, 2021, we had no non-accrual assets. As of December 31, 2020, the fair value of our non-accrual asset was $3.0 million, which comprised 0.2% of the total fair value of our portfolio, and the cost of our non-accrual asset was $3.0 million, which comprised 0.2% of the total cost of our portfolio. Results of Operations Comparison of the three months ended March 31, 2021 and March 31, 2020 Operating results for the three months ended March 31, 2021 and 2020 were as follows: Three Months Ended Three Months Ended March 31, 2021 March 31, 2020 Total investment income $ 30,593,231 $ 18,679,598 Total operating expenses 16,237,135 11,385,529 Net investment income 14,356,096 7,294,069 Income taxes, including excise tax benefit (18,038) — Net investment income after taxes 14,374,134 7,294,069 Net realized gains (losses) 1,839,580 (302,372) Net unrealized appreciation (depreciation) 6,274,155 (119,396,053) Loss on extinguishment of debt — (137,390) Benefit from taxes 410 19,999 Net increase (decrease) in net assets resulting from operations $ 22,488,279 $ (112,521,747) Net increases or decreases in net assets resulting from operations can vary substantially from period to period due to various factors, including recognition of realized gains and losses and unrealized appreciation and depreciation. As a result, quarterly comparisons of net changes in net assets resulting from operations may not be meaningful. Investment Income Three Months Ended Three Months Ended March 31, 2021 March 31, 2020 Investment income: Interest income $ 25,214,241 $ 17,674,402 Dividend income 71,500 — Fee and other income 2,133,175 960,993 Payment-in-kind interest income 3,173,787 43,572 Interest income from cash 528 631 Total investment income $ 30,593,231 $ 18,679,598 The change in investment income for the three months ended March 31, 2021, as compared to the three months ended March 31, 2020, was primarily due to an increase in the average size of our portfolio. The amount of our outstanding debt investments was $1,451.9 million as of March 31, 2021, as compared to $1,119.9 million as of March 31, 2020, which increase is in part due to the acquisition of investment assets in the MVC Acquisition. The weighted average yield on the principal amount of our outstanding debt investments was 7.2% as of March 31, 2021, as compared to 5.8% as of March 31, 2020. 68 Operating Expenses Three Months Ended Three Months Ended March 31, 2021 March 31, 2020 Operating expenses: Interest and other financing fees $ 7,284,709 $ 6,004,133 Base management fees 3,929,251 3,912,373 Incentive management fees 2,721,741 — Compensation expenses — 48,410 General and administrative expenses 2,301,434 1,420,613 Total operating expenses $ 16,237,135 $ 11,385,529 Interest and Other Financing Fees Interest and other financing fees during the three months ended March 31, 2021 were attributable to borrowings under the February 2019 Credit Facility, the August 2025 Notes, the November Notes and the February Notes (each as defined below under “Liquidity and Capital Resources”). Interest and other financing fees during the three months ended March 31, 2020 were attributable to borrowings under Barings BDC Senior Funding I, LLC’s credit facility entered into in August 2018 with Bank of America, N.A. (the “August 2018 Credit Facility”), the February 2019 Credit Facility and our May 2019 $449.3 million term debt securitization (the “Debt Securitization”). The increase in interest and other financing fees for the three months ended March 31, 2021 as compared to the three months ended March 31, 2020, was primarily attributable to the issuance of the August 2025 Notes, the November Notes and the February Notes and increased borrowings under the February 2019 Credit Facility, partially offset by the repayment of the Debt Securitization and the repayment of the borrowings under the August 2018 Credit Facility. Base Management Fees Under the terms of the Amended and Restated Advisory Agreement (and, prior to January 1, 2021, under the terms of the Original Advisory Agreement), we pay Barings a base management fee (the “Base Management Fee”), quarterly in arrears on a calendar quarter basis. The Base Management Fee is calculated based on the average value of our gross assets, excluding cash and cash equivalents, at the end of the two most recently completed calendar quarters prior to the quarter for which such fees are being calculated. Base Management Fees for any partial month or quarter are appropriately pro-rated. See Note 2 to our Unaudited Consolidated Financial Statements for additional information regarding the terms of the Amended and Restated Advisory Agreement (and, prior to January 1, 2021, the terms of the Original Advisory Agreement) and the fee arrangements thereunder. For both the three months ended March 31, 2021 and March 31, 2020, the amount of Base Management Fee incurred was approximately $3.9 million. For the three months ended March 31, 2021 and March 31, 2020, the Base Management Fee rate was 1.250% and 1.375%, respectively. Although the Base Management Fee rate decreased for the three months ended March 31, 2021 versus March 31, 2020, the average value of gross assets increased from $1,138.1 million as of the end of the two most recently completed calendar quarters prior to March 31, 2020 to $1,257.4 million as of the end of the two most recently completed calendar quarters prior to March 31, 2021, which resulted in a slight increase in fees between periods. Incentive Fee (and, prior to January 1, 2021, under the terms of the Original Advisory Agreement) Under the Amended and Restated Advisory Agreement (and, prior to January 1, 2021, under the terms of the Original Advisory Agreement), we pay Barings an incentive fee. A portion of the incentive fee is based on our income and a portion is based on our capital gains. The income-based fee will be determined and paid quarterly in arrears based on the amount by which (x) the aggregate pre-incentive fee net investment income in respect of the current calendar quarter and the eleven preceding calendar quarters beginning with the calendar quarter that commences on or after January 1, 2021, as the case may be (or the appropriate portion thereof in the case of any of our first eleven calendar quarters that commences on or after January 1, 2021) exceeds (y) the hurdle amount as calculated for the same period. See Note 2 to our Unaudited Consolidated Financial Statements for additional information regarding the terms of the Amended and Restated Advisory Agreement and the fee arrangements thereunder. For the three months ended March 31, 2021, the amount of income-based fee incurred was $2.7 million. 