Blackstone Secured Lending Fund 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The discussion and analysis contained in this section refers to our financial condition, results of operations and cash flows. The information contained in this section should be read in conjunction with the consolidated financial statements and notes thereto in Part II, Item 8 of this Form 10-K “Consolidated Financial Statements and Supplementary Data.” This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to those described in Part I, Item 1A of this Form 10-K “Risk Factors.” Our actual results could differ materially from those anticipated by such forward-looking information due to factors discussed under “Risk Factors” and “Cautionary Statement Regarding Forward-Looking Statements” appearing elsewhere in this Form 10-K. The year ended December 31, 2018 represents the period from November 20, 2018 (commencement of operations) to December 31, 2018. Overview and Investment Framework We are a Delaware statutory trust structured as a non-diversified, closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act. In addition, for U.S. federal income tax purposes, we elected to be treated as a RIC under the Code. We are managed by our Adviser. The Administrator will provide the administrative services necessary for us to operate. Our investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation. Under normal market conditions, we generally invest at least 80% of our total assets (net assets plus borrowings for investment purposes) in secured debt investments (including investments that are secured by equity interests) and our portfolio is composed primarily of first lien senior secured and unitranche loans (including first out/last out loans), generally with total investment sizes less than $300 million, which criteria may change from time to time. To a lesser extent, we have and may continue to also invest in second lien, third lien, unsecured or subordinated loans, generally with total investment sizes less than $100 million, which criteria may change from time to time, and other debt and equity securities. We do not currently focus on investments in issuers that are distressed or in need of rescue financing. We commenced our loan origination and investment activities contemporaneously with the Initial Drawdown on November 20, 2018. The proceeds from the Initial Drawdown and availability under our credit facilities provided us with the necessary seed capital to commence operations. See “—Financial Condition, Liquidity and Capital Resources—Borrowings .” We anticipate raising additional equity capital for investment purposes through additional closings under the Private Offering. Key Components of Our Results of Operations Investments We focus primarily on loans and securities, including syndicated loans, of private U.S. companies, specifically small and middle market companies, which we define as companies with annual revenue of $50 million to $2.5 billion, at the time of investment. Specifically, for our originated investments, we target companies with $25 million to $75 million of EBITDA. In many market environments, we believe such a focus offers an opportunity for superior risk-adjusted returns. Our level of investment activity (both the number of investments and the size of each investment) can and will vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle market companies, the level of merger and acquisition activity for such companies, the general economic environment, trading prices of loans and other securities and the competitive environment for the types of investments we make. Revenues We generate revenues in the form of interest income from the debt securities we hold and dividends and capital appreciation on either direct equity investments or equity interests obtained in connection with originating loans, such as options, warrants or conversion rights. Our debt investments typically have a term of five to eight years and bear interest at floating rates on the basis of a benchmark such as LIBOR. In some instances, we receive payments on our debt investments based on scheduled amortization of the outstanding balances. In addition, we may receive repayments of some of our debt investments prior to their scheduled maturity date. The frequency or volume of these repayments fluctuates significantly from period to period. Our portfolio activity also reflects the proceeds of sales of securities. In some cases, our investments may provide for deferred interest payments or PIK interest. The principal amount of loans and any accrued but unpaid interest generally become due at the maturity date. 94 Table of Contents In addition, we generate revenue in the form of commitment, loan origination, structuring or diligence fees, fees for providing managerial assistance to our portfolio companies, and possibly consulting fees. Expenses Except as specifically provided below, all investment professionals and staff of the Adviser, when and to the extent engaged in providing investment advisory services to us, and the base compensation, bonus and benefits, and the routine overhead expenses, of such personnel allocable to such services, will be provided and paid for by the Adviser. We bear all other costs and expenses of our operations, administration and transactions, including, but not limited to (a) investment advisory fees, including management fees and incentive fees, to the Adviser, pursuant to the Investment Advisory Agreement; (b) our allocable portion of compensation, overhead (including rent, office equipment and utilities) and other expenses incurred by the Administrator in performing its administrative obligations under the Administration Agreement, including but not limited to: (i) our chief compliance officer, chief financial officer and their respective staffs; (ii) investor relations, legal, operations and other non-investment professionals at the Administrator that perform duties for us; and (iii) any internal audit group personnel of Blackstone or any of its affiliates; and (c) all other expenses of our operations and transactions. With respect to costs incurred in connection with the Company's organization and offering costs, if actual organization and offering costs incurred exceed 0.10% of our total Capital Commitments, the Adviser or its affiliates will bear the excess costs. To the extent our Capital Commitments later increase, the Adviser or its affiliates may be reimbursed for past payments of excess organization and offering costs made on our behalf provided that the total organization and offering costs borne by us do not exceed 0.10% of total Capital Commitments and provided further that the Adviser or its affiliates may not be reimbursed for payment of excess organization and offering expenses that were incurred more than three years prior to the proposed reimbursement. Any sales load, platform fees, servicing fees or similar fees or expenses charged directly to an investor in our Private Offering by a placement agent or similar party will not be considered organization or offering expenses of the Company for purposes of our cap on organization and offering expenses. From time to time, the Adviser, the Administrator or their affiliates may pay third-party providers of goods or services. We will reimburse the Adviser, Administrator or such affiliates thereof for any such amounts paid on our behalf. From