Barings BDC, Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The information in this section contains forward-looking statements that involve risks and uncertainties. Please see “Risk Factors” and “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with these statements. You should read the following discussion in conjunction with the combined financial statements and related notes and other financial information appearing elsewhere in this Annual Report on Form 10-K. The following discussion is designed to provide a better understanding of our financial statements, 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 consolidated financial statements and the notes thereto included or incorporated by reference in Item 8 of this Annual Report on Form 10-K. 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. MVC Capital, Inc. Acquisition On December 23, 2020, we completed our acquisition of MVC Capital, Inc., a Delaware corporation (“MVC”) (the “MVC Acquisition”) pursuant to the terms and conditions of that certain Agreement and Plan of Merger (the “MVC Merger Agreement”), dated as of August 10, 2020, with MVC, Mustang Acquisition Sub, Inc., a Delaware corporation and our wholly owned subsidiary (“Acquisition Sub”), and Barings LLC, our external investment adviser and our administrator (“Barings”). To effect the acquisition, Acquisition Sub merged with and into MVC, with MVC surviving the merger as our wholly owned subsidiary (the “First MVC Merger”). Immediately thereafter, MVC merged with and into us, with us as the surviving company (the “Second MVC Merger” and, together with the First MVC Merger, the “ MVC Merger”). Pursuant to the MVC Merger Agreement, MVC stockholders received the right to the following merger consideration in exchange for each share of MVC common stock issued and outstanding immediately prior to the effective time of the First MVC Merger (other than shares of MVC common stock issued and outstanding immediately prior to the effective time of the First MVC Merger that were held by a subsidiary of MVC or held, directly or indirectly, by us or the Acquisition Sub), in accordance with the MVC Merger Agreement: (i) an amount in cash from Barings, without interest, equal to $0.39492, and (ii) 0.9790836 shares of our common stock, which ratio gave effect to the Euro-dollar exchange rate adjustment mechanism in the MVC Merger Agreement, plus cash in lieu of fractional shares. We issued approximately 17,354,332 shares of our common stock to MVC’s then-existing stockholders in connection with the MVC Merger, thereby resulting in our then-existing stockholders owning approximately 73.4% of the combined company and MVC's then-existing stockholders owning approximately 26.6% of the combined company. In connection with the MVC Acquisition, on December 23, 2020, following the closing of the MVC Merger, we entered into (1) an amended and restated investment advisory agreement (the “Amended and Restated Advisory Agreement”) with Barings, effective January 1, 2021, and (2) a credit support agreement (the “ MVC Credit Support Agreement”) with Barings, pursuant to which Barings has agreed to provide credit support to us in the amount of up to $23.0 million relating to the net cumulative realized and unrealized losses on the acquired MVC investment portfolio over a 10-year period. See “Business—MVC Capital, Inc. Acquisition” and “Business—Management Agreements – Investment Advisory Agreement” in Item 1 of Part I of this Annual Report on Form 10-K, as well as “Note 2 . Agreements and Related Party Transactions” and “Note. 6 Derivative Instruments” in the Notes to our Consolidated Financial Statements included in this Annual Report on Form 10-K for more information. In addition, in connection with the closing of the MVC Merger, our board of directors (the “Board”) affirmed our commitment 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. Any repurchases pursuant to the authorized program will occur during the 12-month period that commenced upon the filing of our quarterly report on Form 10-Q for the quarter ended March 31, 2021, which occurred on May 6, 2021, and will be made in accordance with applicable legal, regulatory and contractual 76 requirements, including covenants under our $875 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"). Pending Sierra Income Corporation Acquisition On September 21, 2021, we entered into an Agreement and Plan of Merger (the “Sierra Merger Agreement”) by and among us, Mercury Acquisition Sub, Inc., a Maryland corporation and our direct wholly owned subsidiary (“Sierra Acquisition Sub”), Sierra Income Corporation, a Maryland corporation (“Sierra”), and Barings. The Sierra Merger Agreement provides that, on the terms and subject to the conditions set forth in the Sierra Merger Agreement, Sierra Acquisition Sub will merge with and into Sierra, with Sierra continuing as the surviving company and as our wholly owned subsidiary (the “First Sierra Merger”) and, immediately thereafter, Sierra will merge with and into us, with Barings BDC, Inc. continuing as the surviving company (the “Second Sierra Merger” and, together with the First Sierra Merger, the “Sierra Merger”). Both the Board and the board of directors of Sierra, including all of the respective independent directors, have approved the Sierra Merger Agreement and the transactions contemplated therein. The parties to the Sierra Merger Agreement intend the Sierra Merger to be treated as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). In the First Sierra Merger, each share of Sierra common stock issued and outstanding immediately prior to the effective time of the First Sierra Merger (excluding any shares cancelled pursuant to the Sierra Merger Agreement) will be converted into the right to receive (i) $0.9783641 per share in cash, without interest, from Barings (such amount of cash, the “Sierra Cash Consideration”) and (ii) 0.44973 of a validly issued, fully paid and non-assessable share of our common stock (the “Sierra Share Consideration” and, together with the Sierra Cash Consideration, the “Sierra Merger Consideration”). The Sierra Merger Agreement contains representations, warranties and covenants, including, among others, covenants relating to the operation of each of our and Sierra’s businesses during the period prior to the closing of the Sierra Merger. We and Sierra have agreed to convene and hold stockholder meetings for the purpose of obtaining the approvals required of our and Sierra’s stockholders, respectively, and our Board and the board of directors of Sierra have agreed to recommend that their respective stockholders approve the applicable proposals (as described below). The Sierra Merger Agreement provides that Sierra shall not, and shall cause its subsidiaries and instruct its representatives not to, directly or indirectly, solicit proposals relating to alternative transactions, or, subject to certain exceptions, initiate or participate in discussions or negotiations regarding, or provide information with respect to, any proposal for an alternative transaction. However, the Sierra board of directors may, subject to certain conditions, change its recommendation to the Sierra stockholders or, on payment of a termination fee of $11.0 million to us and the reimbursement of up to $2.0 million in expenses incurred by us and Barings, terminate the Sierra Merger Agreement and enter into an Alternative Acquisition Agreement (as defined in the Sierra Merger Agreement) for a Superior Proposal (as defined in the Sierra Merger Agreement) if it determines in good faith, after consultation with its outside legal counsel, that failure to do so would be inconsistent with the directors’ duties under applicable law. Consummation of the First Sierra Merger, which is currently anticipated to occur during the first quarter of fiscal year 2022, is subject to certain customary closing conditions, including (1) approval of the First Sierra Merger by the holders of at least a majority of the outstanding shares of Sierra common stock entitled to vote thereon, (2) approval of the issuance of our common stock to be issued in the First Sierra Merger by a majority of the votes cast by our stockholders on the matter at our stockholders meeting, (3) approval of the issuance of our common stock in connection with the First Sierra Merger at a price below the then-current net asset value