69 General and Administrative Expenses We entered into the Administration Agreement with Barings in August 2018. Under the terms of the Administration Agreement, Barings performs (or oversees, or arranges for, the performance of) the administrative services necessary for our operations. We will reimburse Barings for the costs and expenses incurred by it in performing its obligations and providing personnel and facilities under the Administration Agreement in an amount to be negotiated and mutually agreed to by us and Barings quarterly in arrears; provided that the agreed-upon quarterly expense amount will not exceed the amount of expenses that would otherwise be reimbursable by us under the Administration Agreement for the applicable quarterly period, and Barings will not be entitled to the recoupment of any amounts in excess of the agreed-upon quarterly expense amount. See Note 2 to our Unaudited Consolidated Financial Statements for additional information regarding the Administration Agreement. For the three months ended March 31, 2021, the amount of administration expense incurred and invoiced by Barings for expenses was approximately $0.5 million. For the three months ended March 31, 2020, the amount of administration expense incurred and invoiced by the Adviser for expenses was approximately $0.4 million. In addition to expenses incurred under the Administration Agreement, general and administrative expenses include Board fees, D&O insurance costs, as well as legal and accounting expenses. Net Realized Gains (Losses) Net realized gains (losses) during the three months ended March 31, 2021 and 2020 were as follows: Three Months Ended Three Months Ended March 31, 2021 March 31, 2020 Net realized gain (losses): Non-Control / Non-Affiliate investments $ 2,891,040 $ (157,978) Affiliate investments (76,631) — Net realized gains (losses) on investments 2,814,409 (157,978) Foreign currency transactions (974,829) (144,394) Net realized gains (losses) $ 1,839,580 $ (302,372) In the three months ended March 31, 2021, we recognized net realized gains totaling $1.8 million, which consisted primarily of a net gain on our loan portfolio of $2.8 million partially offset by a net loss on foreign currency transactions of $1.0 million. In the three months ended March 31, 2020, we recognized net realized losses totaling $0.3 million, which consisted primarily of a net loss on our loan portfolio of $0.3 million and a net loss on foreign currency transactions of $0.1 million, partially offset by $0.2 million in escrow distributions we received from two legacy portfolio companies, which were recognized as realized gains. Net Unrealized Appreciation (Depreciation) Net unrealized appreciation (depreciation) during the three months ended March 31, 2021 and 2020 was as follows: Three Months Ended Three Months Ended March 31, 2021 March 31, 2020 Net unrealized appreciation (depreciation): Non-Control / Non-Affiliate investments $ 5,357,095 $ (117,361,056) Affiliate investments 2,444,697 (3,833,223) Control investments (3,969,434) — Net unrealized appreciation (depreciation) on investments 3,832,358 (121,194,279) Credit support agreement (1,600,000) — Foreign currency transactions 4,041,797 1,798,226 Net unrealized appreciation (depreciation) $ 6,274,155 $ (119,396,053) During the three months ended March 31, 2021, we recorded net unrealized appreciation totaling $6.3 million, consisting of net unrealized appreciation on our current portfolio of $6.4 million and unrealized appreciation related to foreign currency transactions of $4.0 million, net of unrealized depreciation of $1.6 million on the credit support agreement with Barings and net of unrealized depreciation reclassification adjustments of $2.6 million related to the net realized gains on the sales / repayments of certain investments. The net unrealized appreciation on our current portfolio of $6.4 million was driven primarily by broad market moves for investments of $13.8 million, partially offset by depreciation from the credit or fundamental performance of investments of $3.0 million and the impact of foreign currency exchange rates on investments of $4.4 million. During the three months ended March 31, 2020, we recorded net unrealized depreciation totaling $119.4 million, consisting of net unrealized depreciation on our current portfolio of $121.6 million, and partially offset by net unrealized 70 appreciation related to foreign currency transactions of $1.8 million and net unrealized appreciation reclassification adjustments of $0.4 million related to the net realized losses on the sales / repayments of certain syndicated secured loans. The net unrealized depreciation on the Company’s current portfolio of $121.6 million was driven by broad market moves for liquid syndicated secured loans and structured product investments totaling $82.6 million, broad market moves for middle-market debt investments of $25.5 million, the credit or fundamental performance of middle-market debt investments totaling $8.2 million, the impact of foreign currency exchange rates on middle-market debt investments of $1.3 million, and net unrealized depreciation on the Company’s total equity and joint venture investments of $4.0 million. Liquidity and Capital Resources We believe that our current cash and cash equivalents on hand, our short-term investments, our available borrowing capacity under our $800 million senior secured revolving credit facility with ING Capital LLC (as amended, restated and otherwise modified from time to time, (the "February 2019 Credit Facility") and the August 2020 NPA (as defined below under "Financing Transactions") and our anticipated cash flows from operations will be adequate to meet our cash needs for our daily operations for at least the next twelve months. This “Liquidity and Capital Resources” section should be read in conjunction with “COVID-19 Developments” above, as well as with the notes to our Unaudited Consolidated Financial Statements. Cash Flows For the three months ended March 31, 2021, we experienced a net decrease in cash in the amount of $52.0 million. During that period, our operating activities used $85.1 million in cash, consisting primarily of purchases of portfolio investments of $276.5 million and purchases of short-term investments of $198.6 million, partially offset by proceeds from sales of portfolio investments totaling $188.2 million and sales of short-term investments of $190.5 million. In addition, our financing activities provided $33.1 million of cash, consisting of net proceeds of $149.8 million from the issuance of the February Notes (as defined below under “Financing Transactions”), partially offset by net repayments under the February 2019 Credit Facility of $104.3 million and dividends paid in the amount of $12.4 million. As of March 31, 2021, we had $40.5 million of cash and foreign currencies on hand. For the three months ended March 31, 2020, we experienced a net decrease in cash in the amount of $14.5 million. During that period, our operating activities provided $36.0 million in cash, consisting primarily of proceeds from sales of portfolio investments totaling $155.9 million and sales of short-term investments of $218.0 million, partially offset by purchases of portfolio investments of $123.2 million and purchases of short-term investments of $221.9 million. In addition, our financing activities used $50.5 million of cash, consisting primarily of net repayments under the August 2018 Credit Facility and the February 2019 Credit Facility of $10.9 million, repayments of the Debt Securitization of $27.0 million, share repurchases of $4.8 million and dividends paid in the amount of $7.8 million. As of March 31, 2020, we had $7.5 million of cash and foreign currencies on hand. Financing Transactions February 2019 Credit Facility On February 21, 2019, we entered into the February 2019 Credit Facility (as subsequently amended in December 2019), with ING Capital LLC (“ING”), as administrative agent, and the lenders party thereto. The initial commitments under the February 2019 Credit Facility total $800.0 million. The February 2019 Credit Facility has an accordion feature that allows for an increase in the total commitments by up to $400.0 million, subject to certain conditions and the satisfaction