What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-12 compared with 2021-11-15 · 126 added, 186 removed, 296 unchanged (51% of the section changed)

8 unchanged sentences

Some of the statements within this Quarterly Report on Form 10-Q constitute forward-looking statements because they relate to future events or our future performance or financial condition.

The forward-looking statements contained in this Quarterly Report on Form 10-Q may include statements as to:

The forward-looking statements contained in this Quarterly Report on Form 10-Q involve numerous risks and uncertainties, including statements as to:

• our future operating results;

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• our contractual arrangements and relationships with third parties;

• the actual and potential conflicts of interest with CIM and Apollo and their respective affiliates;

• the ability of CIM's and AIM's investment professionals to locate suitable investments for us and the ability of CIM to monitor and administer our investments;

• the actual and potential conflicts of interest with CIM and its affiliates;

• the ability of CIM's investment professionals to locate suitable investments for us and the ability of CIM to monitor and administer our investments;

• the ability of CIM and its affiliates to attract and retain highly talented professionals;

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• future changes in laws or regulations and conditions in our operating areas;

• the price at which shares of our common stock may trade on the NYSE.

• the price at which shares of our common stock may trade on and volume fluctuations in the NYSE;

• the costs associated with being a publicly traded company.

We have based the forward-looking statements on information available to us on the date of this Quarterly Report on Form 10-Q.

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The forward-looking statements contained in this Quarterly Report on Form 10-Q are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.

We were incorporated under the general corporation laws of the State of Maryland on August 9, 2011 and commenced operations on December 17, 2012 upon raising proceeds of $2,500 from persons not affiliated with us, CIM or Apollo.

We are an externally managed, non-diversified closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act.

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Pursuant to an investment advisory agreement with us, CIM oversees the management of our activities and is responsible for making investment decisions for our portfolio.

On November 13, 2020, our board of directors, including a majority of directors who are not interested persons, approved the renewal of the investment advisory agreement with CIM for a period of twelve months commencing December 17, 2020.

On April 5, 2021, our board of directors, including a majority of directors who are not interested persons, approved the amended and restated investment advisory agreement with CIM for a period of twenty four months, which was subsequently approved by shareholders on August 9, 2021 (as described in further detail below).

We and CIM previously engaged AIM to act as our investment sub-adviser.

On July 11, 2017, the members of CIM entered into the Third Amended CIM LLC Agreement for the purpose of creating a joint venture between AIM and CIG, our affiliate.

On July 11, 2017, the members of CIM entered into the Third Amended CIM LLC Agreement for the purpose of creating a joint venture between AIM and CIG.

Under the Third Amended CIM LLC Agreement, AIM became a member of CIM and was issued a newly-created class of membership interests in CIM pursuant to which AIM, among other things, shares in the profits, losses, distributions and expenses of CIM with the other members in accordance with the terms of the Third Amended CIM LLC Agreement, which results in CIG and AIM each owning a 50% economic interest in CIM.

On July 10, 2017, our independent directors unanimously approved the termination of the investment sub-advisory agreement with AIM, effective as of July 11, 2017, as part of the new and ongoing relationship among us, CIM and AIM.

Although the investment sub-advisory agreement and AIM's engagement as our investment sub-adviser were terminated, AIM's investment professionals continue to perform certain services for CIM and us, including, without limitation, assistance with identifying investment opportunities for approval by CIM's investment committee.

Although the investment sub-advisory agreement and AIM's engagement as our investment sub-adviser were terminated, AIM continues to perform certain services for CIM and us.

AIM is not paid a separate fee in exchange for such services, but is entitled to receive distributions as a member of CIM as described above.

On December 4, 2017, the members of CIM entered into the Fourth Amended CIM LLC Agreement.

Under the Fourth Amended CIM LLC Agreement, AIM's investment professionals perform certain services for CIM, which include, among other services, (i) assistance with identifying and providing information about potential investment opportunities for approval by CIM’s investment committee;

and (ii) providing (a) trade and settlement support;

On December 4, 2017, the members of CIM entered into the Fourth Amended CIM LLC Agreement under which AIM performs certain services for CIM, which include, among other services, providing (a) trade and settlement support;

(b) portfolio and cash reconciliation;

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and (d) monthly valuation reports and support for all broker-quoted investments.

All of our investment decisions are the sole responsibility of, and are made at the sole discretion of, CIM's investment committee, which consists entirely of CIG senior personnel.

AIM may also, from time to time, provide us with access to potential investment opportunities made available on Apollo's credit platform on a similar basis as other third-party market participants.

All of our investment decisions are the sole responsibility of, and are made at the sole discretion of, CIM's investment committee, which consists entirely of CIG personnel.

The amended and restated investment advisory agreement was approved by shareholders on August 9, 2021 at our reconvened 2021 annual meeting of shareholders.

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3 in our definitive proxy statement filed on May 13, 2021.

On September 21, 2021, we effected a 2 to 1 reverse split of our shares of common stock under which every two shares of our common stock issued and outstanding were automatically combined into one share of our common stock, with the number of issued and outstanding shares reduced from 113,916,869 to 56,958,440.

On September 21, 2021, we effected a two to one reverse split of our shares of common stock under which every two shares of our common stock issued and outstanding were automatically combined into one share of our common stock, with the number of issued and outstanding shares reduced from 113,916,869 to 56,958,440.

The Reverse Stock Split Amendment also provided that there was no change in the par value of $0.001 per share as a result of the Reverse Stock Split.

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Operating Expenses

Our primary operating expenses are the payment of advisory fees under the investment advisory agreement and interest expense on our financing arrangements.

Our primary operating expenses are the payment of management fees and subordinated incentive fees on income under the investment advisory agreement and interest expense on our financing arrangements.

Our investment advisory fees compensate CIM for its work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments.