per share of our common stock, if applicable, by the vote specified in Section 63(2)(A) of the Investment Company Act of 1940, as amended (the “1940 Act”), (4) the absence of certain legal impediments to the consummation of the Sierra Merger, (5) effectiveness of the registration statement for our common stock to be issued as consideration in the First Sierra Merger, (6) approval for listing on the NYSE of our common stock to be issued as consideration in the First Sierra Merger, (7) subject to certain materiality standards, the accuracy of the representations and warranties and compliance with the covenants of each party to the Sierra Merger Agreement, and (8) required regulatory approvals 77 (including expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or early termination thereof). Barings, as party to the Sierra Merger Agreement, agreed to vote all shares of our common stock over which it has voting power (other than in its fiduciary capacity) in favor of the proposals to be submitted by us to our stockholders for approval relating to the Sierra Merger. In addition, we and Sierra will take steps necessary to provide for the repayment at closing of Sierra’s existing loan agreement. The Sierra Merger Agreement also contains certain termination rights in favor of us and Sierra, including if the First Sierra Merger is not completed on or before March 31, 2022 or if the requisite approvals of our stockholders or Sierra stockholders are not obtained. Further, we will enter into an amendment and restatement of the Amended and Restated Advisory Agreement, effective as of the closing of the Sierra Merger, to raise the annualized hurdle rate thereunder from 8.0% to 8.25%. Following the closing of the Sierra Merger, we will also enter into a credit support agreement with Barings, for the benefit of the combined company, to protect against net cumulative unrealized and realized losses of up to $100.0 million on the acquired Sierra investment portfolio over the next ten years. 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 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 MVC Acquisition, we entered into 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. 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 78 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 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 December 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 of all of our outstanding investments (including equity and equity-linked investments and short-term investments but excluding non-accrual debt investments) was approximately 6.1% and 6.4% as of December 31, 2021 and December 31, 2020, respectively. The weighted average yield on the principal amount of all of our outstanding investments (including equity and equity-linked investments, short-term investments and non-accrual debt investments) was approximately 6.4% and 6.5% as of December 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 in the United States working remotely while maintaining service levels to our partners and clients. In the United States, Barings offices remained accessible throughout the fourth quarter of 2021 for employees who had a business need to work from an office location. All US-based employees have adopted a hybrid working pattern and started returning to office locations effective January 2022. In Europe, the majority of employees shifted to working remotely in the fourth quarter of 2021. In Asia-Pac, the majority of employees are working from office locations on average 2-3 days per week. Barings’ return-to-office taskforce continues to monitor the COVID-19 situation globally and are prepared to adapt office working patterns as required to ensure the safety of their employees and clients who visit Barings office locations. Barings’ cybersecurity policies are applied consistently when working remotely or in the office. While we have been carefully monitoring the COVID-19 pandemic and its impact on our business and the business of our portfolio companies, we have continued to fund our existing debt commitments. In addition, we have continued to make and originate, and expect to continue to make and originate, new loans. 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 extent and 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 79 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. Portfolio Composition The total value of our investment portfolio was $1,800.6 million as of December 31, 2021, as compared to $1,495.8 million as of December 31, 2020. As of December 31, 2021, we had investments in 212 portfolio companies with an aggregate cost of $1,787.8 million. As of December 31, 2020, we had investments in 146 portfolio companies and two money market fund with an aggregate cost of $1,486.1 million. As of both December 31, 2021 and 2020, none of our portfolio investments represented greater than 10% of the total fair value of our investment portfolio. As of December 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 December 31, 2021: Senior debt and 1st lien notes $ 1,217,899,217 68 % $ 1,221,597,953 68 % Subordinated debt and 2nd lien notes 253,550,848 14 240,036,808 13 Structured products 37,054,829 2 40,270,659 2 Equity shares 145,790,765 8 154,476,657 9 Equity warrants 1,111,602 — 1,107,543 — Investments in joint ventures/PE fund 132,416,803 8 143,104,332 8 Short-term investments — — — — $ 1,787,824,064 100 % $ 1,800,593,952 100 % December 31, 2020: Senior debt and 1st 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 — Investments 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 % 80 Investment Activity During the year ended December 31, 2021, we made 112 new investments totaling $1,069.4 million, made investments in existing portfolio companies totaling $234.0 million, made a new joint venture equity investment totaling $13.7 million, made additional investments in existing joint venture equity portfolio companies totaling $79.4 million and made an $89.8 million equity co-investment alongside certain affiliates in a portfolio company focused on directly originated, senior-secured asset-based loans to middle-market companies. We had 34 loans repaid at par totaling total $282.8 million and received $36.1 million of portfolio company principal payments. In addition, we sold $252.9 million of loans, recognizing a net realized gain on these transactions of $2.5 million, and sold $536.4 million of investments to our joint venture, realizing a loss on these transactions of $1.4 million. Lastly, we received proceeds related to the sale of equity investments totaling $8.6 million and recognized a net realized gain on such sales totaling $1.6 million. During the year ended December 31, 2020, we made 76 new investments totaling $743.2 million, purchased $185.0 million of investments as part of the MVC Acquisition, made investments in existing portfolio companies totaling $114.6 million, made a new joint venture equity investment totaling $10.0 million and made an additional investment in one existing joint venture equity portfolio company totaling $10.0 million. We had 18 loans repaid at par totaling total $76.4 million and received $15.3 million of portfolio company principal payments. In addition, we sold $468.4 million of loans, recognizing a net realized loss on these transactions of $39.5 million, and sold $126.1 million of middle-market portfolio company debt investments to our joint venture realizing a loss on these transactions of $1.4 million. In addition, one loan investment was restructured. Under U.S. GAAP, this restructuring was considered a material modification and as a result, we recognized a loss of approximately $0.6 million related to this restructuring. Lastly, we received $0.8 million in escrow distributions from legacy portfolio companies, which were recognized as realized gains and recognized a realized loss of $1.1 million relating to indemnification claims for a legacy Triangle Capital Corporation portfolio company. Total portfolio investment activity for the years ended December 31, 2021 and 2020 was as follows: December 31, 2021 Senior Debt and 1 st Lien Notes Subordinated Debt and 2 nd 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 1,104,331,866 160,737,734 19,815,398 108,111,475 163,000 93,134,271 297,560,982 1,783,854,726 Proceeds from sales of investments (765,417,430) (13,683,500) (10,068,420) (8,269,168) (450,000) — (363,118,408) (1,161,006,926) Loan