of specified financial covenants. We can borrow foreign currencies directly under the February 2019 Credit Facility. The February 2019 Credit Facility, which is structured as a revolving credit facility, is secured primarily by a material portion of our assets and guaranteed by certain of our subsidiaries. Following the termination of the August 2018 Credit Facility on June 30, 2020, Barings BDC Senior Funding I, LLC became a subsidiary guarantor and its assets will secure the February 2019 Credit Facility. The revolving period of the February 2019 Credit Facility ends on February 21, 2023, followed by a one-year repayment period with a final maturity date of February 21, 2024. Borrowings under the February 2019 Credit Facility bear interest, subject to our election, on a per annum basis equal to (i) the applicable base rate plus 1.00% (or 1.25% if we no longer maintain an investment grade credit rating), (ii) the applicable LIBOR rate plus 2.00% (or 2.25% if we no longer maintain an investment grade credit rating), (iii) for borrowings denominated in certain foreign currencies other than Australian dollars, the applicable currency rate for the foreign currency as defined in the credit agreement plus 2.00% (or 2.25% if we no longer maintain an investment grade credit rating), or (iv) for borrowings denominated in Australian dollars, the applicable Australian dollars Screen Rate, plus 2.20% (or 2.45% if we no longer maintain an investment grade credit rating). The applicable base rate is equal to the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.5%, (iii) the Overnight Bank Funding Rate plus 0.5%, (iv) the adjusted three-month applicable currency rate 71 plus 1.0% and (v) 1.0%. The applicable LIBOR and currency rates depend on the currency and term of the draw under the February 2019 Credit Facility, and cannot be less than zero. In addition, we pay a commitment fee of (i) 0.5% per annum on undrawn amounts if the unused portion of the February 2019 Credit Facility is greater than two-thirds of total commitments or (ii) 0.375% per annum on undrawn amounts if the unused portion of the February 2019 Credit Facility is equal to or less than two-thirds of total commitments. In connection with entering into the February 2019 Credit Facility, we incurred financing fees of approximately $6.4 million, which will be amortized over the life of the February 2019 Credit Facility. As of March 31, 2021, we were in compliance with all covenants under the February 2019 Credit Facility and had U.S. dollar borrowings of $357.0 million outstanding under the February 2019 Credit Facility with a weighted average interest rate of 2.125% (weighted average one month LIBOR of 0.125%), borrowings denominated in Swedish kronas of 12.8kr million ($1.5 million U.S. dollars) with an interest rate of 2.000% (one month STIBOR of 0.000%), borrowings denominated in British pounds sterling of £85.3 million ($117.7 million U.S. dollars) with an interest rate of 2.063% (one month GBP LIBOR of 0.063%), borrowings denominated in Australian dollars of A$36.6 million ($27.9 million U.S. dollars) with an interest rate of 2.250% (one month AUD Screen Rate of 0.050%) and borrowings denominated in Euros of €91.1 million ($107.1 million U.S. dollars) with an interest rate of 2.000% (one month EURIBOR of 0.000%). The borrowings denominated in foreign currencies were translated into U.S. dollars based on the spot rate at the relevant balance sheet date. The impact resulting from changes in foreign exchange rates on the February 2019 Credit Facility borrowings is included in "Net unrealized appreciation (depreciation) - foreign currency transactions" in the our Unaudited Consolidated Statements of Operations. The fair values of the borrowings outstanding under the February 2019 Credit Facility are based on a market yield approach and current interest rates, which are Level 3 inputs to the market yield model. As of March 31, 2021, the total fair value of the borrowings outstanding under the February 2019 Credit Facility was $611.1 million. See Note 5 to our Unaudited Consolidated Financial Statements for additional information regarding the February 2019 Credit Facility. August 2025 Notes On August 3, 2020, we entered into a Note Purchase Agreement (the “August 2020 NPA”) with Massachusetts Mutual Life Insurance Company governing the issuance of (1) $50.0 million in aggregate principal amount of Series A senior unsecured notes due August 2025 (the “Series A Notes due 2025”) with a fixed interest rate of 4.66% per year, and (2) up to $50.0 million in aggregate principal amount of additional senior unsecured notes due August 2025 with a fixed interest rate per year to be determined (the “Additional Notes” and, collectively with the Series A Notes due 2025, the “August 2025 Notes”), in each case, to qualified institutional investors in a private placement. An aggregate principal amount of $25.0 million of the Series A Notes due 2025 was issued on September 24, 2020 and an aggregate principal amount of $25.0 million of the Series A Notes due 2025 was issued on September 29, 2020, both of which will mature on August 4, 2025 unless redeemed, purchased or prepaid prior to such date by us in accordance with their terms. Interest on the August 2025 Notes will be due semiannually in March and September, beginning in March 2021. In addition, we are obligated to offer to repay the August 2025 Notes at par (plus accrued and unpaid interest to, but not including, the date of prepayment) if certain change in control events occur. Subject to the terms of the August 2020 NPA, 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. The August 2025 Notes are guaranteed by certain of our subsidiaries, and are our general unsecured obligations that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by us. On November 4, 2020, we amended the August 2020 NPA to reduce the aggregate principal amount of unissued Additional Notes from $50.0 million to $25.0 million. The August 2020 NPA contains certain representations and warranties, and various covenants and reporting requirements customary for senior unsecured notes issued in a private placement, including, without limitation, affirmative and negative covenants such as information reporting, maintenance of our status as a BDC within the meaning of the 1940 Act, certain restrictions with respect to transactions with affiliates, fundamental changes, changes of line of business, permitted liens, investments and restricted payments, minimum shareholders’ equity, maximum net debt to equity ratio and minimum asset coverage ratio. The August 2020 NPA also contains customary events of default with customary cure and notice periods, including, without limitation, nonpayment, incorrect representation in any material respect, breach of covenant, cross-default under our other indebtedness or that of our subsidiary guarantors, certain judgements and orders, and certain events of bankruptcy. Upon the occurrence of an event of default, the holders of at least 66-2/3% in principal amount of the August 2025 Notes at the time outstanding may declare all August 2025 Notes then outstanding to be immediately due and payable. As of March 31, 2021, we were in compliance with all covenants under the August 2020 NPA. 72 The August 2025 Notes were offered in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”). The August 2025 Notes have not and will not be registered under the Securities Act or any state securities