What changed in this filing

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Item 1A. Risk Factors

2021-05-06 compared with 2020-10-29 · 4 added, 208 removed, 1 unchanged (100% of the section changed)

Risk Factors.

In addition to other information set forth in this report, including the risk factor below, you should carefully consider the Risk

Factors discussed in our Form 10-K for the year ended December 31, 2019 and filed with the SEC on February 27, 2020, which are incorporated herein by reference.

These Risk Factors could

materially affect our business, financial condition and/or operating results.

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or

operating results.

Legislation that took effect in 2018 would allow us to incur additional leverage.

The 1940 Act generally prohibits the Company from incurring indebtedness unless immediately after such borrowing we have an asset coverage for

total borrowings of at least 200.0% (i.e., the amount of debt may not exceed 50.0% of the value of our assets).

However, in March 2018, the Small Business Credit Availability Act (the SBCA) modified the 1940 Act by allowing a BDC

to increase the maximum amount of leverage it may incur from an asset coverage ratio of 200.0% to an asset coverage ratio of 150.0%, if certain requirements are met.

Under the SBCA, we are allowed to increase our leverage capacity if stockholders

representing at least a majority of the votes cast, when a quorum is present, approve a proposal to do so.

If we receive stockholder approval, we would be allowed to increase our leverage capacity on the first day after such

Alternatively, the SBCA allows the required majority of the Independent Directors, as defined in Section 57(o) of the 1940 Act, to approve an increase in our leverage capacity, and such approval would become effective

after the one-year anniversary of such proposal.

In either case, we would be required to make certain disclosures on our website and in SEC filings regarding, among other things, the receipt of approval to

increase our leverage, our leverage capacity and usage, and risks related to leverage.

On April 29, 2019, the Board, including a

majority of the Independent Directors, approved a minimum asset coverage ratio of 150% under Sections 18(a)(1) and 18(a)(2) of the 1940 Act.

As a result, we became subject to the 150% asset coverage ratio effective as of April 29, 2020.

present time, we do not intend to seek stockholder approval to reduce our asset coverage requirement.

Leverage magnifies the potential

for loss on investments in our indebtedness and on invested equity capital.

As we use leverage to partially finance our investments, our stockholders will experience increased risks of investing in our securities.

If the value of our assets

increases, then leveraging would cause the NAV attributable to our common stock to increase more sharply than it would have had we not leveraged.

Conversely, if the value of our assets decreases, leveraging would cause NAV to decline more sharply

than it otherwise would have had we not leveraged our business.

Similarly, any increase in our income in excess of interest payable on the borrowed funds would cause our net investment income to increase more than it would without the leverage,

while any decrease in our income would cause net investment income to decline more sharply than it would have had we not borrowed.

Such a decline could negatively affect our ability to pay common stock dividends, scheduled debt payments, or other

payments related to our securities.

Increased leverage may also cause a downgrade of our credit rating.

Leverage is generally considered a speculative investment technique.

Changes relating to the LIBOR calculation process may adversely affect the value of our portfolio of LIBOR-indexed, floating-rate debt securities.

The London Inter-bank Offered Rate (LIBOR), is the basic rate of interest used in lending transactions between banks

on the London interbank market and is widely used as a reference for setting the interest rate on loans globally.

We typically use LIBOR as a reference rate in floating-rate loans we extend to portfolio companies such that the interest due to us

pursuant to a term loan extended to a portfolio company is calculated using LIBOR.

The terms of our debt investments generally include minimum interest rate floors which are calculated based on LIBOR.

In the recent past, concerns have been publicized that some of the member banks surveyed by the British Bankers Association

(BBA) in connection with the calculation of LIBOR across a range of maturities and currencies may have been under-reporting or otherwise manipulating the inter-bank lending rate applicable to them in order to profit on their derivative

positions or to avoid an appearance of capital insufficiency or adverse reputational or other consequences that may have resulted from reporting inter-bank lending rates higher than those they actually submitted.

A number of BBA member banks entered

into settlements with their regulators and law enforcement agencies with respect to alleged manipulation of LIBOR, and investigations by regulators and governmental authorities in various jurisdictions are ongoing.

Actions by the ICE Benchmark Administration, regulators or law enforcement agencies as a

result of these or future events, may result in changes to the manner in which LIBOR is determined.

Potential changes, or uncertainty related to such potential changes may adversely affect the market for LIBOR-based securities, including our

portfolio of LIBOR-indexed, floating-rate debt securities.