time to time, the Adviser or the Administrator may defer or waive fees and/or rights to be reimbursed for expenses. In this regard, the Administrator has waived the right to be reimbursed for rent and related occupancy costs. However, the Administrator may seek reimbursement for such costs in future periods. All of the foregoing expenses will ultimately be borne by our shareholders, subject to the cap on organization and offering expenses described above. Costs and expenses of the Administrator and the Adviser that are eligible for reimbursement by us will be reasonably allocated to the Company on the basis of time spent, assets under management, usage rates, proportionate holdings, a combination thereof or other reasonable methods determined by the Administrator in accordance with policies adopted by the Board. On December 12, 2018, we entered into an Expense Support Agreement with the Adviser. The Expense Support Agreement provides that, at such times as the Adviser determines, the Adviser may pay certain Expense Payments of the Company, provided that no portion of the payment will be used to pay any of our interest expense. Such Expense Payment must be made in any combination of cash or other immediately available funds no later than forty-five days after a written commitment from the Adviser to pay such expense, and/or by an offset against amounts due from us to the Adviser or its affiliates. Following any calendar quarter in which Available Operating Funds (as defined in the Expense Support Agreement) exceed Excess Operating Funds, we shall pay Reimbursement Payments to the Adviser until such time as all Expense Payments made by the Adviser to us within three years prior to the last business day of such calendar quarter have been reimbursed. The amount of the Reimbursement Payment for any calendar quarter shall equal the lesser of (i) the Excess Operating Funds in such quarter and (ii) the aggregate amount of all Expense Payments made by the Adviser to us within three years prior to the last business day of such calendar quarter that have not been previously reimbursed by us to the Adviser. The Expense Support Agreement provides additional restrictions on the amount of each Reimbursement Payment for any calendar quarter. The Adviser may waive its right to receive all or a portion of any Reimbursement Payment in any particular calendar quarter, so that such Reimbursement Payment may be reimbursable in a future calendar quarter. 95 Table of Contents Portfolio and Investment Activity For the year ended December 31, 2020, we acquired $4,912.8 million aggregate principal amount of investments (including $580.2 million of unfunded commitments), $4,729.6 million of which was first lien debt, $35.4 million of which was second lien debt, $129.9 million of which was unsecured debt and $17.9 million of which was equity. For the year ended December 31, 2019, we acquired $3,298.8 million aggregate principal amount of investments (including $173.0 million of unfunded commitments), $3,243.2 million of which was first lien debt, $42.1 million of which was second lien debt and $13.5 million of which was equity. For the year ended December 31, 2018, we acquired $616.9 million aggregate principal amount of investments (including $54.7 million of unfunded commitments), $610.5 million of which was first lien debt and $6.4 million of which was second lien debt. Our investment activity is presented below (information presented herein is at amortized cost unless otherwise indicated) (dollar amounts in thousands): For the Year Ended December 31, 2020 2019 2018 Investments: Total investments, beginning of period $ 3,067,767 $ 548,753 $ — New investments purchased 4,536,541 3,078,070 549,058 Net accretion of discount on investments 50,058 9,812 127 Net realized gain (loss) on investments (4,378) 3,962 — Investments sold or repaid (2,074,506) (572,830) (432) Total investments, end of period $ 5,575,482 $ 3,067,767 $ 548,753 Amount of investments funded at principal: First lien debt investments $ 4,436,388 $ 3,104,807 $ 555,449 Second lien debt investments 35,352 42,083 6,381 Unsecured debt 129,933 — — Equity 17,852 13,487 — Total $ 4,619,525 $ 3,160,377 $ 561,830 Proceeds from investments sold or repaid: First lien debt investments $ (1,923,689) $ (558,149) $ (432) Second lien debt investments (18,473) (14,681) — Unsecured debt (131,629) — — Equity (715) — — Total $ (2,074,506) $ (572,830) $ (432) Number of portfolio companies 81 56 61 Weighted average yield on debt and income producing investments, at amortized cost (1)(2) 7.70 % 8.64 % 8.70 % Weighted average yield on debt and income producing investments, at fair value (1)(2) 7.68 % 8.57 % 8.76 % Percentage of debt investments bearing a floating rate 100 % 100 % 100 % Percentage of debt investments bearing a fixed rate — % — % — % (1) Computed as (a) the annual stated interest rate or yield plus the annual accretion of discounts or less the annual amortization of premiums, as applicable, on accruing debt included in such securities, divided by (b) total debt investments (at fair value or cost, as applicable) included in such securities. Actual yields earned over the life of each investment could differ materially from the yields presented above. (2) As of December 31, 2020, 2019 and 2018, the weighted average total portfolio yield at cost was 7.65%, 8.60% and 8.70%, respectively. The weighted average total portfolio yield at fair value was 7.64%, 8.53% and 8.76%, respectively. Our investments consisted of the following (dollar amounts in thousands): 96 Table of Contents December 31, 2020 December 31, 2019 Cost Fair Value % of Total Investments at Fair Value Cost Fair Value % of Total Investments at Fair Value First lien debt $ 5,493,561 $ 5,502,899 98.51 % $ 3,021,498 $ 3,046,101 98.50 % Second lien debt 48,979 50,199 0.90 32,782 32,419 1.05 Equity 32,942 32,844 0.59 13,487 13,920 0.45 Total $ 5,575,482 $ 5,585,942 100.00 % $ 3,067,767 $ 3,092,440 100.00 % As of December 31, 2020 and December 31, 2019, no loans in the portfolio were on non-accrual status. Results of Operations The following table represents our operating results (dollar amounts in thousands): For The Year Ended December 31, 2020 2019 2018 Total investment income $ 389,641 $ 148,048 $ 3,174 Net expenses 149,543 73,729 1,835 Net investment income before excise tax 240,098 74,319 1,339 Excise tax expense 517 465 52 Net investment income after excise tax 239,581 73,854 1,287 Net unrealized appreciation (depreciation) (16,582) 28,329 (3,650) Net realized gain (loss) (4,361) 4,023 (581) Net increase (decrease) in net assets resulting from operations $ 218,638 $ 106,206 $ (2,944) Net increase (decrease) in net assets resulting from operations can vary from period to period as a result of various factors, including acquisitions, the level of new investment commitments, the recognition of realized gains and losses and changes in unrealized appreciation and depreciation on the investment portfolio. As a result, comparisons may not be meaningful. Investment Income Investment income was as follows (dollar amounts in thousands): For The Year Ended December 31, 2020 2019 2018 Interest income $ 381,797 $ 146,380 $ 3,174 Payment-in-kind interest income 7,119 988 — Fee income 725 680 — Total investment income $ 389,641 $ 148,048 $ 3,174 Total investment income increased to $389.6 million for the year ended December 31, 2020 