laws and, unless so registered, may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, as applicable. As of March 31, 2021, the fair value of the outstanding August 2025 Notes was $50.0 million. The fair value determination of the August 2025 Notes was based on a market yield approach and current interest rates, which are Level 3 inputs to the market yield model. November Notes On November 4, 2020, we entered into a Note Purchase Agreement (the “November 2020 NPA”) governing the issuance of (1) $62.5 million in aggregate principal amount of Series B senior unsecured notes due November 2025 (the “Series B Notes”) with a fixed interest rate of 4.25% per year and (2) $112.5 million in aggregate principal amount of Series C senior unsecured notes due November 2027 (the “Series C Notes,” and, collectively with the Series B Notes, the “November Notes”) with a fixed interest rate of 4.75% per year, in each case, to qualified institutional investors in a private placement. Each stated interest rate is subject to a step up of (x) 0.75% per year, to the extent the applicable November Notes do not satisfy certain investment grade conditions and/or (y) 1.50% per year, to the extent the ratio of our secured debt to total assets exceeds specified thresholds, measured as of each fiscal quarter end. The November Notes were delivered and paid for on November 5, 2020. The Series B Notes will mature on November 4, 2025, and the Series C Notes will mature on November 4, 2027 unless redeemed, purchased or prepaid prior to such date by us in accordance with their terms. Interest on the November Notes will be due semiannually in May and November, beginning in May 2021. In addition, we are obligated to offer to repay the November Notes at par (plus accrued and unpaid interest to, but not including, the date of prepayment) if certain change in control events occur. Subject to the terms of the November 2020 NPA, we may redeem the Series B Notes and the Series C Notes in whole or in part at any time or from time to time at our option at par plus accrued interest to the prepayment date and, if redeemed on or 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 . The November Notes are guaranteed by certain of our subsidiaries, and are our general unsecured obligations that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by us. The November 2020 NPA contains certain representations and warranties, and various covenants and reporting requirements customary for senior unsecured notes issued in a private placement, including, without limitation, affirmative and negative covenants such as information reporting, maintenance of our status as a BDC within the meaning of the 1940 Act, certain restrictions with respect to transactions with affiliates, fundamental changes, changes of line of business, permitted liens, investments and restricted payments, minimum shareholders’ equity, maximum net debt to equity ratio and minimum asset coverage ratio. The November 2020 NPA also contains customary events of default with customary cure and notice periods, including, without limitation, nonpayment, incorrect representation in any material respect, breach of covenant, cross-default under our other indebtedness or that of our subsidiary guarantors, certain judgements and orders, and certain events of bankruptcy. Upon the occurrence of an event of default, the holders of at least 66-2/3% in principal amount of the November Notes at the time outstanding may declare all November Notes then outstanding to be immediately due and payable. As of March 31, 2021, we were in compliance with all covenants under the November 2020 NPA. The November Notes were offered in reliance on Section 4(a)(2) of the Securities Act. The November Notes have not and will not be registered under the Securities Act or any state securities laws and, unless so registered, may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, as applicable. As of March 31, 2021, the fair value of the outstanding Series B Notes and the Series C Notes was $62.5 million and $112.5 million, respectively. The fair value determinations of the Series B Notes and Series C Notes were based on a market yield approach and current interest rates, which are Level 3 inputs to the market yield model. February Notes On February 25, 2021, we entered into a Note Purchase Agreement (the “February 2021 NPA”) governing the issuance of (1) $80.0 million in aggregate principal amount of Series D senior unsecured notes due February 26, 2026 (the “Series D Notes”) with a fixed interest rate of 3.41% per year and (2) $70.0 million in aggregate principal amount of Series E senior unsecured notes due February 26, 2028 (the “Series E Notes” and, collectively with the Series D Notes, the “February Notes”) with a fixed interest rate of 4.06% per year, in each case, to qualified institutional investors in a private placement. Each stated interest rate is subject to a step up of (x) 0.75% per year, to the extent the applicable February Notes do not satisfy certain 73 investment grade rating conditions and/or (y) 1.50% per year, to the extent the ratio of our secured debt to total assets exceeds specified thresholds, measured as of each fiscal quarter end. The February Notes were delivered and paid for on February 26, 2021. The Series D Notes will mature on February 26, 2026, and the Series E Notes will mature on February 26, 2028 unless redeemed, purchased or prepaid prior to such date by us in accordance with the terms of the February 2021 NPA. Interest on the February Notes will be due semiannually in February and August of each year, beginning in August 2021. In addition, we are obligated to offer to repay the February Notes at par (plus accrued and unpaid interest to, but not including, the date of prepayment) if certain change in control events occur. Subject to the terms of the February 2021 NPA, we may redeem the Series D Notes and the Series E Notes in whole or in part at any time or from time to time at our option at par plus accrued interest to the prepayment date and, if redeemed on or 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. The February Notes are guaranteed by certain of our subsidiaries, and are our general unsecured obligations that rank pari passu with all outstanding and future unsecured unsubordinated indebtedness issued by us. The February 2021 NPA contains certain representations and warranties, and various covenants and reporting requirements customary for senior unsecured notes issued in a private placement, including, without limitation, information reporting, maintenance of our status as a BDC within the meaning of the 1940 Act, and certain restrictions with respect to transactions with affiliates, fundamental changes, changes of line of business, permitted liens, investments and restricted payments. In addition, the February 2021 NPA contains the following financial covenants: (a) maintaining a minimum obligors’ net worth, measured as of each fiscal quarter end; (b) not permitting our asset coverage ratio, as of the date of the incurrence of any debt for borrowed money or the making of any cash dividend to shareholders, to be less than the statutory minimum then applicable to us under the 1940 Act; and (c) not permitting our net debt to equity ratio to exceed 2.0x, measured as of each fiscal quarter end. The February 2021 NPA also contains customary events of default with customary cure and notice periods, including, without limitation, nonpayment, incorrect