In addition, any further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an

adverse impact on the market for LIBOR-based securities or the value of our portfolio of LIBOR-indexed, floating-rate debt securities, loans, and other financial obligations or extensions of credit held by or due to us.

On July 27, 2017, the U.K.

Financial Conduct Authority (the FCA), which regulates LIBOR, announced that it intends to stop

persuading or compelling banks to submit LIBOR rates after 2021.

In addition, on March 25, 2020, the FCA stated that although the central assumption that firms cannot rely on LIBOR being published after the end of 2021 has not changed, the

outbreak of COVID-19 has impacted the timing of many firms transition planning, and the FCA will continue to assess the impact of the COVID-19 pandemic on transition timelines and update the marketplace as soon as possible.

It is unclear if

after 2021 LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after 2021.

We have exposure to LIBOR, including in financial instruments that mature after 2021.

exposure arises from the value of our portfolio of LIBOR-indexed, floating-rate debt securities.

In the United States, the Federal

Reserve Board and the Federal Reserve Bank of New York, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S.

financial institutions, is considering replacing U.S.

dollar LIBOR with a

new index calculated by short-term repurchase agreements, backed by Treasury securities called the Secured Overnight Financing Rate (SOFR).

The Federal Reserve Bank of New York began publishing SOFR in April 2018.

Whether or not SOFR

attains market traction as a LIBOR replacement remains a question and the future of LIBOR at this time is uncertain, including whether the COVID-19 pandemic will have further effect on LIBOR transition plans.

The elimination of LIBOR or any other changes or reforms to the determination or supervision of LIBOR could have an adverse impact on the

market for or value of any LIBOR-indexed, floating-rate debt securities, loans, and other financial obligations or extensions of credit held by or due to us or on our overall financial condition or results of operations.

If LIBOR ceases to exist, we

may need to renegotiate the credit agreements extending beyond 2021 with our portfolio companies that utilize LIBOR as a factor in determining the interest rate to replace LIBOR with the new standard that is established.

Events outside of our control, including public health crises such as the ongoing COVID-19 pandemic, may negatively affect our results

of operations and financial performance.

Periods of market volatility have occurred and could continue to occur in response to

pandemics or other events outside of our control.

These types of events have adversely affected and could continue to adversely affect operating results for us and for our portfolio companies.

For example, in December 2019, a novel strain of

coronavirus (known as COVID-19) surfaced in China and has since spread and continues to spread to other countries, including the United States This outbreak has led and for an unknown period of time will continue to lead to disruptions in

local, regional, national and global markets and economies affected thereby.

With respect to the U.S.

credit markets (in particular for

middle market loans), this outbreak has resulted in, and until fully resolved is likely to continue to result in, the following among other things:

(i) government imposition of various forms of shelter-in-place orders and the closing of non-essential businesses, resulting in significant disruption to the businesses of many middle-market loan

borrowers including supply chains, demand and practical aspects of their operations, as well as in lay-offs of employees, and, while these effects are hoped to be temporary, some effects could be persistent or

even permanent;

(ii) increased draws by borrowers on revolving lines of credit;

(iii) increased requests by borrowers for amendments and waivers of their credit agreements to avoid default, increased defaults by such borrowers and/or

increased difficulty in obtaining refinancing at the maturity dates of their loans;

(iv) volatility and disruption of these markets including greater volatility in pricing and spreads and difficulty in valuing loans during periods of increased

volatility, and liquidity issues;

and (v) rapidly evolving proposals and/or actions by state and federal governments to address problems being experienced by the markets and by businesses and the economy in general which will not necessarily

adequately address the problems facing the loan market and middle market businesses.

This outbreak is having, and any future outbreaks

could have, an adverse impact on the markets and the economy in general, which could have a material adverse impact on, among other things, the ability of lenders to originate loans, the volume and type of loans originated, and the volume and type

of amendments and waivers granted to borrowers and remedial actions taken in the event of a borrower default, each of which could negatively impact the amount and quality of loans available for investment by us and returns to us, among other things.

The Company and the Investment Advisor have taken and continue to take steps reasonably

designed to ensure that they maintain normal business operations, and that the Company, its portfolio and assets are protected.

However, in the event of a pandemic or an outbreak, such as COVID-19, there can be no assurance that the Company, the

Investment Advisor and service providers, or the Companys portfolio companies, will be able to maintain normal business operations for an extended period of time or will not lose the services of key personnel on a temporary or long-term basis

due to illness or other reasons.

A pandemic or disease could also impair the information technology and other operational systems upon which the Investment Advisor relies and could otherwise disrupt the ability of the Companys service

providers to perform essential tasks.