origination fees received (26,844,600) (3,659,741) — — — — — (30,504,341) Principal repayments received (275,645,832) (39,272,993) (4,007,677) — — — — (318,926,502) Payment in kind interest 3,112,247 8,503,991 — — — — — 11,616,238 Accretion of loan premium/discount 2,032,636 2,582,431 31,218 — — — — 4,646,285 Accretion of deferred loan origination revenue 8,841,329 602,604 — — — — — 9,443,933 Realized gain (loss) 52,258 (36,487) 1,212,504 1,254,812 163,219 — (801) 2,645,505 Unrealized appreciation (depreciation) (115,033) (14,504,351) 778,791 8,728,424 (68,873) 8,210,139 — 3,029,097 Fair value, end of period $ 1,221,597,953 $ 240,036,808 $ 40,270,659 $ 154,476,657 $ 1,107,543 $ 143,104,332 $ — $ 1,800,593,952 81 December 31, 2020 Senior Debt and 1 st Lien Notes Subordinated Debt and 2 nd Lien Notes Structured Products Equity Shares Equity Warrants Investment in Joint Venture Short-term Investments Total Fair value, beginning of period $ 1,050,863,369 $ 15,220,969 $ — $ 760,716 $ — $ 10,229,813 $ 96,568,940 $ 1,173,643,807 New investments 815,145,050 8,244,226 33,018,233 1,286,365 101,602 20,000,000 1,182,185,606 2,059,981,082 Investments acquired in MVC merger 9,720,000 122,082,933 — 42,980,466 1,133,781 9,124,262 — 185,041,442 Proceeds from sales of investments (588,450,883) (2,940,255) (3,000,000) 221,094 — — (1,213,197,945) (1,807,367,989) Loan origination fees received (19,013,021) (180,224) — — — — — (19,193,245) Principal repayments received (86,295,211) (5,104,857) (336,069) — — — — (91,736,137) Payment in kind interest 453,896 41,753 — — — — — 495,649 Accretion of loan premium/discount 1,635,917 111,923 58,132 — — — — 1,805,972 Accretion of deferred loan origination revenue 2,672,194 44,571 — — — — — 2,716,765 Realized gain (loss) (38,462,897) 137,542 331,511 (310,105) — — 1,626 (38,302,323) Unrealized appreciation (depreciation) 22,982,098 1,108,539 2,437,038 (287,422) 64,814 2,405,847 — 28,710,914 Fair value, end 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 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 December 31, 2021, we had two assets on non-accrual, the fair value of which was $36.0 million, which comprised 2.0% of the total fair value of our portfolio, and the cost of which was $50.9 million, which comprised 2.9% of the total cost of our portfolio. As of December 31, 2020, we had one asset on non-accrual, the fair value of which was $3.0 million, which comprised 0.2% of the total fair value of our portfolio, and the cost of which was $3.0 million, which comprised 0.2% of the total cost of our portfolio. A summary of our non-accrual assets as of December 31, 2021 is provided below: Legal Solutions Holdings In connection with the MVC Acquisition, we purchased our debt investment in Legal Solutions Holdings, or Legal Solutions. During the quarter ended September 30, 2021, we placed our debt investment in Legal Solutions on non-accrual status. As a result, under U.S. GAAP, we will not recognize interest income on our debt investment in Legal Solutions for financial reporting purposes. As of December 31, 2021, the cost of our debt investment in Legal Solutions was $10.1 million and the fair value of such investment was $5.9 million. 82 Custom Alloy Corporation In connection with the MVC Acquisition, we purchased our debt investment in Custom Alloy Corporation, or Custom Alloy. During the quarter ended December 31, 2021, we placed our debt investment in Custom Alloy on non-accrual status. As a result, under U.S. GAAP, we will not recognize interest income on our debt investment in Custom Alloy for financial reporting purposes. As of December 31, 2021, the cost of our debt investment in Custom Alloy was $40.8 million and the fair value of such investment was $30.0 million. Discussion and Analysis of Financial Condition and Results of Operations Set forth below is a comparison of the results of operations and changes in financial condition for the years ended December 31, 2021 and 2020 . The comparison of, and changes between, the fiscal years ended December 31, 2020 and 2019 can be found within “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” included in Part II of our annual report on Form 10-K for the fiscal year ended December 31, 2020, which is incorporated herein by reference. Results of Operations Comparison of years ended December 31, 2021 and 2020 Operating results for the years ended December 31, 2021 and 2020: Year Ended December 31, 2021 2020 Total investment income $ 135,335,374 $ 71,031,068 Net operating expenses 76,367,540 39,972,665 Net investment income before taxes 58,967,834 31,058,403 Income taxes, including excise tax expense 7,495 70,599 Net investment income after taxes 58,960,339 30,987,804 Net realized losses (3,379,062) (38,289,580) Net unrealized appreciation 22,104,996 18,549,588 Loss on extinguishment of debt — (3,088,728) Benefit from (provision) for taxes (844) 17,709 Net increase in net assets resulting from operations $ 77,685,429 $ 8,176,793 Net increases or decreases in net assets resulting from operations vary substantially from period to period due to various factors. As a result, yearly comparisons of net increases or decreases in net assets resulting from operations may not be meaningful. Investment Income Year Ended December 31, 2021 2020 Total interest income $ 102,439,082 $ 65,620,891 Total dividend income 8,879,156 2,603 Total fee and other income 13,020,244 4,080,636 Total payment-in-kind interest income 10,996,305 1,326,307 Interest income from cash 587 631 Total investment income $ 135,335,374 $ 71,031,068 The change in total investment income for the year ended December 31, 2021, as compared to the year ended December 31, 2020, was primarily due to an increase in the average size of our portfolio, acceleration of unamortized OID and unamortized loan origination fee income associated with repayments of loans, an increase in payment-in-kind (“PIK”) interest income and increased dividends from portfolio companies and joint venture investments. For the year ended December 31, 2021, acceleration of unamortized OID income and unamortized loan origination fees totaled $6.2 million, as compared to $0.5 million for the year ended December 31, 2020. For the year ended December 31, 2021, PIK interest income was $11.0 million, as compared to $1.3 million for the year ended December 31, 2020. For the year ended December 31, 2021, dividends from portfolio companies and joint venture investments were $8.9 million, as compared to $2,603 for the year ended December 31, 2020. The amount 83 of our outstanding debt investments was $1,554.5 million as of December 31, 2021, as compared to $1,399.9 million as of December 31, 2020. The weighted average yield on the principal amount of our outstanding debt investments, other than non-accrual debt investments was 7.2% as of December 31, 2021, as compared to 7.1% as of December 31, 2020. Operating Expenses Year Ended December 31, 2021 2020 Interest and other financing fees $ 33,013,665 $ 19,812,711 Base management fee 19,516,741 14,317,693 Incentive management fees 14,741,949 — Compensation expenses — 48,381 General and administrative expenses 9,095,185 5,793,880 Total operating expenses $ 76,367,540 $ 39,972,665 Interest and Other Financing Fees Interest and other financing fees during the year ended December 31, 2021 were attributable to borrowings under the February 2019 Credit Facility, the August 2025 Notes, the November Notes, the February Notes and the November 2026 Notes (each as defined below under “Liquidity and Capital Resources”). Interest and other financing fees during the year ended December 31, 2020 were attributable to borrowings under Barings BDC Senior Funding I, LLC's (“BSF”) credit facility initially entered into in August 2018 with Bank of America, N.A. (the “August 2018 Credit Facility”), the February 2019 Credit Facility, our May 2019 $449.3 million term debt securitization (the “Debt Securitization”), the August 2025 Notes and the November Notes (each as defined below under “Liquidity and Capital Resources”). The increase in interest and other financing fees for the year ended December 31, 2021 as compared to the year ended December 31, 2020, was primarily attributable to the issuance of the February Notes and the November 2026 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 Consolidated Financial Statements for the year ended December 31, 2021 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 arrangement thereunder. For the years ended December 31, 2021 and December 31, 2020, the Base Management Fee was approximately $19.5 million and $14.3 million, respectively. The increase between periods was primarily due to the increase in our average gross assets, partially offset by a decrease in the Base Management Fee rate. The Base Management Fee rate was 1.250% for the year ended December 31, 2021, as compared to 1.375% for the year ended December 31, 2020. 