representation in any material respect, breach of covenant, cross-default under other indebtedness or that of our subsidiary guarantors, certain judgements and orders, and certain events of bankruptcy. Upon the occurrence of certain events of default, the holders of at least 66-2/3% in principal amount of the February Notes at the time outstanding may declare all February Notes then outstanding to be immediately due and payable. As of March 31, 2021, we were in compliance with all covenants under the February 2021 NPA. The February Notes were offered in reliance on Section 4(a)(2) of the Securities Act. The February Notes have not and will not be registered under the Securities Act or any state securities laws and, unless so registered, may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, as applicable. As of March 31, 2021, the fair value of the outstanding Series D Notes and the Series E Notes was $80.0 million and $70.0 million, respectively. The fair value determinations of the Series D Notes and Series E Notes were based on a market yield approach and current interest rates, which are Level 3 inputs to the market yield model. Share Repurchases On February 27, 2020, the Board approved an open-market share repurchase program for the 2020 fiscal year (the “2020 Share Repurchase Program”). 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 NAV per share, subject to liquidity and regulatory constraints. Purchases under the 2020 Share Repurchase Program were made in open-market transactions and included transactions being executed by a broker selected us that had been delegated the authority to repurchase shares on our behalf in the open market in accordance with applicable rules under the Exchange Act, including Rules 10b5-1 and 10b-18 thereunder, and pursuant to, and under the terms and limitations of, the 2020 Share Repurchase Program. During the three months ended March 31, 2020, we repurchased a total of 661.981 shares of our common stock in the open market under the 2020 Share Repurchase Program at an average price of $7.23 per share, including broker commissions. 74 In addition, in connection with the closing of the MVC Acquisition on December 23, 2020, we committed to make open-market purchases of shares of our common stock in an aggregate amount of up to $15.0 million at then-current market prices at any time shares trade below 90% of our then most recently disclosed NAV per share. Any repurchases pursuant to the authorized program will occur during the 12-month period commencing upon the filing of this quarterly report on Form 10-Q for the quarter ended March 31, 2021 and will be made in accordance with applicable legal, contractual and regulatory requirements. Distributions to Stockholders We intend to pay quarterly distributions to our stockholders out of assets legally available for distribution. We have adopted a dividend reinvestment plan (“DRIP”) that provides for reinvestment of dividends on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, when we declare a dividend, stockholders who have not opted out of the DRIP will have their dividends automatically reinvested in shares of our common stock, rather than receiving cash dividends. We have elected to be treated as a RIC under the Internal Revenue Code of 1986, as amended, or the Code, and intend to make the required distributions to our stockholders as specified therein. In order to maintain our tax treatment as a RIC and to obtain RIC tax benefits, we must meet certain minimum distribution, source-of-income and asset diversification requirements. If such requirements are met, then we are generally required to pay income taxes only on the portion of our taxable income and gains we do not distribute (actually or constructively) and certain built-in gains. We have historically met our minimum distribution requirements and continually monitor our distribution requirements with the goal of ensuring compliance with the Code. We can offer no assurance that we will achieve results that will permit the payment of any level of cash distributions and our ability to make distributions will be limited by the asset coverage requirement and related provisions under the 1940 Act and contained in any applicable indenture and related supplements. In addition, in order to satisfy the annual distribution requirement applicable to RICs, we may declare a significant portion of our dividends in shares of our common stock instead of in cash. As long as a portion of such dividend is paid in cash (which portion may be as low as 20% of such dividend under published guidance from the Internal Revenue Service) and certain requirements are met, the entire distribution will be treated as a dividend for U.S. federal income tax purposes. As a result, a stockholder generally would be subject to tax on 100% of the fair market value of the dividend on the date the dividend is received by the stockholder in the same manner as a cash dividend, even though most of the dividend was paid in shares of our common stock. The minimum distribution requirements applicable to RICs require us to distribute to our stockholders each year at least 90% of our investment company taxable income, or ICTI, as defined by the Code. Depending on the level of ICTI and net capital gain, if any, earned in a tax year, we may choose to carry forward ICTI in excess of current year distributions into the next tax year and pay a 4% U.S. federal excise tax on such excess. Any such carryover ICTI must be distributed before the end of the next tax year through a dividend declared prior to filing the final tax return related to the year which generated such ICTI. ICTI generally differs from net investment income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses. We may be required to recognize ICTI in certain circumstances in which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rules as having original issue discount (such as debt instruments issued with warrants), we must include in ICTI each year a portion of the original issue discount that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. We may also have to include in ICTI other amounts that we have not yet received in cash, such as (i) PIK interest income and (ii) interest income from investments that have been classified as non-accrual for financial reporting purposes. Interest income on non-accrual investments is not recognized for financial reporting purposes, but generally is recognized in ICTI. Because any original issue discount or other amounts accrued will be included in our ICTI for the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the minimum distribution requirements, even though we will not have received and may not ever receive any corresponding cash amount. ICTI also excludes net unrealized appreciation or depreciation, as investment gains or losses are not included in taxable income until they are realized. Recent Developments Subsequent to March 31, 2021, we made approximately $156.3 million of new commitments, of which $106.4 million closed and funded. The $106.4 million of investments consist of $82.6 million of first lien senior secured debt investments, $20.9 million of second lien senior secured and subordinated debt investments and a $2.9 million equity investments with a combined weighted average yield on debt investments of 6.7%. In addition, we funded $5.1 million of previously committed delayed draw term loans. On May 6, 2021, the Board declared a quarterly distribution of $0.20 per share payable on June 16, 2021 to holders of record as of June 9, 2021. 