from $148.0 million in the prior year primarily driven by our deployment of capital and the increased balance of our investments, higher level of prepayment related income, partially offset by lower weighted average yield on our investments. The size of our investment portfolio at fair value increased to $5,585.9 million at December 31, 2020 from $3,092.4 million at December 31, 2019. Additionally, for the year ended December 31, 2020, we accrued $48.9 million of non-recurring income (e.g. prepayment premiums, accelerated accretion of upfront loan origination fees and unamortized discounts and ticking fees) as compared to $3.7 million in the prior year. Total investment income increased to $148.0 million for the year ended December 31, 2019 from $3.2 million in the prior year primarily driven by our deployment of capital, increased balance of our investments and a full year of operations as compared to the partial period in the prior year. The size of our investment portfolio at fair value increased to $3,092.4 million at December 31, 2019 from $545.3 million at December 31, 2018. Additionally, for the year ended December 31, 2019, we 97 Table of Contents accrued $3.7 million of non-recurring income (e.g. prepayment premiums, accelerated accretion of upfront loan origination fees and unamortized discounts and ticking fees) as compared to $0.0 million in the prior year. The COVID-19 pandemic could cause operational and/or liquidity issues at our portfolio companies which could restrict their ability to make cash interest payments. Additionally, we may experience full or partial losses on our investments which may ultimately reduce our investment income in future periods. Expenses Expenses were as follows (dollar amounts in thousands): For The Year Ended December 31, 2020 2019 2018 Interest expense $ 65,949 $ 35,431 $ 1,351 Management fees 32,874 12,635 309 Income based incentive fee 41,983 13,818 — Capital gains incentive fee (3,141) 4,218 — Professional fees 1,999 1,338 212 Board of Trustees' fees 467 430 177 Administrative service fees 2,271 1,506 362 Other general and administrative 4,166 3,033 333 Organization costs — — 670 Amortization of offering costs 1,509 1,090 117 Excise tax expense 517 465 52 Total expenses (including excise tax expense) 148,594 73,964 3,583 Expense support — (570) (1,696) Recoupment of expense support 1,466 800 — Net expenses (including excise tax expense) $ 150,060 $ 74,194 $ 1,887 Interest Expense Total interest expense (including unused fees and other debt financing expenses), increased to $65.9 million for the year ended December 31, 2020 from $35.4 million in the prior year primarily driven by increased borrowings under our credit facilities and our unsecured bond issuances. The average principal debt outstanding increased to $1,902.7 million for the year ended December 31, 2020 from $776.6 million in the prior year, partially offset by a decrease in our weighted average interest rate to 3.26% for the year ended December 31, 2020 from 4.36% in the prior year. Total interest expense (including unused fees and other debt financing expenses), increased to $35.4 million for the year ended December 31, 2019 from $1.4 million in the prior year primarily driven by increased borrowings under our credit facilities related to increased deployment of capital for investments and a full year of operations as compared to a partial period in the prior year. The average principal debt outstanding increased to $776.6 million for the year ended December 31, 2019 from $162.0 million in the prior year, partially offset by a decrease in our weighted average interest rate to 4.36% for the year ended December 31, 2019 from 5.42% in the prior year. Management Fees Management fees increased to $32.9 million for the year ended December 31, 2020 from $12.6 million in the prior year primarily due to an increase in gross assets. Our total gross assets increased to $5,950.9 million at December 31, 2020 from $3,190.1 million at December 31, 2019. Management fees increased to $12.6 million for the year ended December 31, 2019 from $0.3 million in the prior year primarily due to an increase in gross assets. Our total gross assets increased to $3,190.1 million at December 31, 2019 from $574.7 million at December 31, 2018. Income Based Incentive Fees 98 Table of Contents Income based incentive fees increased to $42.0 million for the year ended December 31, 2020 from $13.8 million in the prior year primarily due to our deployment of capital. Pre-incentive fee net investment income increased to $279.9 million for the year ended December 31, 2020 from $92.1 million in the prior year. Income based incentive fees increased to $13.8 million for the year ended December 31, 2019 from $0.0 million in the prior year primarily due to our deployment of capital and a full year of operations as compared to a partial period in the prior year which resulted in higher pre-incentive fee income returns. Capital Gains Based Incentive Fees We accrued capital gains incentive fees of $(3.1) million for the year ended December 31, 2020 compared to $4.2 million for the prior year. The reversal of previously accrued incentive fees was attributable to net realized and unrealized losses in the current year. The accrual for any capital gains incentive fee under U.S. GAAP in a given period may result in an additional expense if such cumulative amount is greater than in the prior period or a reduction of previously recorded expense if such cumulative amount is less in the prior period. If such cumulative amount is negative, then there is no accrual. Other Expenses Organization costs and offering costs include expenses incurred in our initial formation and our Private Offering. Professional fees include legal, rating agencies, audit, tax, valuation, technology and other professional fees incurred related to the management of us. Administrative service fees represent fees paid to the Administrator for our allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the administration agreement, including our allocable portion of the cost of certain of our executive officers, their respective staff and other non-investment professionals that perform duties for us. Other general and administrative expenses include insurance, filing, research, our sub-administrator, subscriptions and other costs. Total other expenses increased to $10.9 million for the year ended December 31, 2020 from $7.9 million in the prior year primarily driven by an increase in certain general and administrative expenses and administrative service expense in the prior year. The increase in costs was attributable to servicing a growing investment portfolio. Total other expenses increased to $7.9 million for the year ended December 31, 2019 from $1.9 million in the prior year primarily driven by an increase in costs associated with servicing a growing investment portfolio and a full year of operations compared to a partial period in the prior year. The Adviser may elect to make Expense Payments on our behalf, subject to future Reimbursement Payments pursuant to the Expense Support Agreement described above in “— Key Components of Our Results of Operations—Expenses .” Income Taxes, Including Excise Taxes We elected to be treated as a RIC under Subchapter M of the Code, and we intend to operate in a manner so as to continue to qualify for the tax treatment applicable to RICs. To qualify for tax treatment as a RIC, we must, among other things, distribute to our shareholders in each taxable year generally at least 90% of the sum of our investment company taxable income, as defined by the Code (without regard to the deduction for dividends paid), and net tax-exempt income for that taxable year. To maintain our tax treatment as a RIC, we, among other things, intend to make the requisite distributions to our shareholders, which generally relieve us from corporate-level U.S. federal income taxes. Depending on the level of taxable income earned in a tax year, we may carry forward taxable income (including net capital gains, if any) in excess of current year dividend distributions from the current tax year into the next tax year and pay a nondeductible 4% U.S. federal excise tax on such taxable income, as required. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such income, we will accrue excise tax on estimated excess taxable income. For the years ended December 31, 2020, 2019 and 2018, we incurred $0.5 million, $0.5 million and $0.1 million, respectively, of U.S. federal excise tax. Net Unrealized Gain (Loss) Net unrealized gain (loss) was comprised of the following (dollar amounts in thousands): 99 Table of Contents For The Year Ended December 31, 2020 2019 2018 Net unrealized gain (loss) on investments $ (16,593) $ 28,173 $ (3,428) Net unrealized gain (loss) on forward purchase obligation — 222 (222) Net unrealized gain (loss) on translation of assets and liabilities in foreign currencies 11 (66) — Net unrealized gain (loss) on investments $ (16,582) $ 28,329 $ (3,650) For the year ended December 31, 2020, the net unrealized loss was primarily driven by a decrease in fair value of our debt investments as compared to December 31, 2019. The fair value of our debt investments as a percentage of principal decreased by 0.6% as compared to a 1.2% increase in fair value of our debt investments in the prior year. The unrealized loss was partially driven by the impacts of COVID-19, with global credit market volatility peaking in March 2020 and substantially recovering through year end. To the extent that the credit risk of our portfolio companies increases as a result of financial impacts due to COVID-19, we may incur additional unrealized losses in the future. For the year ended December 31, 2019, the net unrealized gain was primarily driven by an increase in the fair value of our debt investments as compared to December 31, 2018. The fair value of our debt investments as a percentage of principal increased by 1.2% for the year ended December 31, 2019. Net Realized Gain (Loss) The realized gains and losses on fully exited and partially exited investments comprised of the following (dollar amounts in thousands): For The Year Ended December 31, 2020 2019 2018 Net realized gain (loss) on investments $ (4,378) $ 3,962 $ — Net realized gain (loss) on foreign currency transactions 17 61 — Net realized gain (loss) on derivative — — (581) Net realized gain (loss) on investments $ (4,361) $ 4,023 $ (581) For the year ended December 31, 2020, we generated realized gains of $20.9 million, where were more than offset by realized losses of $25.3 million, primarily from full or partial sales of quoted loans, including a $20.5 million loss relating to Travelport Finance S.A.R.L. For the year ended December 31, 2019, we generated realized gains of $4.8 million, partially offset by realized losses of $0.9 million, primarily from full or partial sales of quoted loans. For the year ended December 31, 2018, we generated realized losses of $0.6 million relating to our acquisition of the Syndicated Warehouse. The COVID-19 pandemic may cause us to experience full or partial losses on our investments upon the exit or restructuring of our investments. 100 Table of Contents Financial Condition, Liquidity and Capital Resources We generate cash from the net proceeds from the drawdown of Capital Commitments, issuances of unsecured debt, proceeds from net borrowings on our credit facilities and income earned on our debt investments. The primary uses of our cash and cash equivalents are for (i) originating loans and purchasing senior secured debt investments, (ii) funding the costs of our operations (including fees paid to our Adviser and expense reimbursements paid to our Administrator), (iii) debt service, repayment and other financing costs of our borrowings and (iv) cash distributions to the holders of our shares. As of December 31, 2020 and December 31, 2019, we had four and four revolving credit facilities outstanding, respectively. During the year ended December 31, 2020, we also issued two unsecured bonds totaling $1.2 billion in aggregate principal amount. Refer to “— Borrowings ” below. We may from time to time enter into additional credit facilities, increase the size of our existing credit facilities or issue further debt securities. Any such incurrence or issuance would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. In accordance with the 1940 Act, with certain limited exceptions, we are only allowed to incur borrowings, issue debt securities or issue preferred stock, if immediately after the borrowing or issuance, the ratio of total assets (less total liabilities other than indebtedness) to total indebtedness plus preferred stock, is at least 150%. As of December 31, 2020 and December 31, 2019, we had an aggregate amount of $2,514.6 million and $1,454.2 million of senior securities outstanding and our asset coverage ratio was 230.0% and 215.1%, respectively. We seek to carefully consider our unfunded commitments for the purpose of planning our ongoing financial leverage. Further, we maintain sufficient borrowing capacity within the 150% asset coverage limitation to cover any outstanding unfunded commitments we are required to fund. Cash and cash equivalents as of December 31, 2020, taken together with our $1,055.4 million of available capacity under our credit facilities (subject to borrowing base availability) and our $713.3 million of uncalled Capital Commitments is expected to be sufficient for our investing activities and to conduct our operations in the near term. Although we were able to issue unsecured debt during the year ended December 31, 2020, a continued disruption in the financial markets caused by the COVID-19 outbreak could restricted our access to financing in the future. We may not be able to find new financing for future investments or liquidity needs and, even if we are able to obtain such financing, such financing will likely not be on as favorable terms as we could have obtained prior to the outbreak of the pandemic. These factors may limit our ability to make new investments and adversely impact our results of operations. As of December 31, 2020, we had $218.0 million in cash and cash equivalents. During the year ended December 31, 2020, cash used in operating activities was $2,320.2 million, primarily as a result of funding portfolio investments of $4,485.2 million, partially offset by proceeds from sale of investments of $2,030.8 million. Cash provided by financing activities was $2,472.7 million during the period, which was primarily the result of proceeds from the issuance of shares of $ 1,582.5 million and net borrowings on our credit facilities and our unsecured debt issuances of $1,044.6 million, partially offset by dividends paid in cash of $145.1 million. As of December 31, 2019 , we had $65.5 million in cash and cash equivalents. During the year ended December 31, 2019 , cash used in operating activities was $2,558.3 million, primarily as a result of funding portfolio investments of $3,077.3 million and a decrease in payables for investments purchased of $139.4 million, partially offset by proceeds from sale of investments of $572.8 million. Cash provided by financing activities was $2,617.6 million during the period, which was primarily the result of proceeds from the issuance of shares of $1,387.8 million and net borrowings on our credit facilities of $1,269.2 million, partially offset by dividends paid in cash of $35.4 million. As of December 31, 2018, we had $6.2 million in cash and cash equivalents. During the year ended December 31, 2018, cash used in operating activities was $349.8 million, primarily as a result of funding portfolio investments of $428.1 million, the purchase of the equity interests in the Syndicated Warehouse (discussed below), net of cash of $24.0 million; partially offset by a decrease in receivables for investments sold of $12.0 million and an increase in payables for investments purchased of $86.8 million. Cash provided by financing activities was $356.0 million during the period, which was the result of proceeds from the issuance of shares of $239.3 million and net borrowings on our credit facilities of $120.0 million, partially offset by deferred financing costs paid of $2.6 million. Equity The following table summarizes the total shares issued and proceeds received related to capital drawdowns delivered pursuant to the Subscription Agreements for the year ended December 31, 2020 (dollar amounts in millions, except share amounts): 101 Table of Contents Common Share Issuance Date Number of Common Shares Issued Aggregate Offering Price January 30, 2020 16,864,983 $ 440.9 April 8, 2020 14,864,518 324.0 July 15, 2020 5,304,125 125.6 July 28, 2020 123,229 2.9 November 6, 2020 4,627,528 115.4 December 15, 2020 (1) 22,802,680 571.2 Total 64,587,063 $ 1,580.0 (1) On December 1, 2020, the Company issued a capital call and delivered capital drawdown notices totaling $571.2 million, of which $3.4 million was received subsequent to December 31, 2020 and recorded as a subscription receivable on the Consolidated Statements of Assets and Liabilities. The following table summarizes the total shares issued and proceeds received related to capital drawdowns delivered pursuant to the Subscription Agreements for the year ended December 31, 2019 (dollar amounts in millions, except share amounts): Common Share Issuance Date Number of Common Shares Issued Aggregate Offering Price January 24, 2019 5,666,095 $ 142.1 March 28, 2019 9,818,817 247.5 June 27, 2019 12,453,261 319.7 August 9, 2019 1,401,367 36.1 September 25, 2019 14,686,050 377.3 December 16, 2019 (1) 10,474,169 271.1 Total 54,499,759 $ 1,393.8 (1) On December 2, 2019, the Company issued a capital call and delivered capital drawdown notices totaling $271.1 million, of which $5.9 million was received subsequent to December 31, 2019 and recorded as a subscription receivable on the Consolidated Statements of Assets and Liabilities. The following table summarizes the total shares issued and proceeds received related to our initial capitalization and capital drawdowns delivered pursuant to the Subscription Agreements for the year ended December 31, 2018 (dollar amounts in millions, except share amounts): Common Share Issuance Date Number of Common Shares Issued Aggregate Offering Price September 14, 2018 60 $ — November 20, 2018 5,671,181 141.8 December 13, 2018 3,950,078 97.5 Total 9,621,319 $ 239.3 Distributions and Dividend Reinvestment The following table summarizes our distributions declared and payable for the year ended December 31, 2020 (dollar amounts in thousands, unless otherwise noted): 102 Table of Contents Date Declared Record Date Payment Date Per Share Amount Total Amount January 29, 2020 January 29, 2020 May 15, 2020 $ 0.1593 $ 10,241 February 26, 2020 March 31, 2020 May 15, 2020 0.3407 27,688 April 7, 2020 April 7, 2020 August 14, 2020 0.0385 3,129 June 29, 2020 June 30, 2020 August 14, 2020 0.4615 44,454 July 14, 2020 July 14, 2020 November 13, 2020 0.0761 7,330 July 27, 2020 July 27, 2020 November 13, 2020 0.0707 7,185 August 26, 2020 September 30, 2020 November 13, 2020 0.3532 36,021 November 5, 2020 November 5, 2020 January 29, 2021 0.1957 19,958 December 14, 2020 December 14, 2020 January 29, 2021 0.2120 22,654 December 14, 2020 December 14, 2020 January 29, 2021 0.3000 32,057 (1) December 14, 2020 December 31, 2020 January 29, 2021 0.0923 11,968 Total distributions $ 2.3000 $ 222,685 (1) Represents a special distribution. The following table summarizes our distributions declared and payable for the year ended December 31, 2019 (dollars in thousands except per share amounts): Date Declared Record Date Payment Date Per Share Amount Total Amount January 22, 2019 January 23, 2019 May 15, 2019 $ 0.1239 $ 1,192 February 28, 2019 March 27, 2019 May 15, 2019 0.3536 5,406 March 26, 2019 March 31, 2019 May 15, 2019 0.0225 565 June 26, 2019 June 26, 2019 August 14, 2019 0.4780 12,010 June 26, 2019 June 30, 2019 August 14, 2019 0.0220 827 August 8, 2019 August 8, 2019 November 14, 2019 0.2120 7,967 September 24, 2019 September 24, 2019 November 14, 2019 0.2554 9,973 September 24, 2019 September 30, 2019 November 14, 2019 0.0326 1,752 December 13, 2019 December 15, 2019 January 30, 2020 0.4130 22,226 December 16, 2019 December 31, 2019 January 30, 2020 0.0870 5,593 Total distributions $ 2.0000 $ 67,511 For the years ended December 31, 2020 and 2019, the percentage of total dividends paid that constituted interest-related dividends, was 77.9% and 100.0%, respectively. For the years ended December 31, 2020 and 2019, the percentage of total dividends paid that constituted qualified short-term capital gain dividends, was 17.0% and 0.0%, respectively. Qualified short-term capital gain dividends are exempt from U.S. withholding tax applicable to non-U.S. shareholders. During the year ended December 31, 2018, we did not declare or pay any distributions. With respect to distributions, we have adopted an “opt out” dividend reinvestment plan for shareholders. As a result, in the event of a declared cash distribution or other distribution, each shareholder that has not “opted out” of the dividend reinvestment plan will have their dividends or distributions automatically reinvested in additional shares rather than receiving cash distributions. Shareholders who receive distributions in the form of shares will be subject to the same U.S. federal, state and local tax consequences as if they received cash distributions. The following table summarizes the amounts received and shares issued to shareholders who have not opted out of our dividend reinvestment plan during the year ended December 31, 2020 (dollars in thousands except share amounts): 103 Table of Contents Payment Date DRIP Shares Value DRIP Shares Issued January 30, 2020 $ 2,882 112,302 May 15, 2020 4,244 194,694 August 14, 2020 5,437 229,591 November 13, 2020 6,182 248,194 Total $ 18,745 784,781 The following table summarize the amounts received and shares issued to shareholders who have not opted out of our dividend reinvestment plan during the year ended December 31, 2019 (dollars in thousands except share amounts): Payment Date DRIP Shares Value DRIP Shares