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Recent Developments

First Amendment to the Third Amended JPM Credit Facility

On March 28, 2022, 34th Street entered into the JPM First Amendment.

Under the JPM First Amendment, the aggregate principal amount available for borrowings was increased from $575,000 to $675,000, subject to conditions described in the JPM First Amendment.

Additional advances of up to $100,000 under the JPM First Amendment bear interest at a floating rate equal to the three-month SOFR, plus a credit spread of 3.10% per year, and a LIBOR to SOFR credit spread adjustment of 0.15%.

34th Street incurred certain customary costs and expenses in connection with the JPM First Amendment.

No other material terms of the Third Amended JPM Credit Facility were revised in connection with the JPM First Amendment.

2022 More Term Loan

On April 27, 2022, we entered into the More Term Loan Agreement with More Provident, which provided for an unsecured term loan to us in an aggregate principal amount of $50,000.

On April 27, 2022, we drew down $50,000 of borrowings under the 2022 More Term Loan.

After the deduction of fees and other financing expenses, we received net borrowings of approximately $49,000, which we used for working capital and other general corporate purposes.

Advances under the 2022 More Term Loan bear interest at a floating rate equal to the three-month SOFR, plus a credit spread of 3.50% per year and subject to a 1.0% SOFR floor, payable quarterly in arrears.

Advances under the 2022 More Term Loan mature on April 27, 2027.

We have the right to, at our option, prepay all or any portion of advances then outstanding together with a prepayment fee equal to the higher of (i) zero, or (ii) the discounted present value of all remaining interest payments that would have been paid by us through the maturity date with respect to the principal amount of such advance that is to be prepaid or becomes due and payable pursuant to the More Term Loan Agreement.

The discounted present value portion of the prepayment fee is calculated by applying a discount rate on the same periodic basis as that on which interest on advances is payable equal to the three-month SOFR plus 2.00%.

Advances under the 2022 More Term Loan are our general unsecured obligations that 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 certain of our subsidiaries, financing vehicles or similar facilities.

The More Term Loan Agreement contains other terms and conditions, including, without limitation, affirmative and negative covenants such as (i) information reporting, (ii) maintenance of our status as a BDC within the meaning of the Investment Company Act of 1940, as amended, (iii) minimum shareholders’ equity of 60% of our net asset value as of the year ended December 31, 2021 plus 50% of the net cash proceeds of the sale of certain equity interests by us after April 27, 2022, if any, (iv) a minimum asset coverage ratio of not less than 150%, and (v) an unencumbered asset coverage ratio of 1.25 to 1.00, provided that (a) first lien senior secured loans and cash represent more than 65% of the total value of unencumbered assets used by us for purposes of the ratio and (b) equity interests or structured products in the aggregate represent less than 15% of the total value of unencumbered assets used by us for purposes of the ratio.

In addition, the More Term Loan Agreement 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 derivative securities in an outstanding aggregate principal amount of at least $25,000, certain judgments and orders, and certain events of bankruptcy.

The rapid spread of COVID-19, and associated impacts on the U.S.

and global economies and the financial and credit markets, initially had negatively impacted, and may again negatively impact, our business operations and the business operations of some of our portfolio companies.

We cannot at this time fully predict the impact of COVID-19 on our business or the business of our portfolio companies, its duration or magnitude or the extent to which it will negatively impact our portfolio companies’ operating results or our own results of operations or financial condition, including, without limitation, our ability to pay distributions to our shareholders.

We cannot at this time fully predict the impact of COVID-19, including new variants, such as Delta and Omicron, on our business or the business of our portfolio companies, its duration or magnitude or the extent to which it will negatively impact our portfolio companies’ operating results or our own results of operations or financial condition, including, without limitation, our ability to pay distributions to our shareholders.

We expect that certain of our portfolio companies will continue to experience economic distress for the foreseeable future and may significantly limit business operations if subjected to prolonged economic distress.

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COVID-19 initially had adverse effects on our investment income and may again have adverse effects in the future.

These adverse effects may require us to restructure certain of our investments, which could result in further reductions to our investment income or in impairments on our investments.

These adverse effects may require us to restructure certain of our investments, which could result in reductions to our investment income or in impairments on our investments.

In addition, disruptions in the capital markets have resulted in illiquidity in certain market areas.

These market disruptions and illiquidity initially had an adverse effect on our business, financial condition, results of operations and cash flows.

Unfavorable economic conditions caused by COVID-19 can also be expected to increase our funding costs and limit our access to the capital markets.

These events initially limited our investment originations, which may occur again in the future, and may also have a material negative impact on our operating results.

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Because the full effects of COVID-19 are not capable of being known at this time, we cannot estimate the impacts of COVID-19 on our future financial condition, results of operations or cash flows, including its effects on us with respect to our compliance with covenants in our financing arrangements with lenders.

We do, however, expect that it will continue to have a negative impact on our business and the financial condition of certain of our portfolio companies.

Portfolio Investment Activity for the Three Months Ended September 30, 2021 and 2020 and the Year Ended December 31, 2020

The following table summarizes our investment activity, excluding short term investments and PIK securities, for the three months ended September 30, 2021 and 2020 and the year ended December 31, 2020:

Portfolio Investment Activity for the Three Months Ended March 31, 2022 and 2021 and the Year Ended December 31, 2021

The following table summarizes our investment activity, excluding short term investments and PIK securities, for the three months ended March 31, 2022 and 2021 and the year ended December 31, 2021:

Three Months Ended

September 30, Year Ended December 31,

March 31, Year Ended

Net Investment Activity 2022 2021 2021

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Senior secured first lien debt $ 136,698 $ 181,990 $ 868,031

Senior secured second lien debt — — 4,375

Unsecured debt — — 20,000

Equity 1,125 1,644 32,008

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Net portfolio activity $ 76,792 $ (5,640) $ 92,081

The following tables summarize the composition of our investment portfolio at amortized cost and fair value as of September 30, 2021 and December 31, 2020:

September 30, 2021

The following tables summarize the composition of our investment portfolio at amortized cost and fair value as of March 31, 2022 and December 31, 2021:

March 31, 2022

Investments Cost(1) Investments Fair

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(3) The gross annual portfolio yield does not represent and may be higher than an actual investment return to shareholders because it excludes our expenses and all sales commissions and dealer manager fees and does not consider the cost of leverage.