84 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 Consolidated Financial Statements for additional information regarding the terms of the Amended and Restated Advisory Agreement and the fee arrangements thereunder. For the year ended December 31, 2021, the amount of income-based fee incurred was $14.7 million. We did not incur any income-based fee for the year ended December 31, 2020 . Compensation Expenses Prior to the externalization transaction with Barings in August 2018, compensation expenses were primarily influenced by headcount and levels of business activity. Our compensation expenses included salaries, discretionary compensation, equity-based compensation and benefits. Discretionary compensation was significantly impacted by our level of total investment income, our investment results, including investment realizations, prevailing labor markets and the external environment. In connection with the externalization transactions, all but two employees were terminated and remained employees until February 2020. 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 Consolidated Financial Statements for additional information regarding the Administration Agreement. For the years ended December 31, 2021 and 2020, the amount of administration expense incurred and invoiced by Barings for expenses was approximately $2.5 million and $1.6 million, respectively. In addition to expenses incurred under the Administration Agreement, general and administrative expenses include Board fees, D&O insurance costs, as well as legal and accounting expenses. Net Realized Gains (Losses) Net realized gains (losses) during the years ended December 31, 2021 and 2020 were as follows: Year Ended December 31, 2021 2020 Non-Control / Non-Affiliate investments $ 2,746,436 $ (38,302,323) Affiliate investments (100,931) — Net realized gains (losses) on investments 2,645,505 (38,302,323) Foreign currency transactions (6,024,567) 12,743 Net realized losses $ (3,379,062) $ (38,289,580) In the year ended December 31, 2021, we recognized a net realized loss totaling $3.4 million, which consisted primarily of a net loss on foreign currency transactions of $6.0 million, partially offset by a net gains on our loan portfolio of $2.6 million. 85 For the year ended December 31, 2020, we recognized a net realized loss totaling $38.3 million, which consisted primarily of a net loss on our loan portfolio of $38.0 million and a net loss of $1.1 million related to an indemnification claim in connection with a legacy Triangle Capital Corporation portfolio company, partially offset by $0.8 million in escrow distributions we received from portfolio companies, which were recognized as realized gains. Net Unrealized Appreciation and Depreciation Net unrealized appreciation and depreciation during the years ended December 31, 2021 and 2020 was as follows: Year Ended December 31, 2021 2020 Non-Control / Non-Affiliate investments $ (11,086,729) $ 26,210,329 Affiliate investments 17,584,892 2,471,217 Control investments (3,469,066) 29,368 Net unrealized appreciation on investments 3,029,097 28,710,914 Credit support agreement 1,800,000 — Foreign currency transactions 17,275,899 (10,161,326) Net unrealized appreciation $ 22,104,996 $ 18,549,588 For the year ended December 31, 2021, we recorded net unrealized appreciation totaling $22.1 million consisting of net unrealized appreciation on our current portfolio of $11.4 million, net unrealized appreciation related to foreign currency transactions of $17.3 million and unrealized appreciation of $1.8 million on the credit support agreement with Barings, net of unrealized depreciation reclassification adjustments of $8.4 million related to realized gains and losses recognized during the year. The net unrealized appreciation on our current portfolio of $11.4 million was driven primarily by broad market moves for investments of $31.5 million partially offset by the credit or fundamental performance of investments of $5.9 million and the impact of foreign currency exchange rates on investments of $14.2 million. For the year ended December 31, 2020, we recorded net unrealized appreciation totaling $18.5 million consisting of net unrealized depreciation on our current portfolio of $27.9 million, net unrealized depreciation related to foreign currency transactions of $10.2 million and net unrealized appreciation reclassification adjustments of $56.6 million related to realized gains and losses recognized during the year. The net unrealized depreciation on our current portfolio of $27.9 million was driven primarily by the credit or fundamental performance of middle-market debt investments of $6.1 million and the broad market moves for the entire investment portfolio of $29.5 million, partially offset by the positive impact of foreign currency exchange rates on middle-market debt investments of $7.7 million. Liquidity and Capital Resources We believe that our current cash and foreign currencies on hand, our available borrowing capacity under the February 2019 Credit Facility and our anticipated cash flows from operations will be adequate to meet our cash needs for our daily operations for at least the next twelve months. This "Liquidity and Capital Resources" section should be read in conjunction with "COVID-19 Developments" above, as well as with the notes to our Consolidated Financial Statements. Cash Flows For the year ended December 31, 2021, we experienced a net decrease in cash in the amount of $8.2 million. During that period, our operating activities used $396.6 million in cash, consisting primarily of purchases of portfolio investments of $1,461.1 million and purchases of short-term investments of $297.6 million, partially offset by proceeds from sales or repayments of portfolio investments totaling $943.9 million and proceeds from the sales of short-term investments of $363.1 million. In addition, our financing activities provided net cash of $388.3 million, consisting of net proceeds of $343.1 million from the issuance of the November 2026 Notes and $149.8 million from the issuance of the February Notes (both as defined below under “Financing Transactions”), partially 86 offset by net repayments under the February 2019 Credit Facility of $50.8 million and dividends paid in the amount of $53.6 million. At December 31, 2021, we had $84.3 million of cash and foreign currencies on hand. For the year ended December 31, 2020, we experienced a net increase in cash in the amount of $70.5 million. During that period, our operating activities used $218.1 million in cash, consisting primarily of purchases of portfolio investments of $881.2 million, the acquisition of MVC (net of cash received) of $96.7 million and purchases of short-term investments of $1,182.2 million, partially offset by proceeds from sales of investments totaling $684.5 million and proceeds from the sales of short-term investments of $1,213.2 million. In addition, financing activities provided net cash of $288.6 million, consisting primarily of net borrowings under the August 2018 Credit Facility and the February 2019 Credit Facility of $356.2 million, net proceeds from the August 2025 Notes and the November Notes issuances of $224.3, net proceeds from the issuance of common stock as part of the acquisition of MVC of $160.4 million, partially offset by repayments of the Debt Securitization of $318.2 million, purchases of shares under the share repurchase plan of $7.1 million, repayment of the notes acquired as part of the acquisition of MVC of $95.5 million and dividends paid in the amount of $31.3 million. At December 31, 2021, we had $92.5 million of cash 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. Effective on November 4, 2021, we increased aggregate commitments under the February 2019 Credit Facility to $875.0 million from $800.0 million pursuant to the accordion feature under the February 2019 Credit Facility, which allows for an increase in the total commitments to an aggregate of $1.2 billion subject to certain conditions and the satisfaction of specified financial covenants. 