Issued May 15, 2019 $ 519 20,605 August 14, 2019 1,748 68,165 November 14, 2019 2,051 79,894 Total $ 4,318 168,664 During the year ended December 31, 2018, we did not declare or pay any distributions. Borrowings Our outstanding debt obligations were as follows (dollar amounts in thousands): December 31, 2020 Aggregate Principal Committed Outstanding Principal Carrying Value Unused Portion (1) Amount Available (2) Jackson Hole Funding Facility (3) $ 400,000 $ 362,316 $ 362,316 $ 37,684 $ 37,684 Breckenridge Funding Facility 825,000 569,000 569,000 256,000 256,000 Big Sky Funding Facility 400,000 200,346 200,346 199,654 117,599 Revolving Credit Facility (4) 745,000 182,901 182,901 562,099 562,099 2023 Notes (5) 400,000 400,000 394,549 — — 2026 Notes (5) 800,000 800,000 791,281 — — Total $ 3,570,000 $ 2,514,563 $ 2,500,393 $ 1,055,437 $ 973,382 December 31, 2019 Aggregate Principal Committed Outstanding Principal Carrying Value Unused Portion (1) Amount Available (2) Subscription Facility $ 400,000 $ 119,752 $ 119,752 $ 280,248 $ 280,248 Jackson Hole Funding Facility (3) 600,000 514,151 514,151 85,849 5,843 Breckenridge Funding Facility 875,000 820,311 820,311 54,689 10,769 Big Sky Funding Facility 400,000 — — 400,000 25,481 Total $ 2,275,000 $ 1,454,214 $ 1,454,214 $ 820,786 $ 322,341 (1) The unused portion is the amount upon which commitment fees, if any, are based. (2) The amount available reflects any limitations related to each respective credit facility’s borrowing base. (3) Under the Jackson Hole Funding Facility, the Company may borrow in U.S. dollars or certain other permitted currencies. As of December 31, 2020, the Company had borrowings denominated in Euros (EUR) of 23.5 million. As of December 31, 2019, the Company had borrowings denominated in Euros (EUR) of 23.9 million. (4) Under the Revolving Credit Facility, the Company may borrow in U.S. dollars or certain other permitted currencies. As of December 31, 2020, the Company had borrowings denominated in Canadian Dollars (CAD) of 138.1 million. (5) The carrying value of the Company's 2023 Notes and 2026 Notes is presented net of unamortized debt issuance costs of $5.5 million and $8.7 million, respectively, as of December 31, 2020. For additional information on our debt obligations see "Item 8. Consolidated Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 6. Borrowings. ” 104 Table of Contents Off-Balance Sheet Arrangements Portfolio Company Commitments Our investment portfolio contains and is expected to continue to contain debt investments which are in the form of lines of credit or delayed draw commitments, which require us to provide funding when requested by portfolio companies in accordance with underlying loan agreements. As of December 31, 2020 and December 31, 2019, we had unfunded delayed draw term loans and revolvers with an aggregate principal amount of $432.3 million and $179.4 million, respectively. Warehousing Transactions We entered into two Warehousing Transactions whereby we agreed, subject to certain conditions, to purchase certain assets from parties unaffiliated with the Adviser. Such Warehousing Transactions were designed to assist us in deploying capital upon receipt of drawdown proceeds. The Middle Market Warehouse related primarily to originated or anchor investments in middle market loans. The Syndicated Warehouse related primarily to broadly syndicated loans prior to the acquisition of the equity interests of the Syndicated Warehouse by us and merger of the Syndicated Warehouse with our wholly-owned subsidiary, as described below. See—“ Item 1A .— Risk Factors — Risks Related to an Investment in the Shares — Risks related to the Warehousing Transactions. ” For additional information on our Warehousing Transactions see Item 8. Consolidated Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 7. Commitments and Contingencies. ” Other Commitments and Contingencies From time to time, we may become a party to certain legal proceedings incidental to the normal course of its business. At December 31, 2020 and December 31, 2019, management is not aware of any pending or threatened litigation. Contractual Obligations Our contractual obligations consisted of the following as of December 31, 2020 (dollar amounts in thousands): Payments Due by Period Total Less than 1 year 1-3 years 3-5 years After 5 years Jackson Hole Funding Facility $ 362,316 $ — $ 362,316 $ — $ — Breckenridge Funding Facility 569,000 — 569,000 — — Big Sky Funding Facility 200,346 — 200,346 — — Revolving Credit Facility 182,901 — — 182,901 — 2023 Notes 400,000 — 400,000 — — 2026 Notes 800,000 — — — 800,000 Total Contractual Obligations $ 2,514,563 $ — $ 1,531,662 $ 182,901 $ 800,000 Related-Party Transactions We have entered into a number of business relationships with affiliated or related parties, including the following: • the Investment Advisory Agreement; and • the Administration Agreement; and • Expense Support and Conditional Reimbursement Agreement. In addition to the aforementioned agreements, we, our Adviser and certain of our Adviser’s affiliates have been granted exemptive relief by the SEC to co-invest with other funds managed by our Adviser or its affiliates in a manner consistent with our investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors. See “ Item 8. Consolidated Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 3. Agreements and Related Party Transactions. ” COVID-19 Update 105 Table of Contents There is an ongoing global outbreak of COVID-19, which has spread to over 200 countries and territories, including the United States, and has spread to every state in the United States. The World Health Organization has designated COVID-19 as a pandemic, and numerous countries, including the United States, have declared national emergencies with respect to COVID-19. The global impact of the outbreak has been rapidly evolving, and as cases of COVID-19 have continued to be identified in additional countries, many countries have reacted by instituting quarantines and restrictions on travel, closing financial markets and/or restricting trading, and limiting operations of non-essential businesses. Such actions are creating disruption in global supply chains, and adversely impacting many industries. The outbreak has had a continued adverse impact on economic and market conditions and has triggered a period of global economic slowdown. The outbreak of COVID-19 has had and may continue to have a material adverse impact on our financial condition, liquidity, results of operations and NAV, among other factors. We expect that these impacts are likely to continue to some extent as the outbreak persists and potentially even longer. The rapid development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of the novel coronavirus on economic and market conditions, and, as a result, present material uncertainty and risk with respect to us and the performance of our investments. The full extent of the impact and effects of COVID-19 will depend on future developments, including, among other factors, the duration and spread of the outbreak, along with related travel advisories, quarantines and restrictions, the recovery time of the disrupted supply chains and industries, the impact of labor market interruptions, the impact of government interventions, the availability of effective vaccines and uncertainty with respect to the duration of the global economic