The following table summarizes the composition of our investment portfolio by the type of interest rate as of September 30, 2021 and December 31, 2020, excluding short term investments of $115,834 and $73,597, respectively:

September 30, 2021 December 31, 2020

Interest Rate Allocation Investments Cost Investments Fair

Value Percentage of

Portfolio Investments Cost Investments Fair

Value Percentage of

The following table summarizes the composition of our investment portfolio by the type of interest rate as of March 31, 2022 and December 31, 2021, excluding short term investments of $15,763 and $87,917, respectively:

March 31, 2022 December 31, 2021

Interest Rate Allocation Investments Cost Investments Fair Value Percentage of

Portfolio Investments Cost Investments Fair Value Percentage of

Floating interest rate investments $ 1,539,482 $ 1,474,698 84.8 % $ 1,454,429 $ 1,403,097 84.2 %

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Total investments $ 1,789,322 $ 1,739,534 100.0 % $ 1,704,387 $ 1,666,122 100.0 %

The following table shows the composition of our investment portfolio by industry classification and the percentage, by fair value, of the total assets in such industries as of September 30, 2021 and December 31, 2020:

September 30, 2021 December 31, 2020

Industry Classification Investments at

Fair Value Percentage of

Investment Portfolio Investments at

Fair Value Percentage of

The following table shows the composition of our investment portfolio by industry classification and the percentage, by fair value, of the total assets in such industries as of March 31, 2022 and December 31, 2021:

March 31, 2022 December 31, 2021

Industry Classification Investments Fair Value Percentage of

Investment Portfolio Investments Fair Value Percentage of

Investment Portfolio

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Healthcare & Pharmaceuticals 244,993 14.1 % 250,049 15.0 %

Consumer 122,919 7.5 % 85,254 5.7 %

Diversified & Production 134,373 7.7 % 139,399 8.4 %

Advertising, Printing & Publishing 106,854 6.6 % 110,083 7.4 %

Capital Equipment 86,037 5.3 % 65,752 4.4 %

Consumer 121,488 7.0 % 119,365 7.2 %

Chemicals, Plastics & Rubber 107,079 6.2 % 109,860 6.6 %

Diversified Financials 101,597 5.8 % 101,032 6.1 %

High Tech Industries 84,764 4.9 % 65,544 3.9 %

Banking, Finance, Insurance & Real Estate 53,517 3.3 % 41,211 2.8 %

Construction & Building 49,720 3.0 % 34,653 2.3 %

Beverage, Food & Tobacco 49,561 3.0 % 69,975 4.7 %

Capital Equipment 83,305 4.8 % 82,795 5.0 %

Advertising, Printing & Publishing 81,747 4.7 % 94,610 5.7 %

Consumer Goods:

Durable 57,098 3.3 % 58,124 3.5 %

Aerospace & Defense 42,726 2.6 % 35,751 2.4 %

Retail 57,066 3.3 % 56,726 3.4 %

Hotel, Gaming & Leisure 51,909 3.0 % 50,855 3.0 %

Beverage, Food & Tobacco 47,319 2.7 % 49,054 2.9 %

Banking, Finance, Insurance & Real Estate 40,233 2.3 % 40,634 2.4 %

Aerospace & Defense 38,484 2.2 % 38,279 2.3 %

Oil & Gas 37,073 2.1 % 32,164 1.9 %

Consumer Goods:

Non-Durable 36,984 2.1 % 45,682 2.7 %

Construction & Building 27,270 1.6 % 27,585 1.7 %

Telecommunications 24,710 1.4 % 24,649 1.5 %

Hotel, Gaming & Leisure 35,428 2.2 % 21,920 1.5 %

Diversified Financials 32,457 2.0 % 37,214 2.5 %

Oil & Gas 28,117 1.7 % 28,136 1.9 %

Forest Products & Paper 21,699 1.3 % 21,686 1.4 %

Automotive 17,851 1.0 % 14,367 0.9 %

Transportation:

Cargo 13,141 0.8 % 14,106 0.8 %

Automotive 13,965 0.9 % — —

Metals & Mining 11,008 0.6 % 10,927 0.7 %

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Our investment portfolio may contain senior secured investments that are in the form of lines of credit, delayed draw term loans, revolving credit facilities, or unfunded commitments, which may require us to provide funding when requested in accordance with the terms of the underlying agreements.

As of September 30, 2021 and December 31, 2020, our unfunded commitments amounted to $96,846 and $43,130, respectively.

As of November 11, 2021, our unfunded commitments amounted to $110,475.

As of March 31, 2022 and December 31, 2021, our unfunded commitments amounted to $95,995 and $107,247 , respectively.

As of May 5, 2022, our unfunded commitments amount ed to $105,147.

Since these commitments may expire without being drawn upon, unfunded commitments do not necessarily represent future cash requirements or future earning assets for us.

Refer to the section “Commitments and Contingencies and Off-Balance Sheet Arrangements” for further details on our unfunded commitments.

Refer to the section “Commitments and Contingencies” for further details on our unfunded commitments.

Investment Portfolio Asset Quality

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For investments rated 3, 4, or 5, CIM enhances its level of scrutiny over the monitoring of such portfolio company.