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, BSF 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 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 (i) paid a commitment fee of 0.375% per annum on undrawn amounts for the period beginning on the closing date of the February 2019 Credit Facility to and including the date that was six months after the closing date of the February 2019 Credit Facility, and (ii) thereafter pay a commitment fee of (x) 0.5% per annum on undrawn amounts if the unused portion of the February 2019 Credit Facility is greater than two-thirds of total commitments or (y) 0.375% per annum on undrawn amounts if the unused portion of the February 2019 Credit Facility is equal to or less than two-thirds of total commitments. 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. 87 As of December 31, 2021, we were in compliance with all covenants under the February 2019 Credit Facility and we had U.S. dollar borrowings of $377.0 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 ($1.4 million U.S. dollars) with an interest rate of 2.000% (one month STIBOR of 0.000%), borrowings denominated in British pounds sterling of £68.3 million ($92.5 million U.S. dollars) with a weighted average interest rate of 2.125% (weighted average one month GBP LIBOR of 0.125%), borrowings denominated in Australian dollars of A$36.6 million ($26.6 million U.S. dollars) with a weighted average interest rate of 2.250% (weighted average one month AUD Screen Rate of 0.250%) and borrowings denominated in Euros of €138.6 million ($157.6 million U.S. dollars) with a weighted average interest rate of 2.00% (weighted average 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 our 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 December 31, 2021 , the total fair value of the borrowings outstanding under the February 2019 Credit Facility was $655.2 million. See Note 4 to our Consolidated Financial Statements for additional information regarding the February 2019 Credit Facility. Term Debt Securitization On May 9, 2019, we completed the Debt Securitization. Term debt securitizations are also known as collateralized loan obligations and are a form of secured financing, which is consolidated for financial reporting purposes and subject to our overall asset coverage requirement. The notes offered in the Debt Securitization (collectively, the "2019 Notes"), were issued by Barings BDC Static CLO Ltd. 2019-I, ("BBDC Static CLO Ltd.") and Barings BDC Static CLO 2019-I, LLC, our wholly-owned and consolidated subsidiaries. BBDC Static CLO Ltd. and Barings BDC Static CLO 2019-I, LLC are collectively referred to herein as the Issuers. The 2019 Notes were secured by a diversified portfolio of senior secured loans and participation interests therein. The Debt Securitization was executed through a private placement of approximately $296.8 million of AAA(sf) Class A-1 Senior Secured Floating Rate 2019 Notes (the "Class A-1 2019 Notes"), which bore interest at the three-month LIBOR plus 1.02%; $51.5 million of AA(sf) Class A-2 Senior Secured Floating Rate 2019 Notes (the "Class A-2 2019 Notes"), which bore interest at the three-month LIBOR plus 1.65%; and $101.0 million of Subordinated 2019 Notes which did not bear interest and were not rated. We retained all of the Subordinated 2019 Notes issued in the Debt Securitization in exchange for our sale and contribution to BBDC Static CLO Ltd. of the initial closing date portfolio, which included senior secured loans and participation interests. The 2019 Notes were scheduled to mature on April 15, 2027; however the 2019 Notes could be redeemed by the Issuers, at our direction as holder of the Subordinated 2019 Notes, on any business day after May 9, 2020. In connection with the sale and contribution, we made customary representations, warranties and covenants to the Issuers. The Class A-1 2019 Notes and Class A-2 2019 Notes were the secured obligations of the Issuers, the Subordinated 2019 Notes were the unsecured obligations of BBDC Static CLO Ltd., and the indenture governing the 2019 Notes included customary covenants and events of default. The 2019 Notes were not registered under the Securities Act or any state securities or “blue sky” laws and could not be offered or sold in the United States absent registration with the Securities and Exchange Commission (the "SEC") or an applicable exemption from registration. We served as collateral manager to BBDC Static CLO Ltd. under a collateral management agreement and we agreed to irrevocably waive all collateral management fees payable pursuant to the collateral management agreement. The Class A-1 2019 Notes and the Class A-2 2019 Notes issued in connection with the Debt Securitization had floating rate interest provisions based on the three-month LIBOR that reset quarterly, except that LIBOR for the first interest accrual period was calculated by reference to an interpolation between the rate for deposits with a term equal to the next shorter period of time for which rates were available and the rate appearing for deposits with a term equal to the next longer period of time for which rates were available. 88 During the year ended December 31, 2019, $30.0 million of Class A-1 2019 Notes were repaid. During the year ended December 31, 2020, the remaining 2019 Notes were repaid in full, with the final repayment on October 15, 2020. See Note 4 to our Consolidated Financial Statements for additional information regarding the Debt Securitization. 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 is 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 December 31, 2021 , we were in compliance with all covenants under the August 2020 NPA. The August 2025 Notes were offered in reliance on Section 4(a)(2) of the Securities Act. The August 2025 Notes have not and will not be registered under the Securities Act or any state securities laws and, unless so registered, may not be offered or sold in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act, as applicable. As of December 31, 2021, the fair value of the outstanding August 2025 Notes was $52.2 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 89 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 is 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 December 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 December 31, 2021, the fair value of the outstanding Series B Notes and the Series C Notes was $64.1 million and $115.3 million, respectively. The fair value determinations of the Series B Notes and Series C Notes were based on a market yield approach and current interest rates, which are Level 3 inputs to the market yield model. February Notes 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 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 is 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 90 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 December 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 December 31, 2021, the fair value of the outstanding Series D Notes and the Series E Notes was $79.2 million and $68.7 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. November 2026 Notes On November 23, 2021, we entered into an Indenture (the “Base Indenture”) and a Supplemental Indenture (the “First Supplemental Indenture” and, together with the Base Indenture, the “Indenture”) with U.S. Bank National Association (the “Trustee”). The First Supplemental Indenture relates to our issuance of $350.0 million aggregate principal amount of its 3.300% notes due 2026 (the “November 2026 Notes”). The November 2026 Notes will mature on November 23, 2026 and may be redeemed in whole or in part at our option at any time or from time to time at the redemption prices set forth in the Indenture. The November 2026 Notes bear interest at a rate of 3.300% per year payable semi-annually on May 23 and November 23 of each year, commencing on May 23, 2022. The November 2026 Notes are our general unsecured obligations that rank senior in right of payment to all of our existing and future indebtedness that is expressly subordinated in right of payment to the November 2026 Notes, rank pari passu