As of the date of this 10-Q, it is impossible to determine the scope of this outbreak, or any future outbreaks, how long any such outbreak, market disruption or

uncertainties may last, the effect any governmental actions will have or the full potential impact on us and our portfolio companies.

Any potential impact to our results of operations will depend to a large extent on future developments and new

information that could emerge regarding the duration and severity of COVID-19 and the actions taken by authorities and other entities to contain COVID-19 or treat its impact, all of which are beyond our control.

These potential

impacts, while uncertain, could adversely affect our and our portfolio companies operating results.

If the economy is unable to

substantially reopen, and high levels of unemployment continue for an extended period of time, loan delinquencies, loan non-accruals, problem assets, and bankruptcies may increase.

In addition, collateral for

our loans may decline in value, which could cause loan losses to increase and the net worth and liquidity of loan guarantors could decline, impairing their ability to honor commitments to us.

An increase in loan delinquencies and non-accruals or a decrease in loan collateral and guarantor net worth could result in increased costs and reduced income which would have a material adverse effect on our business, financial condition or results of

We will also be negatively affected if our operations and effectiveness or the operations and effectiveness of a portfolio

company (or any of the key personnel or service providers of the foregoing) is compromised or if necessary or beneficial systems and processes are disrupted.

Any public health emergency, including the COVID-19 pandemic or any outbreak of other existing or new epidemic diseases, or the threat

thereof, and the resulting financial and economic market uncertainty could have a significant adverse impact on us and the fair value of our investments.

These potential impacts, while uncertain, could adversely affect our and our portfolio

companies operating results.

We are currently operating in a period of capital markets disruption and economic uncertainty.

capital markets have experienced extreme volatility and disruption following the global outbreak of COVID-19 that began in

December 2019.

The global impact of the outbreak is rapidly evolving, and many countries have reacted by instituting quarantines, prohibitions on travel and the closure of offices, businesses, schools, retail stores and other public venues.

Businesses are also implementing similar precautionary measures.

Such measures, as well as the general uncertainty surrounding the dangers and impact of COVID-19, have created significant disruption in supply chains and economic activity.

of COVID- 19 has led to significant volatility and declines in the global public equity markets and it is uncertain how long this volatility will continue.

As COVID-19 continues to spread, the potential impacts, including a global, regional or other

economic recession, are increasingly uncertain and difficult to assess.

Some economists and major investment banks have expressed concern that the continued spread of the virus globally could lead to a world-wide economic downturn.

Disruptions in the capital markets caused by the COVID-19 pandemic have increased the spread between the yields realized on risk-free and

higher risk securities, resulting in illiquidity in parts of the capital markets.

These and future market disruptions and/or illiquidity would be expected to have an adverse effect on our business, financial condition, results of operations and cash

Unfavorable economic conditions also would be expected to increase our funding costs, limit our access to the capital markets or result in a decision by lenders not to extend credit to us.

These events have limited and could continue to limit

our investment originations, limit our ability to grow and have a material negative impact on our operating results and the fair values of our debt and equity investments.

Additionally, the recent disruption in economic activity caused by the COVID-19 pandemic has had, and may continue to have, a negative effect

on the potential for liquidity events involving our investments.

The illiquidity of our investments may make it difficult for us to sell such investments to access capital if required, and as a result, we could realize significantly less than the

value at which we have recorded our investments if we were required to sell them for liquidity purposes.

An inability to raise or access capital, and any required sale of all or a portion of our investments as a result, could have a material adverse

effect on our business, financial condition or results of operations.

We may choose to pay dividends in our own stock, in which case you may be required to pay tax in

excess of the cash you receive.

Under certain applicable provisions of the Code and the Treasury regulations and a revenue

procedure issued by the IRS, a RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder may elect to receive his or her entire distribution in either cash or stock of the RIC, subject to a

limitation that the aggregate amount of cash to be distributed to all stockholders must be at least 20% of the aggregate declared distribution.

If too many stockholders elect to receive their distributions in cash, we must allocate the cash

available for distribution among the shareholders electing to receive cash (with the balance of the distribution paid in shares of our common stock).

If we decide to make any distributions consistent with this revenue procedure that are payable in

part in our stock, taxable stockholders receiving such dividends will be required to include the full amount of the dividend (whether received in cash, our stock, or a combination thereof) as ordinary income (or as long-term capital gain to the

extent such distribution is properly reported as a capital gain dividend) to the extent of our current and accumulated earnings and profits for U.S.

federal income tax purposes.