The following table summarizes the composition of our investment portfolio based on the 1 to 5 investment rating scale at fair value as of September 30, 2021 and December 31, 2020, excluding short term investments of $115,834 and $73,597, respectively:

September 30, 2021 December 31, 2020

The following table summarizes the composition of our investment portfolio based on the 1 to 5 investment rating scale at fair value as of March 31, 2022 and December 31, 2021, excluding short term investments of $15,763 and $87,917, respectively:

March 31, 2022 December 31, 2021

Investment Rating Investments

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Current Investment Portfolio

The following table summarizes the composition of our investment portfolio at fair value as of November 11, 2021:

The following table summarizes the composition of our investment portfolio at fair value as of May 5, 2022:

Investments Fair

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(2) The gross annual portfolio yield does not represent and may be higher than an actual investment return to shareholders because it excludes our expenses and all sales commissions and dealer manager fees and does not consider the cost of leverage.

Results of Operations for the Three Months Ended September 30, 2021 and 2020

Our results of operations for the three months ended September 30, 2021 and 2020 were as follows:

Results of Operations for the Three Months Ended March 31, 2022 and 2021

Our results of operations for the three months ended March 31, 2022 and 2021 were as follows:

Three Months Ended

September 30,

Investment income $ 41,683 $ 36,303

Net operating expenses and income tax expense 23,008 17,467

Net investment income 19,612 21,420

Net realized gain (loss) on investments and foreign currency 19,736 (42,511)

Operating expenses and income taxes 22,200 18,704

Net investment income after taxes 19,483 17,599

Net realized loss on investments and foreign currency (69) (4,128)

Net change in unrealized (depreciation) appreciation on investments (11,525) 36,243

Net increase in net assets from operations $ 25,108 $ 31,087

Net increase in net assets resulting from operations $ 7,889 $ 49,714

Investment Income

For the three months ended September 30, 2021 and 2020, we generated investment income of $42,620 and $38,887, respectively, consisting primarily of interest income on investments in senior secured debt, and collateralized securities and structured products of 128 and 118 portfolio companies held during each respective period.

The increase in investment income was primarily the result of additional dividends received upon the exit of an equity investment during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Operating Expenses

The composition of our operating expenses for the three months ended September 30, 2021 and 2020 was as follows:

For the three months ended March 31, 2022 and 2021, we generated investment income of $41,683 and $36,303, respectively, consisting primarily of interest income on investments in senior secured debt, collateralized securities and structured products, and unsecured debt of 112 and 107 portfolio companies held during each respective period.

Our average investment portfolio size, excluding our short term investments, increased $187,917, from $1,514,911 for the three months ended March 31, 2021 to $1,702,828 for the three months ended March 31, 2022.

Operating Expenses and Income Taxes

The composition of our operating expenses and income taxes for the three months ended March 31, 2022 and 2021 was as follows:

Three Months Ended

September 30,

Management fees $ 6,655 $ 7,783

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Interest expense 8,459 7,548

Total operating expenses $ 22,982 $ 17,446

The increase in subordinated incentive fee on income was primarily the result of entering into the amended and restated investment advisory agreement, which replaced adjusted capital with our net assets as the denominator of the subordinated incentive fee calculation.

The increase in interest expense was primarily the result of higher average borrowings on our financing arrangements during the three months ended September 30, 2021 as compared to the three months ended September 30, 2020, which also resulted in an increase in total assets and therefore an increase in management fees during the three months ended September 30, 2021.

The composition of our general and administrative expenses for the three months ended September 30, 2021 and 2020 was as follows:

Income tax expense, including excise tax 11 11

Total operating expenses and income taxes $ 22,200 $ 18,704

The increase in subordinated incentive fee on income was primarily the result of entering into the (i) amended and restated investment advisory agreement in August 2021, which changed the calculation of the subordinated incentive fee to express the hurdle rate required for CIM to earn, and be paid, the incentive fee as a percentage of our net assets rather than adjusted capital, and (ii) the second amended and restated investment advisory agreement in October 2021, which reduced the hurdle rate applicable to the subordinated incentive fee.

The decrease in management fees was also primarily due to entering into the second amended and restated investment advisory agreement in October 2021, which reduced the annual rate from 2.0% to 1.5%.

The increase in interest expense was primarily the result of higher average borrowings during the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

The composition of our general and administrative expenses for the three months ended March 31, 2022 and 2021 was as follows:

Three Months Ended

September 30,

Professional fees $ 633 $ 1,265

Transfer agent expense 316 239

Printing and marketing expense 235 241

Accounting and administrative costs 194 224

Valuation expense 191 241

Director fees and expenses 151 105

Insurance expense 135 131

Dues and subscriptions 535 169

Other expenses 12 —

Total general and administrative expense $ 2,709 $ 1,503

The increase in general and administrative expenses was primarily the result of higher nonrecurring professional fees incurred during the three months ended September 30, 2021 associated with the Listing.

Net Investment Income After Taxes

Our net investment income after taxes totaled $19,612 and $21,420 for the three months ended September 30, 2021 and 2020, respectively.

The decrease in net investment income after taxes was primarily due to an increase in the subordinated incentive fee on income for the three months ended September 30, 2021 as compared to the three months ended September 30, 2020.

Net Realized Gain (Loss) on Investments and Foreign Currency

Our net realized gain (loss) on investments and foreign currency totaled $19,736 and ($42,511) for the three months ended September 30, 2021 and 2020, respectively.

This change was driven primarily by realized gains recognized on the exit of our investment in Conisus Holdings, Inc.

during the three months ended September 30, 2021 compared to realized losses on the restructure of certain investments during the three months ended September 30, 2020.

Net Change in Unrealized (Depreciation) Appreciation on Investments

The net change in unrealized (depreciation) appreciation on our investments totaled ($14,240) and $52,178 for the three months ended September 30, 2021 and 2020, respectively.

This change was driven primarily by certain previously unrealized gains being realized and the continued recovery of loan prices during the three months ended September 30, 2021 compared to certain previously unrealized losses being realized during the three months ended September 30, 2020 and the continued recovery of loan prices.