slowdown. COVID-19 and the current financial, economic and capital markets environment, and future developments in these and other areas present uncertainty and risk with respect to our performance, financial condition, results of operations and ability to pay distributions. Critical Accounting Policies The preparation of the consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets, and any other parameters used in determining such estimates could cause actual results to differ. Our critical accounting policies should be read in connection with our risk factors described in “Item 1A. Risk Factors.” Fair Value Measurements The Company is required to report its investments for which current market values are not readily available at fair value. The Company values its investments in accordance with Financial Accounting Standards Board Accounting Standards Codification 820, Fair Value Measurements (“ASC 820”), which defines fair value as the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the applicable measurement date. ASC 820 prioritizes the use of observable market prices derived from such prices over entity-specific inputs. Due to the inherent uncertainties of valuation, certain estimated fair values may differ significantly from the values that would have been realized had a ready market for these investments existed, and these differences could be material. See “Item 8. Consolidated Financial Statements and Supplementary Data—Notes to Consolidated Financial Statements—Note 5. Fair Value Measurements.” Where available, fair value is based on observable market prices or parameters or derived from such prices or parameters. The Company utilizes mid-market pricing (i.e. mid-point of average bid and ask prices) to value these investments. These market quotations are obtained from independent pricing services, if available; otherwise from at least two principal market makers or primary market dealers. To assess the continuing appropriateness of pricing sources and methodologies, the Adviser regularly performs price verification procedures and issues challenges as necessary to independent pricing services or brokers, and any differences are reviewed in accordance with the valuation procedures. The Adviser does not adjust the prices unless it has a reason to believe market quotations are not reflective of the fair value of an investment. Examples of events that would cause market quotations to not reflect fair value could include cases when a security trades infrequently or not at all, causing a quoted purchase or sale price to become stale, or in the event of a “fire sale” by a distressed seller. All price overrides require approval from the Company’s Board. Where prices or inputs are not available or, in the judgment of the Board, not reliable, valuation techniques based on the facts and circumstances of the particular investment will be utilized. Securities that are not publicly traded or for which market prices are not readily available are valued at fair value as determined in good faith by the Board, based on, among other things, the input of the Adviser, the Audit Committee of the Board (the “Audit Committee”) and independent valuation firms engaged on the recommendation of the Adviser and at the direction of the Board. These valuation approaches involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the investments or market and the investments’ complexity. 106 Table of Contents The Company’s Board undertakes a multi-step valuation process each quarter in connection with determining the fair value of the Company’s investments for which market quotations are not readily available, or are available but deemed not reflective of the fair value of an investment, which includes, among other procedures, the following: • The valuation process begins with each investment being preliminarily valued by the Adviser’s valuation team in conjunction with the Adviser’s investment professionals responsible for each portfolio investment; • In addition, independent valuation firms engaged by the Board prepare valuations of all the Company’s investments over a de minimis threshold. The independent valuation firms provide a final range of values on such investments to the Board and the Adviser. The independent valuation firms also provide analyses to support their valuation methodology and calculations; • The Adviser's Valuation Committee reviews each valuation recommendation to confirm they have been calculated in accordance with the valuation policy and compares such valuations to the independent valuation firms’ valuation ranges to ensure the Adviser’s valuations are reasonable; • The Valuation Committee makes valuation recommendations to the Audit Committee; • The Audit Committee reviews the valuation recommendations made by the Adviser's Valuation Committee, including the independent valuation firms' valuations, and once approved, recommends them for approval by the Board; and • The Board reviews the valuation recommendations of the Audit Committee and determines the fair value of each investment in the portfolio in good faith based on the input of the Audit Committee, the Adviser's Valuation Committee and, where applicable, the independent valuation firms and other external service providers. Valuation of each of our investments will generally be made as described above as of the end of each fiscal quarter. In cases where we determine our NAV at times other than a quarter end, we intend to update the value of securities with market quotations to the most recent market quotation. For securities without market quotations, non-quarterly valuations will generally be the most recent quarterly valuation unless a material event has occurred since the most recent quarter end with respect to the investment. Independent valuation firms are generally not used for non-quarterly valuations. As part of the valuation process, the Board takes into account relevant factors in determining the fair value of its investments, many of which are loans, including and in combination, as relevant, of: (i) the estimated enterprise value of a portfolio company, (ii) the nature and realizable value of any collateral, (iii) the portfolio company’s ability to make payments based on its earnings and cash flow, (iv) the markets in which the portfolio company does business, (v) a comparison of the portfolio company’s securities to any similar publicly traded securities, and (vi) overall changes in the interest rate environment and the credit markets that may affect the price at which similar investments may be made in the future. When an external event such as a purchase transaction, public offering or subsequent equity or debt sale occurs, the Board considers whether the pricing indicated by the external event corroborates its valuation. The Company applies ASC 820, as amended, which establishes a framework for measuring fair value in accordance with U.S. GAAP and required disclosures of fair value measurements. ASC 820 determines fair value to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. Market participants are defined as buyers and sellers in the principal or most advantageous market (which may be a hypothetical market) that are independent, knowledgeable, and willing and able to transact. In accordance with ASC 820, the Company considers its principal market to be the market that has the greatest volume and level of activity. ASC 