75 Critical Accounting Policies and Use of Estimates The preparation of our unaudited financial statements in accordance with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the periods covered by such financial statements. We have identified investment valuation and revenue recognition as our most critical accounting estimates. On an ongoing basis, we evaluate our estimates, including those related to the matters described below. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from those estimates under different assumptions or conditions. A discussion of our critical accounting policies follows. Investment Valuation The most significant estimate inherent in the preparation of our financial statements is the valuation of investments and the related amounts of unrealized appreciation and depreciation of investments recorded. We have a valuation policy, as well as established and documented processes and methodologies for determining the fair values of portfolio company investments on a recurring (at least quarterly) basis in accordance with the 1940 Act and FASB ASC Topic 820, Fair Value Measurements and Disclosures, or ASC Topic 820. Our current valuation policy and processes were established by Barings and have been approved by the Board. Under ASC Topic 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between a willing buyer and a willing seller at the measurement date. For our portfolio securities, fair value is generally the amount that we might reasonably expect to receive upon the current sale of the security. The fair value measurement assumes that the sale occurs in the principal market for the security, or in the absence of a principal market, in the most advantageous market for the security. If no market for the security exists or if we do not have access to the principal market, the security should be valued based on the sale occurring in a hypothetical market. Under ASC Topic 820, there are three levels of valuation inputs, as follows: Level 1 Inputs – include quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2 Inputs – include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 Inputs – include inputs that are unobservable and significant to the fair value measurement. A financial instrument is categorized within the ASC Topic 820 valuation hierarchy based upon the lowest level of input to the valuation process that is significant to the fair value measurement. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore, unrealized appreciation and depreciation related to such investments categorized as Level 3 investments within the tables in the notes to our consolidated financial statements may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3). Our investment portfolio includes certain debt and equity instruments of privately held companies for which quoted prices or other observable inputs falling within the categories of Level 1 and Level 2 are generally not available. In such cases, we determine the fair value of our investments in good faith primarily using Level 3 inputs. In certain cases, quoted prices or other observable inputs exist, and if so, we assess the appropriateness of the use of these third-party quotes in determining fair value based on (i) our understanding of the level of actual transactions used by the broker to develop the quote and whether the quote was an indicative price or binding offer and (ii) the depth and consistency of broker quotes and the correlation of changes in broker quotes with underlying performance of the portfolio company. There is no single standard for determining fair value in good faith, as fair value depends upon the specific circumstances of each individual investment. The recorded fair values of our Level 3 investments may differ significantly from fair values that would have been used had an active market for the securities existed. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. Investment Valuation Process Barings has established a pricing committee that is, subject to the oversight of the Board, responsible for the approval, implementation and oversight of the processes and methodologies that relate to the pricing and valuation of assets we hold. Barings uses independent third-party providers to price the portfolio, but in the event an acceptable price cannot be obtained 76 from an approved external source, Barings will utilize alternative methods in accordance with internal pricing procedures established by Barings' pricing committee. At least annually, Barings conducts reviews of the primary pricing vendors to validate that the inputs used in the vendors’ pricing process are deemed to be market observable. While Barings is not provided access to proprietary models of the vendors, the reviews have included on-site walkthroughs of the pricing process, methodologies and control procedures for each asset class and level for which prices are provided. The review also includes an examination of the underlying inputs and assumptions for a sample of individual securities across asset classes, credit rating levels and various durations, a process Barings continues to perform annually. In addition, the pricing vendors have an established challenge process in place for all security valuations, which facilitates identification and resolution of prices that fall outside expected ranges. Barings believes that the prices received from the pricing vendors are representative of prices that would be received to sell the assets at the measurement date (i.e., exit prices). Our money market fund investments are generally valued using Level 1 inputs and our equity investments listed on an exchange or on the NASDAQ National Market System are valued using Level 1 inputs, using the last quoted sale price of that day. Our syndicated senior secured loans and structured product investments are generally valued using Level 2 inputs, which are generally valued at the bid quotation obtained from dealers in loans by an independent pricing service. Our middle-market, private debt and equity investments are generally valued using Level 3 inputs. Independent Valuation The fair value of loans and equity investments that are not syndicated or for which market quotations are not readily available, including middle-market loans, are generally submitted to independent providers to perform an independent valuation on those loans and equity investments as of the end of each quarter. Such loans and equity investments are initially held at cost, as that is a reasonable approximation of fair value on the acquisition date, and monitored for material changes that could affect the valuation (for example, changes in interest rates or the credit quality of the borrower). At the quarter end following the initial acquisition, such loans and equity investments are generally sent to a valuation provider which will determine the fair value of each investment. The independent valuation providers apply various methods (synthetic rating analysis, discounting cash flows, and re-underwriting analysis) to establish the rate of return a market participant would require (the “discount rate”) as of the valuation date, given market conditions, prevailing lending standards and the perceived credit quality of the issuer. Future expected cash flows for each investment are discounted back to present value using these discount rates in the discounted cash flow