with all existing and future unsecured unsubordinated indebtedness issued by us, rank effectively junior to any of our secured indebtedness (including unsecured indebtedness that we later secure) to the extent of the value of the assets securing such indebtedness, and rank structurally junior to all existing and future indebtedness (including trade payables) incurred by our subsidiaries, financing vehicles or similar facilities. The Indenture contains certain covenants, including covenants requiring us to comply with the asset coverage requirements of Section 18(a)(1)(A) as modified by Section 61(a)(1) and (2) of the 1940 Act, whether or not it is subject to those requirements, and to provide financial information to the holders of the November 2026 Notes and 91 the Trustee if we are no longer subject to the reporting requirements under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These covenants are subject to important limitations and exceptions that are described in the Indenture. In addition, on the occurrence of a “change of control repurchase event,” as defined in the Indenture, we will generally be required to make an offer to purchase the outstanding November 2026 Notes at a price equal to 100% of the principal amount of such November 2026 Notes plus accrued and unpaid interest to the repurchase date. The November 2026 Notes were offered to persons reasonably believed to be qualified institutional buyers pursuant to Rule 144A under the Securities Act and to certain non-U.S. persons outside the United States pursuant to Regulation S under the Securities Act. The November 2026 Notes have not been registered under the Securities Act or any state securities laws and may not be offered or sold in the United States absent registration or an applicable exemption from such registration requirements. As of December 31, 2021, the fair value of the outstanding November 2026 Notes was $346.8 million. The fair value determinations of the November 2026 Notes were based on a market yield approach and current interest rates, which are Level 3 inputs to the market yield model. Share Repurchase Plan 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 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. 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 that commenced upon the filing of our quarterly report on Form 10-Q for the quarter ended March 31, 2021, which occurred on May 6, 2021, and will be made in accordance with applicable legal, contractual and regulatory requirements. During the year ended December 31, 2021, we did not repurchase any shares under the authorized program. Distributions to Stockholders We intend to pay quarterly distributions to our stockholders out of assets legally available for distribution. We have adopted a dividend reinvestment plan (“DRIP”) that provides for reinvestment of dividends on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, when we declare a dividend, stockholders who have not opted out of the DRIP will have their dividends automatically reinvested in shares of our common stock, rather than receiving cash dividends. We have elected to be treated as a RIC under the Code, and intend to make the required distributions to our stockholders as specified therein. In order to maintain our tax treatment as a RIC and to obtain RIC tax benefits, we must meet certain minimum distribution, source-of-income and asset diversification requirements. If such requirements are met, then we are generally required to pay income taxes only on the portion of our taxable income and gains we do not distribute (actually or constructively) and certain built-in gains. We have historically met our minimum distribution requirements and continually monitor our distribution requirements with the goal of ensuring compliance with the Code. We can offer no assurance that we will achieve results that will permit the payment of any level of cash distributions and our ability to make distributions will be limited by the asset coverage requirement 92 and related provisions under the 1940 Act and contained in any applicable indenture or financing agreement and related supplements. In addition, in order to satisfy the annual distribution requirement applicable to RICs, we may declare a significant portion of our dividends in shares of our common stock instead of in cash. As long as a portion of such dividend is paid in cash (which portion may be as low as 20% of such dividend (and 10% of the dividend declared through June 30, 2022) 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. Critical Accounting Policies and Use of Estimates The preparation of our 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 on-going 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. We describe our most significant accounting policies in Note 1 to our Consolidated Financial Statements. 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 93 FASB ASC Topic 820, Fair Value Measurements and Disclosures, or ASC Topic 820. Our current valuation policy and processes were established by Barings and were approved by the Board. As of December 31, 2021, our investment portfolio, valued at fair value in accordance with the Board-approved valuation policies, represented approximately 243% of our total net assets, as compared to approximately 208% of our total net assets as of December 31, 2020. 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 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 94 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 products 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 and 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 uses 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 has 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 95 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 variety of factors, including the type of security, whether the security is new and not yet established in the marketplace, the liquidity of markets and other characteristics particular to the security. Valuation of Investments in Jocassee, Thompson Rivers, Waccamaw River and MVC Private Equity Fund LP As Jocassee, Thompson Rivers, Waccamaw River and MVC Private Equity Fund LP are investment companies with no readily determinable fair values, we estimate the fair value of our investments in these entities using net asset value of each company and our ownership percentage as a practical expedient. The net asset value is determined in accordance with the specialized accounting guidance for investment companies. 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. 96 Fee income for the years ended December 31, 2021, 2020 and 2019 was as follows: Year Ended December 31, 2021 2020 2019 Recurring Fee Income: Amortization of loan origination fees $ 4,620,259 $ 2,179,859 $ 914,197 Management, valuation and other fees 2,185,600 867,465 275,510 Total Recurring Fee Income 6,805,859 3,047,324 1,189,707 Non-Recurring Fee Income: Prepayment fees 474,499 84,151 59,617 Acceleration of unamortized loan origination fees 4,823,674 536,906 694,971 Advisory, loan amendment and other fees 916,212 412,255 172,525 Total Non-Recurring Fee Income 6,214,385 1,033,312 927,113 Total Fee Income $ 13,020,244 $ 4,080,636 $ 2,116,820 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. Quantitative and Qualitative Disclosures About Market Risk We are subject to market risk. Market risk includes risks that arise from changes in interest rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. The prices of securities held by us may decline in response to certain events, including those directly involving the companies we invest in; conditions affecting the general economy; overall market changes; global pandemics; legislative reform; local, regional, national or global political, social or economic instability; and interest rate fluctuations. In addition, we are subject to interest rate risk. Interest rate risk is defined as the sensitivity of our current and future earnings to interest rate volatility, variability of spread relationships, the difference in re-pricing intervals between our assets and liabilities and the effect that interest rates may have on our cash flows. Changes in the general level of interest rates can affect our net interest income, which is the difference between the interest income earned on interest earning assets and our interest expense incurred in