820 specifies a fair value hierarchy that prioritizes and ranks the level of observability of inputs used in determination of fair value. In accordance with ASC 820, these levels are summarized below: • Level 1: Valuations based on quoted prices in active markets for identical assets or liabilities that we have the ability to access. • Level 2: Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly. • Level 3: Valuations based on inputs that are unobservable and significant to the overall fair value measurement. Transfers between levels, if any, are recognized at the beginning of the quarter in which the transfer occurred. In addition to using the above inputs in investment valuations, we apply the valuation policy approved by our Board that is consistent with ASC 820. Consistent with the valuation policy, we evaluate the source of the inputs, including any markets in which our investments are trading (or any markets in which securities with similar attributes are trading), in determining fair 107 Table of Contents value. When an investment is valued based on prices provided by reputable dealers or pricing services (that is, broker quotes), we subject those prices to various criteria in making the determination as to whether a particular investment would qualify for treatment as a Level 2 or Level 3 investment. For example, we, or the independent valuation firm(s), review pricing support provided by dealers or pricing services in order to determine if observable market information is being used, versus unobservable inputs. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Additionally, the fair value of such investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be realized. Further, such investments are generally less liquid than publicly traded securities and may be subject to contractual and other restrictions on resale. If we were required to liquidate a portfolio investment in a forced or liquidation sale, it could realize amounts that are different from the amounts presented and such differences could be material. 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 unrealized gains or losses reflected herein. Interest and Dividend Income Recognition Interest income is recorded on an accrual basis and includes the accretion of discounts and amortizations of premiums. Discounts from and premiums to par value on debt investments purchased are accreted/amortized into interest income over the life of the respective security using the effective interest method. The amortized cost of debt investments represents the original cost, including loan origination fees and upfront fees received that are deemed to be an adjustment to yield, adjusted for the accretion of discounts and amortization of premiums, if any. Upon prepayment of a loan or debt security, any prepayment premiums, unamortized upfront loan origination fees and unamortized discounts are recorded as interest income in the current period. Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected in full. Accrued interest is generally reversed when a loan is placed on non-accrual status. Additionally, any original issue discount and market discount are no longer accreted to interest income as of the date the loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid current and, in management’s judgment, are likely to remain current. Management may make exceptions to this treatment and determine to not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection. Dividend income on preferred equity securities is recorded on the accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity securities is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly-traded portfolio companies. Fee income (such as structuring, consent, waiver, amendment, syndication fees as well as fees for managerial assistance rendered by the Company) is recognized as income when earned or the services are rendered. Distributions To the extent that the Company has taxable income available, the Company intends to make quarterly distributions to its shareholders. Distributions to shareholders are recorded on the record date. All distributions will be paid at the discretion of the Board and will depend on our earnings, financial condition, maintenance of our tax treatment as a RIC, compliance with applicable BDC regulations and such other factors as the Board may deem relevant from time to time. The Company has adopted a dividend reinvestment plan, pursuant to which it will reinvest all cash dividends declared by the Board on behalf of its shareholders who do not elect to receive their dividends in cash as provided below. As a result, if the Board and the Company declares, a cash dividend or other distribution, then the Company’s shareholders who have not opted out of its dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares as described below, rather than receiving the cash dividend or other distribution. Distributions on fractional shares will be credited to each participating shareholder’s account to three decimal places. A participating shareholder will receive an amount of shares equal to the amount of the distribution on that participant’s shares divided by the most recent quarter-end NAV per share that is available on the date such distribution was paid (unless the Board determines to use the NAV per share as of another 108 Table of Contents time). Shareholders who receive distributions in the form of shares will generally be subject to the same U.S. federal, state and local tax consequences as if they received cash distributions; however, since their cash distributions will be reinvested, those shareholders will not receive cash with which to pay any applicable taxes. The Company intends to use newly issued shares to implement the plan. Shares issued under the dividend reinvestment plan will not reduce outstanding Capital Commitments. Income Taxes The Company has elected to be treated as a BDC under the 1940 Act. The Company also has elected to be treated as a RIC under the Code. So long as the Company maintains its status as a RIC, it generally will not pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that it distributes at least annually to its shareholders as dividends. Rather, any tax liability related to income earned and distributed by the Company would represent obligations of the Company’s investors and would not be reflected in the consolidated financial statements of the Company. The Company evaluates tax positions taken or expected to be taken in the course of preparing its financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are reserved and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes are included in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof. In addition, based on the excise tax distribution requirements, the Company is subject to a 4% nondeductible federal excise tax on undistributed income unless the Company distributes in a timely manner in each taxable year an amount at least equal to the sum of (1) 98% of its ordinary income for the calendar year, (2) 98.2% of capital gain net income (both long-term and short-term) for the one-year period ending October 31 in that calendar year and (3) any income realized, but not distributed, in prior years. For this purpose, however, any ordinary income or capital gain net income retained by the Company that is subject to corporate income tax is considered to have been distributed.