analysis. A range of values will be provided by the valuation provider and Barings will determine the point within that range that it will use in making valuation recommendations to the Board, and will report to the Board on its rationale for each such determination. Barings continues to use its internal valuation model as a comparison point to validate the price range provided by the valuation provider and, where applicable, in determining the point within that range that it will use in making valuation recommendations to the Board. If Barings’ pricing committee disagrees with the price range provided, it may make a fair value recommendation to the Board that is outside of the range provided by the independent valuation provider, and will notify the Board of any such override and the reasons therefore. In certain instances, we may determine that it is not cost-effective, and as a result is not in the stockholders' best interests, to request an independent valuation firm to perform an independent valuation on certain investments. Such instances include, but are not limited to, situations where the fair value of the investment in the portfolio company is determined to be insignificant relative to the total investment portfolio. Pursuant to these procedures, the Board determines in good faith whether our investments were valued at fair value in accordance with our valuation policies and procedures and the 1940 Act based on, among other things, the input of Barings, our Audit Committee and the independent valuation firm. The SEC recently adopted new Rule 2a-5 under the 1940 Act. This rule establishes requirements for determining fair value in good faith for purposes of the 1940 Act. We will comply with the new rule’s valuation requirements on or before the SEC’s compliance date in 2022. Valuation Techniques Our valuation techniques are based upon both observable and unobservable pricing inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument. An independent pricing service provider is the preferred source of pricing a loan, however, to the extent the independent pricing service provider price is unavailable or not relevant and reliable, we will utilize alternative approaches such as broker quotes or manual prices. We attempt to maximize the use of observable inputs and minimize the use of unobservable inputs. The availability of observable inputs can vary from investment to investment and is affected by a wide 77 variety of factors, including the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets and other characteristics particular to the security. Valuation of Investment in Jocassee We estimate the fair value of our investment in Jocassee Partners LLC, or Jocassee, using the NAV of Jocassee and our ownership percentage. The NAV of Jocassee is determined in accordance with the specialized accounting guidance for investment companies. Valuation of Investment in Thompson Rivers We estimate the fair value of our investment in Thompson Rivers LLC, or Thompson Rivers, using the NAV of Thompson Rivers and our ownership percentage. The NAV of Thompson Rivers is determined in accordance with the specialized accounting guidance for investment companies. Valuation of Investments in MVC Private Equity Fund LP We estimate the fair value of our investment in MVC Private Equity Fund LP, or MVC PE Fund, using the NAV of the MVC PE Fund and our ownership percentage. The NAV of the MVC PE Fund is determined in accordance with the specialized accounting guidance for investment companies. Valuation of Investment in Waccamaw River We estimate the fair value of our investment in Waccamaw River LLC, or Waccamaw River, using the NAV of Waccamaw River and our ownership percentage. The NAV of Waccamaw River is determined in accordance with the specialized accounting guidance for investment companies. Revenue Recognition Interest and Dividend Income Interest income, including amortization of premium and accretion of discount, is recorded on the accrual basis to the extent that such amounts are expected to be collected. Generally, when interest and/or principal payments on a loan become past due, or if we otherwise do not expect the borrower to be able to service its debt and other obligations, we will place the loan on non-accrual status and will generally cease recognizing interest income on that loan for financial reporting purposes until all principal and interest have been brought current through payment or due to a restructuring such that the interest income is deemed to be collectible. The cessation of recognition of such interest will negatively impact the reported fair value of the investment. We write off any previously accrued and uncollected interest when it is determined that interest is no longer considered collectible. Dividend income is recorded on the ex-dividend date. We may have to include interest income in our ICTI, including original issue discount income, from investments that have been classified as non-accrual for financial reporting purposes. Interest income on non-accrual investments is not recognized for financial reporting purposes, but generally is recognized in ICTI. As a result, we may be required to make a distribution to our stockholders in order to satisfy the minimum distribution requirements to maintain our RIC tax treatment, even though we will not have received and may not ever receive any corresponding cash amount. Additionally, any loss recognized by us for U.S. federal income tax purposes on previously accrued interest income will be treated as a capital loss. Fee Income Origination, facility, commitment, consent and other advance fees received in connection with the origination of a loan, or Loan Origination Fees, are recorded as deferred income and recognized as investment income over the term of the loan. Upon prepayment of a loan, any unamortized Loan Origination Fees are recorded as investment income. In the general course of our business, we receive certain fees from portfolio companies, which are non-recurring in nature. Such fees include loan prepayment penalties, advisory, loan amendment and other fees, and are recorded as investment income when earned. 78 Fee income for the three months ended March 31, 2021 and 2020 was as follows: Three Months Ended Three Months Ended March 31, 2021 March 31, 2020 Recurring Fee Income: Amortization of loan origination fees $ 1,078,090 $ 429,549 Management, valuation and other fees 581,395 175,755 Total Recurring Fee Income 1,659,485 605,304 Non-Recurring Fee Income: Prepayment fees 49,517 84,151 Acceleration of unamortized loan origination fees 402,948 228,456 Advisory, loan amendment and other fees 21,225 43,082 Total Non-Recurring Fee Income 473,690 355,689 Total Fee Income $ 2,133,175 $ 960,993 Payment-in-Kind (PIK) Interest Income We currently hold, and expect to hold in the future, some loans in our portfolio that contain PIK interest provisions. PIK interest, computed at the contractual rate specified in each loan agreement, is periodically added to the principal balance of the loan, rather than being paid to us in cash, and is recorded as interest income. Thus, the actual collection of PIK interest may be deferred until the time of debt principal repayment. PIK interest, which is a non-cash source of income at the time of recognition, is included in our taxable income and therefore affects the amount we are required to distribute to our stockholders to maintain our tax treatment as a RIC for U.S. federal