connection with our interest bearing debt and liabilities. Changes in interest rates can also affect, among other things, our ability to acquire and originate loans and securities and the value of our investment portfolio. Our net investment income is affected by fluctuations in various 97 interest rates, including LIBOR, EURIBOR, GBP LIBOR, BBSY, STIBOR, CDOR, and SONIA. Our risk management systems and procedures are designed to identify and analyze our risk, to set appropriate policies and limits and to continually monitor these risks. We regularly measure exposure to interest rate risk and determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates. As of December 31, 2021, we were not a party to any interest rate hedging arrangements. In connection with the COVID-19 pandemic, the U.S. Federal Reserve and other central banks reduced certain interest rates and LIBOR decreased. A continuation in the reduced level of interest rates will depress our gross investment income and could result in a decrease in our net investment income if such decreases in LIBOR are not offset by a corresponding increase in the spread over LIBOR that we earn on any portfolio investments, a decrease in in our operating expenses, including with respect to our income incentive fee, or a decrease in the interest rate of our floating interest rate liabilities tied to LIBOR. As of December 31, 2021, approximately $1,307.5 million (principal amount) of our debt portfolio investments bore interest at variable rates, which generally are LIBOR-based (or based on an equivalent applicable currency rate), and many of which are subject to certain floors. A hypothetical 200 basis point increase or decrease in the interest rates on our variable-rate debt investments could increase or decrease, as applicable, our investment income by a maximum of $26.2 million on an annual basis. Borrowings under the February 2019 Credit Facility bear interest, subject to our election, on a per annum basis equal to (i) the applicable base rate plus 1.00% (or 1.25% if we no longer maintain an investment grade credit rating), (ii) the applicable LIBOR rate plus 2.00% (or 2.25% if we no longer maintain an investment grade credit rating), (iii) for borrowings denominated in certain foreign currencies other than Australian dollars, the applicable currency rate for the foreign currency as defined in the credit agreement plus 2.00% (or 2.25% if we no longer maintain an investment grade credit rating) or (iv) for borrowings denominated in Australian dollars, the applicable Australian dollars Screen Rate, plus 2.20% (or 2.45% if we no longer maintain an investment grade credit rating). The applicable base rate is equal to the greatest of (i) the prime rate, (ii) the federal funds rate plus 0.5%, (iii) the Overnight Bank Funding Rate plus 0.5%, (iv) the adjusted three-month applicable currency rate plus 1.0% and (v) 1.0%. 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. A hypothetical 200 basis point increase or decrease in the interest rates on the February 2019 Credit Facility could increase or decrease, as applicable, our interest expense by a maximum of $13.1 million on an annual basis (based on the amount of outstanding borrowings under the February 2019 Credit Facility as of December 31, 2021). We pay a commitment fee of (x) 0.5% per annum on undrawn amounts if the unused portion of the February 2019 Credit Facility is greater than two-thirds of total commitments or (y) 0.375% per annum on undrawn amounts if the unused portion of the February 2019 Credit Facility is equal to or less than two-thirds of total commitments. In July 2017, the head of the U.K. Financial Conduct Authority (the “FCA”), announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. In March 2021, the FCA confirmed that all LIBOR settings will either cease to be provided by any administrator or no longer be representative: (a) immediately after December 31, 2021, in the case of sterling, euro, Swiss franc, and Japanese yen, and the one week and two month U.S. dollar settings; and (b) immediately after June 30, 2023, in the case of the remaining U.S. dollar settings . In addition, as a result of supervisory guidance from U.S. regulators, some U.S. regulated entities will cease to enter into new LIBOR contracts after January 1, 2022. At this time, no consensus exists as to what rate or rates will become accepted alternatives to LIBOR, although the Alternative Reference Rates Committee, a steering committee convened by the Board of Governors of the Federal Reserve System and the Federal Reserve Bank of New York and comprised of large U.S. financial institutions, has recommended the use of the Secured Overnight Financing Rate, SOFR. There are many uncertainties regarding a transition from LIBOR to SOFR or any other alternative benchmark rate that may be established, including, but not limited to, the timing of any such transition, the need to amend all contracts with LIBOR as the referenced rate and, given the inherent differences between LIBOR and SOFR or any other alternative benchmark rate, how any transition may impact the cost and performance of impacted securities, variable rate debt and derivative financial instruments. In addition, SOFR or another alternative benchmark rate may fail to gain market acceptance, which could adversely affect the return on, value of and market for securities, variable rate debt and derivative financial instruments linked to such rates. The effects of a transition from LIBOR to SOFR or any other alternative benchmark rate on our cost of capital 98 and net investment income cannot yet be determined definitively. All of our loan agreements with our portfolio companies include fallback language in the event that LIBOR becomes unavailable. This language generally either includes a clearly defined alternative reference rate after LIBOR’s discontinuation or provides that the administrative agent may identify a replacement reference rate, typically with the consent of (or prior consultation with) the borrower. In certain cases, the administrative agent will be required to obtain the consent of either a majority of the lenders under the facility, or the consent of each lender, prior to identifying a replacement reference rate. 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. Because we have previously borrowed, and plan to borrow in the future, money to make investments, our net investment income will be dependent upon the difference between the rate at which we borrow funds and the rate at which we invest the funds borrowed. Accordingly, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds would increase, which could reduce our net investment income if there is not a corresponding increase in interest income generated by our investment portfolio. We may also have exposure to foreign currencies related to certain investments. Such investments are translated into U.S. dollars based on the spot rate at the relevant balance sheet date, exposing us to movements in the exchange rate. In order to reduce our exposure to fluctuations in exchange rates, we generally borrow in local foreign currencies under the February 2019 Credit Facility to finance such investments. As of December 31, 2021, we had borrowings denominated in Swedish kronas of 12.8kr million ($1.4 million U.S. dollars) with an interest rate of 2.000%, borrowings denominated in British pounds sterling of £68.3 million ($92.5 million U.S. dollars) with a weighted average interest rate of 2.125%, borrowings denominated in Australian dollars A$36.6 million ($26.6 million U.S. dollars) with a weighted average interest rate of 2.250% and borrowings denominated in Euros of €138.6 million ($157.6 million U.S. dollars) with a weighted interest rate of 2.000%. Unused Commitments In the normal course of business, we are party to financial instruments with off-balance sheet risk, consisting primarily of unused commitments to extend financing to our portfolio companies. Since commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The balance of unused commitments to extend financing as of December 31, 2021 was as follows: Portfolio Company Investment Type December 31, 2021 Acclime Holdings HK Limited(1) Delayed Draw Term Loan $ 1,178,571 Acclime Holdings HK Limited(1) Delayed Draw Term Loan 110,119 Air Comm Corporation, LLC(1) Delayed Draw Term Loan 10,801 Air Comm Corporation, LLC(1) Delayed Draw Term Loan 1,448,107 Amtech Software(1)(2) Delayed Draw Term Loan 2,727,273 Amtech Software(1)(2) Revolver 681,818 AnalytiChem Holding GmbH(1)(2)(3) Delayed Draw Term Loan 6,207,333 Aquavista Watersides 2 LTD(1)(4) Bridge Revolver 503,472 Aquavista Watersides 2 LTD(1)(4) Acquisition Facility 3,146,698 Arch Global Precision, LLC(1) Delayed Draw Term Loan — Astra Bidco Limited(1)(2)(4) Delayed Draw Term Loan 2,571,405 Avance Clinical Bidco Pty Ltd(1)(5) Delayed Draw Term Loan 3,497,352 Azalea Buyer, Inc.