As a result, a U.S.

stockholder may be required to pay tax with respect

to such dividends in excess of any cash received.

stockholder sells the stock it receives as a dividend in order to pay this tax, the sales proceeds may be less than the amount included in income with respect to the dividend, depending on

the market price of our stock at the time of the sale.

Furthermore, with respect to non-U.S.

stockholders, we may be required to withhold U.S.

tax with respect to such dividends, including in respect of all or a portion of such dividend that is payable in stock.

If a significant number of our stockholders determine to sell shares of our

stock in order to pay taxes owed on dividends, it may put downward pressure on the trading price of our stock.

Due to the COVID-19 pandemic or

other disruptions in the economy, we may not be able to increase our dividends and may reduce or defer our dividends and choose to incur US federal excise tax in order preserve cash and maintain flexibility.

As a BDC, we are not required to make any distributions to shareholders other than in connection with our election to be taxed as a RIC under

subchapter M of the Code.

In order to maintain our tax treatment as a RIC, we must distribute to shareholders for each taxable year at least 90% of our investment company taxable income (i.e., net ordinary income plus realized net short-term capital

gains in excess of realized net long-term capital losses).

If we qualify for taxation as a RIC, we generally will not be subject to corporate-level US federal income tax on our investment company taxable income and net capital gains (i.e., realized

net long-term capital gains in excess of realized net short-term capital losses) that we timely distribute to shareholders.

We will be subject to a 4% US federal excise tax on undistributed earnings of a RIC unless we distribute each calendar year

at least the sum of (i) 98.0% of our ordinary income for the calendar year, (ii) 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year,

and (iii) any ordinary income and net capital gains for preceding years that were not distributed during such years and on which we paid no federal income tax.

Under the Code, we may satisfy certain of our RIC distributions with dividends paid after the end of the current year.

In particular, if we

pay a distribution in January of the following year that was declared in October, November, or December of the current year and is payable to shareholders of record in the current year, the dividend will be treated for all US federal tax purposes as

if it were paid on December 31 of the current year.

In addition, under the Code, we may pay dividends, referred to as spillover dividends, that are paid during the following taxable year that will allow us to maintain our

qualification for taxation as a RIC and eliminate our liability for corporate-level U.S.

federal income tax.

Under these spillover dividend procedures, we may defer distribution of income earned during the current year until December of the

following year.

For example, we may defer distributions of income earned during 2020 until as late as December 31, 2021.

If we choose to pay a spillover dividend, we will incur the 4% U.S.

federal excise tax on some or all of the distribution.

Due to the COVID-19 pandemic or other disruptions in the economy, we anticipate that we may take certain actions with respect to the

timing and amounts of our distributions in order to preserve cash and maintain flexibility.

For example, we anticipate that we will not be able to increase our dividends.

In addition, we may reduce our dividends and/or defer our dividends to the

following taxable year.

If we defer our dividends, we may choose to utilize the spillover dividend rules discussed above and incur the 4% U.S.

federal excise tax on such amounts.

To further preserve cash, we may combine these reductions or deferrals

of dividends with one or more distributions that are payable partially in our stock as discussed above under We may choose to pay dividends in our own stock, in which case you may be required to pay tax in excess of the cash you receive.

Public health threats may affect the market for the 2023 Notes, the February 2024 Notes and the November 2024 Notes, impact the businesses in which

we invest and affect our business, operating results and financial condition.

Public health threats, such as COVID-19 or any other

illness, have and may continue to disrupt the operations of the businesses in which we invest.

Such threats can create economic and political uncertainties and can contribute to global economic instability.

A public health threat poses the risk that

our portfolio companies may have significantly reduced or be prevented from conducting business activities for an unknown period of time, including shutdowns that may be requested or mandated by governmental authorities.

We cannot estimate the

impact that a public health threat could have on our portfolio companies, but it could disrupt their businesses and their ability to make interest or dividend payments and decrease the overall value of our investments which adversely

impact our business, financial condition or results of operations.

Additionally, as a result of the volatile market conditions that may result from public health threats, such as COVID-19 or any other illness, we cannot provide any assurance that

the 2023 Notes, the February 2024 Notes and the November 2024 Notes will trade at a favorable price.

In addition to other information set forth in this report, you should carefully consider the Risk Factors discussed in our Form 10-K for the year ended December 31, 2020 and filed with the SEC on February 25, 2021, which are incorporated herein by reference.

These Risk Factors could materially affect our business, financial

condition and/or operating results.

Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results.

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 1A. Risk Factors