Net Increase in Net Assets Resulting from Operations

For the three months ended September 30, 2021 and 2020, we recorded a net increase in net assets resulting from operations of $25,108 and $31,087, respectively, as a result of our operating activity for the respective periods.

Results of Operations for the Nine Months Ended September 30, 2021 and 2020

Our results of operations for the nine months ended September 30, 2021 and 2020 were as follows:

Nine Months Ended

September 30,

Investment income $ 116,944 $ 120,443

Net operating expenses and income taxes 61,047 63,446

Net investment income 55,897 56,997

Net realized gain (loss) on investments and foreign currency 16,049 (57,693)

Net change in unrealized appreciation (depreciation) on investments 30,845 (57,542)

Net increase (decrease) in net assets resulting from operations $ 102,791 $ (58,238)

Investment Income

For the nine months ended September 30, 2021 and 2020, we generated investment income of $116,944 and $120,443, respectively, consisting primarily of interest income on investments in senior secured debt and collateralized securities and structured products of 135 and 134 portfolio companies held during each respective period.

Our average investment portfolio size, excluding our short term investments, decreased $63,095, from $1,626,213 for the nine months ended September 30, 2020 to $1,563,119 for the nine months ended September 30, 2021.

Operating Expenses

The composition of our operating expenses for the nine months ended September 30, 2021 and 2020 was as follows:

Nine Months Ended

September 30,

Management fees $ 24,469 $ 24,160

Administrative services expense 2,103 1,793

Subordinated incentive fee on income 2,933 3,308

General and administrative 7,950 4,684

Interest expense 23,551 29,476

Total operating expenses $ 61,006 $ 63,421

The decrease in interest expense during the nine months ended September 30, 2021 was primarily the result of all remaining unamortized debt issuance costs related to the Second Amended Citibank Credit Facility and the Amended MS Credit Facility being expensed upon the repayment of all amounts outstanding on these facilities during the nine months ended September 30, 2020.

The decrease in interest expense was also the result of a decrease in LIBOR during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020 and lower average borrowings on our financing arrangements during the nine months ended September 30, 2021 as compared to the nine months ended September 30, 2020.

The composition of our general and administrative expenses for the nine months ended September 30, 2021 and 2020 was as follows:

Nine Months Ended

September 30,

Professional fees $ 3,833 $ 1,108

Transfer agent expense 291 422

Insurance expense 251 132

Valuation expense 179 252

Printing and marketing expense 634 359

Accounting and administrative costs 157 237

Insurance expense 404 354

Director fees and expenses 154 103

Dues and subscriptions 316 273

Printing and marketing expense 5 44

Other expenses 17 54

Total general and administrative expense $ 2,222 $ 2,678

The increase in general and administrative expenses was primarily the result of higher professional fees incurred during the nine months ended September 30, 2021 associated with the Listing and higher printing and marketing expense incurred during the nine months ended September 30, 2021 associated with shareholder proxy solicitation costs.

Net Investment Income After Taxes

Our net investment income after taxes totaled $55,897 and $56,997 for the nine months ended September 30, 2021 and 2020, respectively.

The decrease in our net investment income after taxes was primarily due to a decrease in investment income during the nine months ended September 30, 2021, which was partially offset by a decrease in operating expenses.

Net Realized Gain (Loss) on Investments and Foreign Currency

Our net realized gain (loss) on investments and foreign currency totaled $16,049 and ($57,693) for the nine months ended September 30, 2021 and 2020, respectively.

This change was driven primarily by realized gains recognized on the exit of our investment in Conisus Holdings, Inc.during the nine months ended September 30, 2021 as compared to realized losses on the restructure of certain investments during the nine months ended September 30, 2020.

Net Change in Unrealized Appreciation (Depreciation) on Investments

The net change in unrealized appreciation (depreciation) on our investments totaled $30,845 and ($57,542) for the nine months ended September 30, 2021 and 2020, respectively.

This change was driven primarily by tightening credit spreads and increased multiples in equity markets during the nine months ended September 30, 2021 that positively impacted the fair value of certain of our investments, as compared to the outbreak and spread of COVID-19 around the world during the nine months ended September 30, 2020, which caused significant uncertainty and volatility in the U.S.

and global economies as well as in the financial and credit markets and negatively impacted the fair value of certain of our investments.

Net Increase (Decrease) in Net Assets Resulting from Operations

For the nine months ended September 30, 2021 and 2020, we recorded a net increase (decrease) in net assets resulting from operations of $102,791 and ($58,238), respectively, as a result of our operating activity for the respective periods.

Net Asset Value per Share, Annual Investment Return and Total Return Since Inception

Our net asset value per share was $16.52 and $15.50 on September 30, 2021 and December 31, 2020, respectively (adjusted for the Reverse Stock Split).

After considering (i) the overall changes in net asset value per share, (ii) paid distributions of approximately $0.7944 per share during the nine months ended September 30, 2021, and (iii) the assumed reinvestment of those distributions in accordance with our distribution reinvestment plan then in effect, the total investment return-net asset value was 11.98% for the nine month period ended September 30, 2021.

Total investment return-net asset value does not represent and may be higher than an actual return to shareholders because it excludes all sales commissions and dealer manager fees.

Total investment return-net asset value is a measure of the change in total value for shareholders who held our common stock at the beginning and end of the period, including distributions paid or payable during the period, and is described further in Note 13 to our consolidated financial statements included in this report.

Initial shareholders who subscribed to the offering in December 2012 with an initial investment of $10,000 and an initial purchase price equal to $18.00 per share (public offering price excluding sales load and adjusted for the Reverse Stock Split) have seen an annualized return of 7.01% and a cumulative total return of 81.40% through September 30, 2021 (see chart below).