(1)(2) Delayed Draw Term Loan 961,538 Azalea Buyer, Inc.(1)(2) Revolver 480,769 Bariacum S.A(1)(3) Acquisition Facility 2,160,679 99 Portfolio Company Investment Type December 31, 2021 Beyond Risk Management, Inc.(1)(2) Delayed Draw Term Loan 2,573,333 BigHand UK Bidco Limited(1)(2)(4) Acquisition Facility 378,348 Bounteous, Inc.(1) Delayed Draw Term Loan 2,840,367 Brightpay Limited(1)(2)(3) Delayed Draw Term Loan 431,799 Brightpay Limited(1)(2)(3) Delayed Draw Term Loan 143,933 BrightSign LLC(1) Revolver 1,328,991 British Engineering Services Holdco Limited(1)(4) Bridge Revolver 612,525 CAi Software, LLC(1)(2) Revolver 942,986 Canadian Orthodontic Partners Corp.(1)(2)(6) Acquisition Facility 166,685 Centralis Finco S.a.r.l.(1)(3) Acquisition Facility 460,949 Ceres Pharma NV(1)(3) Delayed Draw Term Loan 2,148,974 Classic Collision (Summit Buyer, LLC)(1) Delayed Draw Term Loan 392,619 Coastal Marina Holdings, LLC(1) PIK Tranche B Term Loan 1,311,220 Coastal Marina Holdings, LLC(1) Tranche A Term Loan 3,575,892 Command Alkon (Project Potter Buyer, LLC)(1) Delayed Draw Term Loan 6,018,078 Coyo Uprising GmbH(1)(3) Delayed Draw Term Loan 893,523 Crash Champions, LLC(1)(2) Delayed Draw Term Loan 5,420,303 CSL Dualcom(1)(4) Acquisition Term Loan 997,972 Dart Buyer, Inc.(1)(2) Delayed Draw Term Loan 2,430,569 DecksDirect, LLC(1)(2) Revolver 218,182 DreamStart Bidco SAS(1)(3) Acquisition Facility 616,916 Dune Group(1)(3) Delayed Draw Term Loan 664,587 Dwyer Instruments, Inc.(1) Delayed Draw Term Loan 691,712 Eclipse Business Capital, LLC(1) Revolver 11,818,182 EMI Porta Holdco LLC(1)(2) Delayed Draw Term Loan 12,457,627 EMI Porta Holdco LLC(1)(2) Revolver 2,966,102 EPS NASS Parent, Inc.(1) Delayed Draw Term Loan 583,051 eShipping, LLC(1)(2) Delayed Draw Term Loan 2,548,131 eShipping, LLC(1)(2) Revolver 1,231,597 F24 (Stairway BidCo GmbH)(1)(2)(3) Delayed Draw Term Loan 405,130 Fineline Technologies, Inc.(1) Delayed Draw Term Loan 180,000 FragilePak LLC(1) Delayed Draw Term Loan 2,354,167 Heartland Veterinary Partners, LLC(1)(2) Delayed Draw Term Loan 657,143 Heavy Construction Systems Specialists, LLC(1) Revolver 2,631,772 HW Holdco, LLC (Hanley Wood LLC)(1)(2) Delayed Draw Term Loan 1,563,022 IGL Holdings III Corp.(1) Delayed Draw Term Loan 1,217,221 Innovad Group II BV(1)(2)(3) Delayed Draw Term Loan 1,824,551 INOS 19-090 GmbH(1)(2)(3) Acquisition Facility 2,535,457 Jocassee Partners LLC Joint Venture 20,000,000 ITI Intermodal, Inc.(1)(2) Delayed Draw Term Loan 103,058 ITI Intermodal, Inc.(1)(2) Revolver 124,006 Jaguar Merger Sub Inc.(1)(2) Delayed Draw Term Loan 1,960,784 Jaguar Merger Sub Inc.(1)(2) Revolver 490,196 Kano Laboratories LLC(1)(2) Delayed Draw Term Loan 153,064 100 Portfolio Company Investment Type December 31, 2021 Kano Laboratories LLC(1)(2) Delayed Draw Term Loan 4,543,950 LAF International(1)(2)(3) Acquisition Facility 341,160 Lambir Bidco Limited(1)(3) Bridge Revolver 940,651 Lambir Bidco Limited(1)(3) Delayed Draw Term Loan 1,881,303 LivTech Purchaser, Inc.(1) Delayed Draw Term Loan 81,977 Marmoutier Holding B.V.(1)(3) Delayed Draw Term Loan 405,082 Marmoutier Holding B.V.(1)(3) Revolver 162,033 MC Group Ventures Corporation(1) Delayed Draw Term Loan 817,250 Modern Star Holdings Bidco Pty Limited(1)(5) Capex Term Loan 1,038,302 Murphy Midco Limited(1)(4) Delayed Draw Term Loan 2,617,027 Narda Acquisitionco., Inc.(1)(2) Revolver 1,310,680 Navia Benefit Solutions, Inc.(1) Delayed Draw Term Loan 1,260,800 Nexus Underwriting Management Limited(1)(4) Revolver 103,483 Nexus Underwriting Management Limited(1)(4) Acquisition Facility 540,919 OA Buyer, Inc.(1)(2) Revolver 1,331,244 OG III B.V.(1)(2)(3) Acquisition CapEx Facility 686,294 Omni Intermediate Holdings, LLC(1) Delayed Draw Term Loan 816,892 Omni Intermediate Holdings, LLC(1) Delayed Draw Term Loan 4,356,757 OSP Hamilton Purchaser, LLC(1)(2) Revolver 186,567 Pacific Health Supplies Bidco Pty Limited(1)(2)(5) CapEx Term Loan 1,282,566 PDQ.Com Corporation(1)(2) Delayed Draw Term Loan 289,389 PDQ.Com Corporation(1)(2) Delayed Draw Term Loan 10,947,692 Polara Enterprises, L.L.C.(1)(2) Revolver 545,234 Policy Services Company, LLC(1)(2) Delayed Draw Term Loan 6,944,079 Premium Invest(1)(2)(3) Acquisition Facility 1,933,240 Protego Bidco B.V.(1)(2)(3) Delayed Draw Term Loan 844,265 QPE7 SPV1 BidCo Pty Ltd(1)(5) Acquisition Term Loan 373,449 Rep Seko Merger Sub LLC(1) Delayed Draw Term Loan 1,454,545 Reward Gateway (UK) Ltd(1)(2)(4) Acquisition Facility 1,061,336 Riedel Beheer B.V.(1)(3) Revolver 229,711 Riedel Beheer B.V.(1)(3) Delayed Draw Term Loan 153,141 Scaled Agile, Inc.(1)(2) Delayed Draw Term Loan 416,188 Scaled Agile, Inc.(1)(2) Revolver 335,821 Security Holdings B.V.(1)(3) Delayed Draw Term Loan 2,274,399 Security Holdings B.V.(1)(3) Revolver 1,137,200 Smartling, Inc.(1)(2) Delayed Draw Term Loan 2,352,941 Smartling, Inc.(1)(2) Revolver 1,176,471 Smile Brands Group, Inc.(1)(2) Delayed Draw Term Loan 654,691 Springbrook Software (SBRK Intermediate, Inc.)(1) Delayed Draw Term Loan 2,372,538 SSCP Pegasus Midco Limited(1)(4) Delayed Draw Term Loan 5,251,478 Superjet Buyer, LLC(1) Revolver 1,825,293 Syntax Systems Ltd(1)(2) Revolver 568,965 Syntax Systems Ltd(1)(2) Delayed Draw Term Loan 1,933,077 Techone B.V.(1)(3) Delayed Draw Term Loan 1,620,901 101 Portfolio Company Investment Type December 31, 2021 Techone B.V.(1)(3) Revolver 432,240 Tencarva Machinery Company, LLC(1)(2) Delayed Draw Term Loan 885,903 Tencarva Machinery Company, LLC(1)(2) Revolver 1,128,585 The Caprock Group, Inc. (aka TA/TCG Holdings, LLC)(1)(2) Delayed Draw Term Loan 2,811,186 The Caprock Group, Inc. (aka TA/TCG Holdings, LLC)(1)(2) Revolver 826,620 The Hilb Group, LLC(1)(2) Delayed Draw Term Loan 2,773,208 Transit Technologies LLC(1)(2) Delayed Draw Term Loan 1,857,017 Truck-Lite Co., LLC(1)(2) Delayed Draw Term Loan 4,539,745 Turbo Buyer, Inc.(1)(2) Delayed Draw Term Loan 2,070,000 Waccamaw River(2) Joint Venture 11,280,000 W2O Holdings, Inc.(1) Delayed Draw Term Loan 3,831,517 Woodland Foods, Inc.(1)(2) Revolver 2,069,868 Total unused commitments to extend financing $ 234,657,529 (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. (6) Actual commitment amount is denominated in Canadian 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 December 31, 2021 and 2020, we had guaranteed €9.9 million ($11.3 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 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, as of December 31, 2020, 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 Consolidated Balance Sheets as of December 31, 2020. The letter of credit expired on April 30, 2021, and as of December 31, 2021, none of the Company’s cash was restricted. Recent Developments Subsequent to December 31, 2021, we made approximately $126.3 million of new commitments, of which $104.8 million closed and funded. The $104.8 million of investments consists of $75.8 million of first lien senior secured debt investments and $28.9 million of equity and joint venture investments. The weighted average yield of the debt investments was 6.3%. In addition, we funded $7.9 million of previously committed revolvers and delayed draw term loans. On February 1, 2022, the Board declared a quarterly distribution of $0.23 per share payable on February 23, 2022 to holders of record as of February 16, 2022. 102 Item 7A. Quantitative and Qualitative Disclosures About Market Risk. See the section entitled “Quantitative and Qualitative Disclosures About Market Risk” included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is included in Item 7 of Part II of this Annual Report on Form 10-K and is incorporated by reference herein. Item 8. Financial Statements and Supplementary Data. See our Financial Statements included herein and listed in Item 15(a) of this Annual Report on Form 10-K. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. Not applicable.