income tax purposes, even though we have not yet collected the cash. Generally, when current cash interest and/or principal payments on a loan become past due, or if we otherwise do not expect the borrower to be able to service its debt and other obligations, we will place the loan on non-accrual status and will generally cease recognizing PIK interest income on that loan for financial reporting purposes until all principal and interest have been brought current through payment or due to a restructuring such that the interest income is deemed to be collectible. We write off any previously accrued and uncollected PIK interest when it is determined that the PIK interest is no longer collectible. We may have to include in our ICTI, PIK interest income from investments that have been classified as non-accrual for financial reporting purposes. Interest income on non-accrual investments is not recognized for financial reporting purposes, but generally is recognized in ICTI. As a result, we may be required to make a distribution to our stockholders in order to satisfy the minimum distribution requirements, even though we will not have received and may not ever receive any corresponding cash amount. 79 Off-Balance Sheet Arrangements In the normal course of business, we are party to financial instruments with off-balance sheet risk, consisting primarily of unused commitments to extend financing to our portfolio companies. Since commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. As of March 31, 2021 and December 31, 2020, the Company believed that it had adequate financial resources to satisfy its unfunded commitments. The balances of unused commitments to extend financing as of March 31, 2021 and December 31, 2020 were as follows: Portfolio Company(1) Investment Type March 31, 2021 December 31, 2020 ADE Holding(3) Committed Capex Line $ 88,194 $ 91,814 Anju Software, Inc. Delayed Draw Term Loan 1,981,371 1,981,371 Arch Global Precision, LLC Delayed Draw Term Loan 3,631,849 4,193,475 Beacon Pointe Advisors, LLC Delayed Draw Term Loan — 363,636 Bidwax(2)(3) Acquisition Capex Facility 3,760,958 — BigHand UK Bidco Limited(4) Acquisition Capex Facility 1,843,756 — British Engineering Services Holdco Limited(4) Acquisition Facility — 7,006,008 British Engineering Services Holdco Limited(4) Bridge Revolver 623,944 618,177 Centralis Finco S.a.r.l.(3) Acquisition Facility 476,392 495,950 Classic Collision (Summit Buyer, LLC)(2) Delayed Draw Term Loan 454,562 1,672,446 CM Acquisitions Holdings Inc. Delayed Draw Term Loan 1,551,602 1,551,602 Contabo Finco S.À R.L(3) Delayed Draw Term Loan 219,212 228,211 CSL Dualcom(4) Delayed Draw Term Loan 1,016,577 1,007,182 Dart Buyer, Inc. Delayed Draw Term Loan 2,430,569 2,430,569 DreamStart Bidco SAS(3) Acquisition Facility 956,378 995,640 F24 (Stairway BidCo GmbH)(3) Acquisition Facility 418,703 323,840 Fineline Technologies, Inc.(2) Delayed Draw Term Loan 600,000 — FitzMark Buyer, Inc. Delayed Draw Term Loan 1,470,588 1,470,588 Foundation Risk Partners, Corp. Delayed Draw Term Loan 4,716,805 4,984,771 Heartland, LLC Delayed Draw Term Loan 5,347,666 5,347,666 Heilbron (f/k/a Sucsez (Bolt Bidco B.V.))(3) Accordion Facility — 10,225,081 Home Care Assistance, LLC(2) Delayed Draw Term Loan 3,038,310 — IGL Holdings III Corp. Delayed Draw Term Loan 5,914,219 5,914,219 INOS 19-090 GmbH(2)(3) Acquisition Facility 2,620,403 2,727,980 Jocassee Partners LLC Joint Venture 25,000,000 30,000,000 Kano Laboratories LLC(2) Delayed Draw Term Loan 4,543,950 4,543,950 Kene Acquisition, Inc. Delayed Draw Term Loan — 322,928 LAF International(2)(3) Acquisition Facility 364,343 — LivTech Purchaser, Inc.(2) Delayed Draw Term Loan 447,752 — Modern Star Holdings Bidco Pty Limited(5) Capex Term Loan 2,285,953 2,315,967 Murphy Midco Limited(4) Delayed Draw Term Loan 3,332,269 3,301,472 Navia Benefit Solutions, Inc.(2) Delayed Draw Term Loan 4,000,000 — Options Technology Ltd. Delayed Draw Term Loan 2,604,080 2,604,080 Pacific Health Supplies Bidco Pty Limited(5) CapEx Term Loan 1,343,603 1,535,025 Premier Technical Services Group(4) Acquisition Facility 1,208,676 1,197,505 Protego Bidco B.V.(2)(3) Delayed Draw Term Loan 3,836,870 — Protego Bidco B.V.(2)(3) Revolver 2,302,121 — PSC UK Pty Ltd.(4) Acquisition Facility 540,149 535,157 Questel Unite(2)(3) Cap Acquisition Facility 4,747,241 10,300,913 Radwell International, LLC Delayed Draw Term Loan 1,617,973 3,235,947 80 Portfolio Company(1) Investment Type March 31, 2021 December 31, 2020 Rep Seko Merger Sub LLC Delayed Draw Term Loan 1,454,545 1,454,546 Safety Products Holdings, LLC Delayed Draw Term Loan 6,467,345 6,467,345 Smile Brands Group, Inc.(2) Delayed Draw Term Loan 2,148,691 2,148,691 Springbrook Software (SBRK Intermediate, Inc.) Delayed Draw Term Loan 3,489,026 3,489,026 SSCP Pegasus Midco Limited(4) Delayed Draw Term Loan 13,514,446 13,389,546 The Hilb Group, LLC(2) Delayed Draw Term Loan 5,105,694 5,545,939 Transit Technologies LLC(2) Delayed Draw Term Loan 6,035,305 6,035,305 USLS Acquisition, Inc.(2) Delayed Draw Term Loan 450,466 450,466 Utac Ceram(2)(3) Delayed Draw Term Loan — 743,327 Waccamaw River Joint Venture 20,500,000 — W2O Holdings, Inc. Delayed Draw Term Loan 5,989,298 5,989,298 Total unused commitments to extend financing $ 166,491,854 $ 159,236,659 (1) Our estimate of the fair value of the current investments in these portfolio companies includes an analysis of the fair value of any unfunded commitments. (2) Represents a commitment to extend financing to a portfolio company where one or more of our current investments in the portfolio company are carried at less than cost. (3) Actual commitment amount is denominated in Euros. Commitment was translated into U.S. dollars based on the spot rate at the relevant balance sheet date. (4) Actual commitment amount is denominated in British pounds sterling. Commitment was translated into U.S. dollars based on the spot rate at the relevant balance sheet date. (5) Actual commitment amount is denominated in Australian dollars. Commitment was translated into U.S. dollars based on the spot rate at the relevant balance sheet date. In the normal course of business, we guarantee certain obligations in connection with our portfolio companies (in particular, certain controlled portfolio companies). Under these guarantee arrangements, payments may be required to be made to third parties if such guarantees are called upon or if the portfolio companies were to default on their related obligations, as applicable. As of March 31, 2021 and December 31, 2020, we had guaranteed €9.9 million ($11.6 million U.S. dollars and $12.1 million U.S. dollars, respectively) relating to credit facilities among Erste Bank and MVC Automotive Group Gmbh, or MVC Auto. We would be required to make payments to Erste Bank if MVC Auto were to default on their related payment obligations. None of the credit facility guarantees are recorded as a liability on our Unaudited and Audited Consolidated Balance Sheets. As such, the credit facility liabilities are considered in the valuation of our investments in MVC Auto. The guarantees denominated in foreign currencies were translated into U.S. dollars based on the spot rate at the relevant balance sheet date. In addition, we agreed to cash collateralize a $3.5 million letter of credit for Security Holdings B.V. The $3.5 million cash collateralization is reflected as "Restricted cash" on the accompanying Unaudited and Audited Consolidated Balance Sheets.