Initial shareholders who subscribed to the offering in December 2012 with an initial investment of $10,000 and an initial purchase price equal to $20.00 per share (the initial public offering price including sales load and adjusted for the Reverse Stock Split) have seen an annualized return of 5.73% and a cumulative total return of 63.26% through September 30, 2021.

Over the same time period, the S&P/LSTA Leveraged Loan Index, a primary measure of senior debt covering the U.S.

leveraged loan market, which currently consists of approximately 1,000 credit facilities throughout numerous industries, recorded an annualized return of 4.26% and a cumulative total return of 44.30%.

In addition, the BofA Merrill Lynch US High Yield Index, a primary measure of short-term US dollar denominated below investment grade corporate debt publicly issued in the US domestic market, recorded an annualized return of 5.86% and a cumulative total return of 65.03% over the same period.

(1) Cumulative performance:

December 17, 2012 to September 30, 2021

The calculations for the Growth of $10,000 Initial Investment are based upon (i) an initial investment of $10,000 in our common stock at the beginning of the period, at a share price of $20.00 per share (including sales load and adjusted for the Reverse Stock Split) and $18.00 per share (excluding sales load and adjusted for the Reverse Stock Split), (ii) assumes reinvestment of monthly distributions in accordance with our distribution reinvestment plan then in effect, (iii) the sale of the entire investment position at the net asset value per share on the last day of the period, and (iv) the distributions declared and payable to shareholders, if any, on the last day of the period.

Our net investment income after taxes totaled $19,483 and $17,599 for the three months ended March 31, 2022 and 2021, respectively.

The increase in our investment income after taxes during the three months ended March 31, 2022 as compared to the three months ended March 31, 2021 was partially offset by an increase in our operating expenses during the same period, which was driven primarily by an increase in the subordinated incentive fee on income.

Net Realized Loss on Investments and Foreign Currency

Our net realized loss on investments and foreign currency totaled $(69) and $(4,128) for the three months ended March 31, 2022 and 2021, respectively, which was driven primarily by realized losses on the liquidation of our investments in certain portfolio companies during the three months ended March 31, 2021.

Net Change in Unrealized (Depreciation) Appreciation on Investments

The net change in unrealized (depreciation) appreciation on our investments totaled $(11,525) and $36,243 for the three months ended March 31, 2022 and 2021, respectively.

This change was driven primarily by widening credit spreads and decreased multiples in equity markets as well as the underperformance of certain portfolio companies during the three months ended March 31, 2022 that negatively impacted the fair value of certain of our investments, as compared to tightening credit spreads and increased multiples in equity markets during the three months ended March 31, 2021 that positively impacted the fair value of certain of our investments.

Net Increase in Net Assets Resulting from Operations

For the three months ended March 31, 2022 and 2021, we recorded a net increase in net assets resulting from operations of $7,889 and $49,714, respectively, as a result of our operating activity for the respective periods.

Financial Condition, Liquidity and Capital Resources

We generate cash primarily from cash flows from interest, fees and dividends earned from our investments as well as principal repayments and proceeds from sales of our investments.

We also employ leverage to seek to enhance our returns as market conditions permit and at the discretion of CIM.

We also employ leverage to seek to enhance our returns as market conditions permit and at the discretion of CIM and pursuant to the 1940 Act.

On March 23, 2018, an amendment to Section 61(a) of the 1940 Act was signed into law to permit BDCs to reduce the minimum “asset coverage” ratio from 200% to 150% and, as a result, to potentially increase the ratio of a BDC’s debt to equity from a maximum of 1-to-1 to a maximum of 2-to-1, so long as certain approval and disclosure requirements are satisfied.

We are seeking the approval of our shareholders to reduce our minimum “asset coverage” ratio from 200% to 150% in accordance with the 1940 Act.

The outbreak and spread of COVID-19 have caused severe stress and uncertainty in the U.S.

and global economies as well as in the financial and credit markets.

Given the uncertainty as to the full severity and duration of the pandemic and its effects on us with respect to our compliance with covenants in our loan facilities with lenders and our borrowers’ ability to timely meet their financial obligations to us, management and our board of directors determined that it was in the best interest of our company and all of our shareholders to take certain steps disclosed below during the three months ended March 31, 2020 that were necessary to improve our cash position and preserve financial flexibility in the short term.

This “Financial Condition, Liquidity and Capital Resources” discussion should also be read in conjunction with “Recent Developments - COVID-19” above.

On March 19, 2020, our co-chief executive officers determined to (i) change the timing of declaring distributions to shareholders from quarterly to monthly;

and (ii) temporarily suspend the payment of distributions to shareholders commencing with the month ended April 30, 2020, whether in cash or pursuant to our distribution reinvestment plan, as amended and restated.

On July 15, 2020, our board of directors determined to recommence the payment of distributions to shareholders in August 2020.

On July 30, 2021, our board of directors, including the independent directors, determined to suspend our share repurchase program commencing with the third quarter of 2021 in anticipation of the potential Listing.

The share repurchase program terminated upon the Listing on October 5, 2021.

At our Special Meeting of Shareholders on December 30, 2021, shareholders approved a proposal to reduce our asset coverage ratio to 150%.

As a result, commencing on December 31, 2021, we are required to maintain asset coverage for our senior securities of 150% (i.e., $2 of debt outstanding for each $1 of equity) rather than 200% (i.e., $1 of debt outstanding for each $1 of equity), which allows us to increase the maximum amount of leverage that we are permitted to incur.

On July 30, 2021, our board of directors, including the independent directors, determined to suspend our pre-Listing share repurchase program commencing with the third quarter of 2021 in anticipation of the Listing.

The pre-Listing share repurchase program terminated upon the Listing on October 5, 2021.

On August 9, 2021, our shareholders approved a proposal that authorizes us to issue shares of our common stock at prices below the then current NAV per share of our common stock in one or more offerings for a 12-month period following such shareholder approval.

As of the date of this report, we have not issued any shares at prices below our NAV per share pursuant to this authorization.

On September 15, 2021, our co-chief executive officers changed the timing of declaring and paying regular distributions to shareholders from monthly to quarterly commencing with the fourth quarter of 2021.

On September 15, 2021, our co-chief executive officers declared a regular quarterly cash distribution of $0.1324 per share for the fourth quarter of 2021 and declared a special cash distribution expected to be in the range of $0.07 to $0.10 per share for the year ending December 31, 2021.

As adjusted to give effect to the Reverse Stock Split, the regular cash distribution of $0.1324 per share will be paid at a per share distribution amount of $0.2648 and the special cash distribution expected to be in the range of $0.07 to $0.10 per share will be paid at a per share distribution amount expected to be in the range of $0.14 to $0.20.

The regular quarterly cash distribution will be paid on December 8, 2021 to shareholders of record as of December 1, 2021.

The special cash distribution will be paid on December 23, 2021 to shareholders of record as of December 16, 2021.

On November 12, 2021, our co-chief executive officers declared a regular quarterly cash distribution of $0.28 per share for the first quarter of 2022 payable on March 30, 2022 to shareholders of record as of March 23, 2022.

On March 8, 2022, our co-chief executive officers declared a regular quarterly distribution of $0.28 per share for the second quarter of 2022 payable on June 8, 2022 to shareholders of record as of June 1, 2022.

We intend to make distributions in an amount sufficient to maintain RIC status each year and to avoid any federal income taxes on income.

Therefore, subject to applicable legal restrictions and the sole discretion of our board of directors, we intend to authorize, declare, and pay regular cash distributions on a quarterly basis.

Therefore, subject to applicable legal restrictions and the sole discretion of our board of directors, we intend to authorize, declare, and pay regular distributions on a quarterly basis.

Regular and special distributions in respect of future periods will be evaluated by management and our board of directors based on circumstances and expectations existing at the time of consideration.

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The 10b5-1 trading plan will be administered by an independent broker and will be subject to price, market volume and timing restrictions.

Since we have not yet entered into a 10b5-1 trading plan, during the period from September 15, 2021 to November 11, 2021, we did not repurchase any shares of common stock pursuant to the share repurchase policy.

As further described in Note 1 and Note 4 to our consolidated financial statements included in this report, the recent second amended and restated investment advisory agreement (i) reduced the annual base management fees payable by us to CIM and (ii) amended the way the subordinated incentive fee on income and the capital gains incentive fee is payable by us to CIM by reducing the hurdle and incentive fee rates and expressing the hurdle rate as a percentage of our net assets rather than our adjusted capital.

Since we have not yet entered into a 10b5-1 trading plan, during the period from September 15, 2021 to May 5, 2022, we did not repurchase any shares of common stock pursuant to the share repurchase policy.

As further described in Note 1 and Note 4 to our consolidated financial statements included in this report, the second amended and restated investment advisory agreement (i) reduced the annual base management fees payable by us to CIM and (ii) amended the way the subordinated incentive fee on income and the capital gains incentive fee is payable by us to CIM by reducing the hurdle and incentive fee rates and expressing the hurdle rate as a percentage of our net assets rather than our adjusted capital.

These changes were effective upon the Listing on October 5, 2021, except for the change to the calculation of the subordinated incentive fee payable to CIM that expresses the hurdle rate required for CIM to earn, and be paid, the incentive fee as a percentage of our net assets rather than adjusted capital, which was effective on August 10, 2021.

These changes, in the aggregate, may lead to the payment of higher advisory fees to CIM depending upon our performance.

As of September 30, 2021 and November 11, 2021, we had $115,834 and $100,405 in short term investments, respectively, invested in a fund that primarily invests in U.S.

As of March 31, 2022 and December 31, 2021, we had $15,763 and $87,917 in short term investments, respectively, invested in a fund that primarily invests in U.S.

government securities.

JPM Credit Facility

As of September 30, 2021 and November 11, 2021, our outstanding borrowings under the Third Amended JPM Credit Facility were $550,000 and $575,000, respectively, and the aggregate unfunded principal amount in connection with the Third Amended JPM Credit Facility was $25,000 and $0, respectively.

For a detailed discussion of our Third Amended JPM Credit Facility, refer to Note 8 to our consolidated financial statements included in this report.

As of September 30, 2021 and November 11, 2021, our outstanding borrowings under the Amended UBS Facility were $100,000 and the aggregate unfunded principal amount in connection with the Amended UBS Facility was $50,000.

As of March 31, 2022 and May 5, 2022, our aggregate outstanding borrowings under the Third Amended JPM Credit Facility and the JPM First Amendment were $595,000 and $600,000, respectively, and the aggregate unfunded principal amount in connection with the Third Amended JPM Credit Facility and the JPM First Amendment was $80,000 and $75,000, respectively.

For a detailed discussion of our Third Amended JPM Credit Facility and the JPM First Amendment, refer to Note 8 to our consolidated financial statements included in this report.

As of March 31, 2022 and May 5, 2022, our outstanding borrowings under the Amended UBS Facility were $125,000 and $142,500, respectively, and the aggregate unfunded principal amount in connection with the Amended UBS Facility was $25,000 and $7,500, respectively.

For a detailed discussion of our Amended UBS Facility, refer to Note 8 to our consolidated financial statements included in this report.

As of September 30, 2021 and November 11, 2021, we had $125,000 in aggregate principal amount of 2026 Notes outstanding.

As of March 31, 2022 and May 5, 2022, we had $125,000 in aggregate principal amount of 2026 Notes outstanding and there was no unfunded principal amount in connection with the 2026 Notes.

For a detailed discussion of our 2026 Notes, refer to Note 8 to our consolidated financial statements included in this report.

2021 More Term Loan

As of September 30, 2021 and November 11, 2021, our outstanding borrowings under the More Term Loan were $30,000 and there was no unfunded principal amount in connection with the More Term Loan.

As of March 31, 2022 and May 5, 2022, our outstanding borrowings under the 2021 More Term Loan were $30,000 and there was no unfunded principal amount in connection with the 2021 More Term Loan.

For a detailed discussion of our 2021 More Term Loan, refer to Note 8 to our consolidated financial statements included in this report.

2022 More Term Loan

As of May 5, 2022, our outstanding borrowings under the 2022 More Term Loan were $50,000 and there was no unfunded principal amount in connection with the 2022 More Term Loan.

For a detailed discussion of our 2022 More Term Loan, refer to Note 14 to our consolidated financial statements included in this report.

Unfunded Commitments

As of September 30, 2021 and November 11, 2021, our unfunded commitments amounted to $96,846 and $110,475, respectively.

As of March 31, 2022 and May 5, 2022, our unfunded commitments amounted to $95,995 and $105,147, respectively.

For a detailed discussion of our unfunded commitments, refer to Note 11 to our consolidated financial statements included in this report.

RIC Status and Distributions

To qualify for and maintain RIC tax treatment, we must, among other things, distribute in respect of each taxable year at least 90% of our net ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any.

We will incur certain excise taxes imposed on RICs to the extent we do not distribute in respect of each calendar year an amount at least equal to the sum of (1) 98.0% of our net ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gains in excess of capital losses, or capital gain net income (adjusted for certain ordinary losses), for the one-year period ending on October 31 of the calendar year and (3) any net ordinary income and capital gain net income from preceding years that were not distributed during such years and on which we paid no federal income tax.

For an additional discussion of our RIC status and distributions, refer to Note 2 and Note 5, respectively, of our consolidated financial statements included in this report.

Recent Accounting Pronouncements

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As a BDC, Section 2(a)(41) of the 1940 Act requires the board of directors to determine in good faith the fair value of portfolio securities for which a market price is not readily available, and it does so in conjunction with the application of our valuation procedures by CIM.

In accordance with Rule 2a-5 of the 1940 Act, our board of directors has designated CIM as our “valuation designee.” Our board of directors and the audit committee of our board of directors, which is comprised solely of our independent directors, oversees the activities, methodology and processes of the valuation designee.

There is no single standard for determining fair value in good faith.

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Valuation Methods

With respect to investments for which market quotations are not readily available, we undertake a multi-step valuation process each quarter, as described below:

• our quarterly valuation process begins with each portfolio company or investment being initially valued by certain of CIM’s investment professionals and certain members of its management team, with such valuation taking into account information received from various sources, including independent valuation firms, if applicable;

• preliminary valuation conclusions are then documented and discussed with members of CIM’s management team;

With respect to investments for which market quotations are not readily available, CIM, as the valuation designee of our board of directors, undertakes a multi-step valuation process each quarter, as described below:

• the quarterly valuation process generally begins with each portfolio company or investment either being sent directly to an independent valuation firm or initially valued by certain of CIM’s investment professionals and certain members of its management team, with such valuation taking into account information received from various sources, including independent valuation firms, if applicable;

• preliminary valuation conclusions are then documented and discussed by members of CIM’s management team;

• designated members of CIM’s management team review the preliminary valuation, and, if applicable, deliver such preliminary valuation to an independent valuation firm for its review;

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• our audit committee meets with members of CIM’s management team and the independent valuation firms to discuss the assistance provided and the results of the independent valuation firms' review;

• our board of directors discusses the valuation and determines the fair value of each investment in our portfolio in good faith based on various statistical and other factors, including the input and recommendation of CIM, the audit committee and any third-party valuation firm, if applicable.

• our board of directors and our audit committee provide oversight with respect to this valuation process, including requesting such materials as they may determine appropriate.

We shall promptly (but no later than five business days after we become aware) report to our board of directors in writing on the occurrence of matters that materially affect the fair value of the designated portfolio of investments.

Material matters in this instance include a significant deficiency or material weakness in the design or effectiveness of CIM’s fair value determination process resulting in a material error in the calculation of net asset value of $0.01 per share or greater.

In addition to the foregoing, certain investments for which a market price is not readily available are evaluated on a quarterly basis by an independent valuation firm and certain other investments are on a rotational basis reviewed by an independent valuation firm.

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Related Party Transactions

For a discussion of our relationship with related parties including CION Securities, CIM, CIG, and AIA and amounts incurred under agreements with such related parties, refer to Note 4 to our consolidated financial statements included in this report.

For a discussion of our relationship with related parties including CIM, CIG, and AIA and amounts incurred under agreements with such related parties, refer to Note 4 to our consolidated financial statements included in this report.

Contractual Obligations

On August 26, 2016, 34th Street entered into the JPM Credit Facility with JPM, as amended and restated on September 30, 2016, July 11, 2017, November 28, 2017, May 23, 2018, May 15, 2020 and February 26, 2021.

See Note 8 to our consolidated financial statements for a more detailed description of the JPM Credit Facility.

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See Note 8 to our consolidated financial statements for a more detailed description of the 2021 More Term Loan.

Commitments and Contingencies and Off-Balance Sheet Arrangements

On April 27, 2022, we entered into the 2022 More Term Loan with More Provident.

See Note 8 to our consolidated financial statements for a more detailed description of the 2022 More Term Loan.

Commitments and Contingencies

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For further details on such debt investments, refer to Note 11 to our consolidated financial statements included in this report.

Off-Balance Sheet Arrangements

We currently have no off-balance sheet arrangements, except for those discussed in Note 11 to our consolidated financial statements included in this report.

However, management continually evaluates potential strategic relationships with third parties in which a newly formed, joint venture entity would invest primarily in U.S.

middle-market companies consistent with our investment strategy.

We currently have no off-balance sheet arrangements, except for those discussed in Note 7 and Note 11 to our consolidated financial statements included in this report.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis