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Item 1A. Risk Factors

2022-03-17 compared with 2021-03-29 · 173 added, 128 removed, 697 unchanged (30% of the section changed)

Investing in our securities involves a high degree of risk.

Before making an investment in the Company, investors should carefully consider the following risk factors.

Before making an investment in the Company, you should carefully consider the following risk factors.

The risks and uncertainties set forth below are not the only risks and uncertainties that we face.

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If any of the following risks were to occur, our business or financial condition could be materially adversely affected.

In such case, the net asset value of our common stock could decline, and investors may lose all or part of their investment

In such case, the NAV of our Common Stock could decline, and you may lose all or part of your investment.

RISKS RELATED TO OUR ADVISER AND ITS AFFILIATES

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Pursuant to the Investment Advisory Agreement, our Adviser will not be under any obligation to reimburse us for any part of the incentive fee it received that was based on accrued income that we never received as a result of a default by an entity on the debt instrument that resulted in the accrual of such income, and such circumstances would result in our paying an incentive fee on income we never received.

Moreover, to the extent that we are required to recognize in our taxable income such interest income that has been accrued but not yet paid, our payment of incentive fees to the Adviser on such income may make it difficult to meet (or may further amplify existing difficulties in meeting) the Annual Distribution Requirement (as defined below) necessary to maintain RIC tax treatment under the Code.

Moreover, to the extent that we are required to recognize in our taxable income such interest income that has been accrued but not yet paid, our payment of incentive fees to the Adviser on such income may make it difficult to meet (or may further amplify existing difficulties in meeting) the Annual Distribution Requirement necessary to maintain RIC tax treatment under the Code.

As a result, we may have to sell some of our investments at times and/or at prices we would not consider advantageous, raise additional debt or equity capital or, forgo new investment opportunities for this purpose.

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As a BDC, therefore, we intend to continuously issue equity at a rate more frequent than our privately owned competitors, which may lead to greater stockholder dilution.

We intend to incur leverage to generate capital to make additional investments.

We have incurred leverage to generate capital to make additional investments.

If the value of our assets declines, we may be unable to satisfy the asset coverage test under the 1940 Act, which could prohibit us from paying distributions and could prevent us from being subject to tax as a RIC.

If we cannot satisfy the asset coverage test, we may be required to sell a portion of our investments and, depending on the nature of our debt financing, repay a portion of our indebtedness at a time when such sales and repayments may be disadvantageous.

Under the 1940 Act, we generally are prohibited from issuing or selling our common stock at a price per share, after deducting selling commissions and dealer manager fees, that is below net asset value per share, which may be a disadvantage as compared to other public companies.

We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then current net asset value of our common stock if (1) our Board of Directors and independent directors determine that such sale is in our best interests and the best interests of our stockholders, and (2) our stockholders in general, as well as those stockholders that are not affiliated with us approve such sale.

Under the 1940 Act, we generally are prohibited from issuing or selling our Common Stock at a price per share, after deducting selling commissions and dealer manager fees, that is below NAV per share, which may be a disadvantage as compared to other public companies.

We may, however, sell our Common Stock, or warrants, options or rights to acquire our Common Stock, at a price below the then current NAV of our Common Stock if (1) our Board of Directors and independent directors determine that such sale is in our best interests and the best interests of our stockholders, and (2) our stockholders in general, as well as those stockholders that are not affiliated with us approve such sale.

In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our Board of Directors, closely approximates the fair value of such securities.

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RISKS RELATED TO OUR INVESTMENTS

Our investments may be risky, and we could lose all or part of our investment.

Our investments in portfolio companies may be risky, and we could lose all or part of our investment.

We invest primarily in first and second lien senior secured loans and mezzanine debt and selected equity investments issued by middle market companies.

Senior Secured Loans.

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Investments in cash items and money market funds may also provide less liquidity than anticipated by the Company at the time of investment.

Our investments will be subject to interest rate risk.

Our investments are subject to interest rate risk.

“Interest rate risk” refers to the risks associated with market changes in interest rates.

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Interest rate sensitivity is generally more pronounced and less predictable in instruments with uncertain payment or prepayment schedules.

Our debt investments will be subject to prepayment or refinancing risk.

Our debt investments are subject to prepayment or refinancing risk.

The terms of loans in which the Company invests may permit the borrowers to voluntarily prepay loans at any time, either with no or a nominal prepayment premium.

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The Company may determine to restructure investments in a manner that would extend the maturity of such investments.

Our investments will generally be subject to credit risk.

Our investments are generally subject to credit risk.

“Credit risk” refers to the likelihood that an issuer will default in the payment of principal and/or interest on an instrument, in which case the Company may lose some or all of its investment in that instrument, subject the Company to loss.

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Changes in interest rates may affect our cost of capital and net investment income.

General interest rate fluctuations and changes in credit spreads on floating rate loans may have a substantial negative impact on our investments and investment opportunities and, accordingly, may have a material adverse effect on our rate of return on invested capital, our net investment income, our net asset value and the market price of our common stock.

The majority of our debt investments are expected to have variable interest rates that reset periodically based on benchmarks such as LIBOR, so an increase in interest rates from their historically low present levels may make it more difficult for our portfolio companies to service their obligations under our debt investments and increase defaults even where our investment income increases.

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The expense of defending against claims by third parties and paying any amounts pursuant to settlements or judgments would generally be borne by the Company and would reduce net assets.

The effect of global climate change may impact the operations of our portfolio companies.

There may be evidence of global climate change.

Climate change creates physical and financial risk and some of our portfolio companies may be adversely affected by climate change.

For example, the needs of customers of energy companies vary with weather conditions, primarily temperature, and humidity.

To the extent weather conditions are affected by climate change, energy use could increase or decrease depending on the duration and magnitude of any changes.

Increases in the cost of energy could adversely affect the cost of operations of our portfolio companies if the use of energy products or services is material to their business.

A decrease in energy use due to weather changes may affect some of our portfolio companies’ financial condition, through decreased revenues.

Extreme weather conditions in general require more system backup, adding to costs, and can contribute to increased system stresses, including service interruptions.

Energy companies could also be affected by the potential for lawsuits against or taxes or other regulatory costs imposed on greenhouse gas emitters, based on links drawn between greenhouse gas emissions and climate change.

In December 2015 the United Nations, of which the U.S.

is a member, adopted a climate accord (the “Paris Agreement”) with the long-term goal of limiting global warming and the short-term goal of significantly reducing greenhouse gas emissions.

subsequently ratified the Paris Agreement, and it entered into force on November 4, 2016.

In June 2017, the U.S.

announced an intention to withdraw from the agreement, but the earliest effective withdrawal date for the U.S.

under the Paris Agreement is November 2020.

As a result, some of our portfolio companies may become subject to new or strengthened regulations or legislation which could increase their operating costs and/or decrease their revenues.

Increased environmental regulation and the resulting regulatory compliance costs may also make it difficult for our portfolio companies to expand their businesses into non-U.S.

countries, which could result in decreased capital resources and financial outlook for our portfolio companies.

We may not have the funds or ability to make additional investments in our portfolio companies.

After our initial investment in a portfolio company, we may be called upon from time to time to provide additional funds to such company or have the opportunity to increase our investment through the exercise of a warrant to purchase common stock.

There is no assurance that we will make, or will have sufficient funds to make, follow-on investments.

Any decisions not to make a follow-on investment or any inability on our part to make such an investment may have a negative impact on a portfolio company in need of such an investment, may result in a missed opportunity for us to increase our participation in a successful operation or may reduce the expected return on the investment.

We may concentrate our investments in companies in a particular industry or industries.

In the event we concentrate our investments in companies in a particular industry or industries, any adverse conditions that disproportionately impact that industry or industries may have a magnified adverse effect on our operating results.

We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer.

We are classified as a non-diversified investment company within the meaning of the 1940 Act, which means that we are not limited by the 1940 Act with respect to the proportion of our assets that we may invest in securities of a single issuer.

To the extent that we assume large positions in the securities of a small number of issuers, our NAV may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer.

We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company.

Beyond our asset diversification requirements as a RIC under the Code, we do not have fixed guidelines for diversification, and our investments could be concentrated in relatively few portfolio companies.

RISKS RELATED TO DEBT FINANCING

We may enter into revolving credit facilities that contain various covenants which, if not complied with, could accelerate repayment under such credit facilities, thereby materially and adversely affecting our liquidity, financial condition, results of operations and our ability to pay distributions to our stockholders.

The agreements governing certain financing arrangements that we may enter into are expected to require us and any of our special purpose financing subsidiaries party to such arrangements to comply with certain financial and operational covenants.

These covenants would be expected to require us and our subsidiaries to, among other things, maintain certain financial ratios, including asset coverage and minimum stockholders’ equity.

Compliance with these covenants depends on many factors, some of which will be beyond our and their control.

We have entered into revolving credit facilities that contain various covenants which, if not complied with, could accelerate repayment under such credit facilities, thereby materially and adversely affecting our liquidity, financial condition, results of operations and our ability to pay distributions to our stockholders.

The agreements governing certain financing arrangements require us and any of our special purpose financing subsidiaries party to such arrangements to comply with certain financial and operational covenants.

These covenants require us and our subsidiaries to, among other things, maintain certain financial ratios, including asset coverage and minimum stockholders’ equity.

Compliance with these covenants depends on many factors, some of which are beyond our and their control.

In the event of deterioration in the capital markets and pricing levels, net unrealized depreciation in our and our subsidiaries’ portfolios may increase in the future and could result in non-compliance with certain covenants, or our taking actions which could disrupt our business and impact our ability to meet our investment objective.

For example, the agreements governing a credit facility that we may enter into could require applicable special purpose vehicles (“SPVs”) to comply with certain operational covenants, including maintaining eligible assets with an aggregate value equal to or exceeding a specified multiple of the borrowings under the credit facility, and a decline in the value of assets owned by the SPV could result in our being required to contribute additional assets to the SPV.

There can be no assurance that we and our subsidiaries could continue to comply with the covenants under any financing arrangements that we may enter into.

For example, the agreements governing a credit facility require applicable special purpose vehicles (“SPVs”) to comply with certain operational covenants, including maintaining eligible assets with an aggregate value equal to or exceeding a specified multiple of the borrowings under the credit facility, and a decline in the value of assets owned by the SPV could result in our being required to contribute additional assets to the SPV.

There can be no assurance that we and our subsidiaries will continue to comply with the covenants under any financing arrangements that we may enter into.

Failure to comply with these covenants could result in a default.

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These occurrences could have a material adverse impact on our liquidity, financial condition, results of operations and ability to pay distributions.

Because we expect to borrow money, the potential for gain or loss on amounts invested in us will be magnified and may increase the risk of investing in us.

Because we borrow money, the potential for gain or loss on amounts invested in us will be magnified and may increase the risk of investing in us.

The use of borrowings, also known as leverage, increases the volatility of investments by magnifying the potential for gain or loss on invested equity capital.

Because we intend to use leverage to partially finance our investments, through borrowing from banks and other lenders, investors will experience increased risks of investing in our common stock.

If the value of our assets increases, leveraging would cause the net asset value 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 our net asset value to decline more sharply than it otherwise would have had we not leveraged.

Because we use leverage to partially finance our investments, through borrowing from banks and other lenders, you will experience increased risks of investing in our Common Stock.

If the value of our assets increases, leveraging would cause the NAV to increase more sharply than it would have had we not leveraged.

Conversely, if the value of our assets decreases, leveraging would cause our NAV to decline more sharply than it otherwise would have had we not leveraged.

Similarly, any increase in our income in excess of interest payable on the borrowed funds would cause our net income to increase more than it would without the leverage, while any decrease in our income would cause net income to decline more sharply than it would have had we not borrowed.

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The calculations are hypothetical and actual returns may be higher or lower than those appearing below.

The calculation assumes (i) $200.0 million in total assets, (ii) $100.0 million of debt outstanding, (iii) that the Company uses borrowings of 1.0x debt/equity ratio, (iv) a projected annual rate of interest on the borrowings of 2.5%, (v) $1.75 million in operating expenses, and (vi) no incentive fees payable by the Company to the Adviser.

The calculation assumes (i) $590.3 million in total assets, (ii) a weighted average cost of funds of 2.32%, (iii) $300.0 million of debt outstanding (i.e.

assumes that the full amount is available to us under our MS Credit Facility and MS Subscription Facility as of December 31, 2021) and (iv) $236.0 million in stockholders’ equity and (v) no incentive fees payable by the Company to the Adviser.

In order to compute the “Corresponding return to stockholders,” the “Assumed Return on Our Portfolio (net of expenses)” is multiplied by the assumed total assets to obtain an assumed return to us.

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The return available to stockholders is then divided by our stockholders’ equity to determine the “Corresponding return to stockholders.” Actual interest payments may be different.

Assumed Return on the Company’s Portfolio (net of expenses)

Assumed Return on the Our Portfolio (net of expenses)

(10)% (5)% —% 5% 10%

Corresponding return to stockholders (1)

(27.96)% (15.46)% (2.95)% 9.56% 22.06%

(1) In order for us to cover our hypothetical annual interest payments on indebtedness, we would need to achieve annual returns on our December 31, 2021 total assets of at least 1.18%.

Changes in interest rates may affect our cost of capital and net investment income.

The majority of our debt investments are expected to have variable interest rates that reset periodically based on benchmarks such as LIBOR, so an increase in interest rates from their low present levels may make it more difficult for our portfolio companies to service their obligations under our debt investments and increase defaults even where our investment income increases.

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This means that we will be subject to greater risk (other things being equal) than an entity investing solely in shorter-term securities.

In addition, because we intend to borrow to fund a portion of our investments, a portion of our net investment income will depend upon the difference between the interest rate at which we borrow funds and the interest rate at which we invest these funds.

Portions of our investment portfolio and our borrowings are expected to have floating rate components.

In addition, because we borrow to fund a portion of our investments, a portion of our net investment income will depend upon the difference between the interest rate at which we borrow funds and the interest rate at which we invest these funds.

Portions of our investment portfolio and our borrowings have floating rate components.

As a result, a significant change in market interest rates could have a material adverse effect on our net investment income.

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Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition, and results of operations.

RISKS RELATING TO OUR CORPORATE STRUCTURE AND COMMON STOCK

RISKS RELATING TO OUR CORPORATE STRUCTURE, COMMON STOCK AND PREFERRED STOCK

Shares of our Common Stock will not be listed on an exchange or quoted through a quotation system for the foreseeable future, if ever.

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Our stockholders do not have preemptive rights to any shares of Common Stock we issue in the future.

To the extent that we issue additional equity interests at or below net asset value an existing stockholder’s percentage ownership interest in us may be diluted.

To the extent that we issue additional equity interests at or below NAV an existing stockholder’s percentage ownership interest in us may be diluted.

In addition, depending upon the terms and pricing of any future sales of Common Stock and the value of our investments, stockholders may also experience dilution in the book value and fair value of their shares of our Common Stock.

Under the 1940 Act, we generally are prohibited from issuing or selling our Common Stock at a price below net asset value per share, which may be a disadvantage as compared with certain public companies.

We may, however, sell shares of our Common Stock, or warrants, options, or rights to acquire shares of our Common Stock, at a price below the current net asset value of shares of our common stock if our Board of Directors determines that such sale is in our best interests and the best interests of our stockholders, and our stockholders, including a majority of those stockholders that are not affiliated with us, approve such sale.

Under the 1940 Act, we generally are prohibited from issuing or selling our Common Stock at a price below NAV per share, which may be a disadvantage as compared with certain public companies.

We may, however, sell shares of our Common Stock, or warrants, options, or rights to acquire shares of our Common Stock, at a price below the current NAV of shares of our Common Stock if our Board of Directors determines that such sale is in our best interests and the best interests of our stockholders, and our stockholders, including a majority of those stockholders that are not affiliated with us, approve such sale.

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We have also adopted measures that may make it difficult for a third party to obtain control of us, including provisions of our certificate of incorporation that classify our Board of Directors in three classes serving staggered three-year terms, and provisions of our certificate of incorporation authorizing our Board of Directors to classify or reclassify shares of our preferred stock in one or more classes or series, to cause the issuance of additional shares of our stock, and to amend our certificate of incorporation, without stockholder approval, to increase or decrease the number of shares of stock that we have authority to issue.

These provisions, as well as other provisions we have adopted in our certificate of incorporation and bylaws, may delay, defer or prevent a transaction or a change in control in circumstances that could give our stockholders the opportunity to realize a premium of the net asset value of shares of our Common Stock.

The issuance of shares of our Series A Preferred Stock, par value $0.001 per share dilutes the relative voting power and ownership of holders of our Common Stock.

The Series A Preferred Stock is convertible at the option of either the holder of Series A Preferred Stock or the Company at any time commencing six months following the closing date of a liquidity event.

The holders of Series A Preferred Stock are entitled to vote, on an as-converted basis, together with holders of our Common Stock on all matters submitted to a vote of the holders of our Common Stock, except for the election of our preferred directors.

Therefore, the issuance of the Series A Preferred Stock effectively reduces the relative voting power of the holders of our Common Stock because the conversion of the Series A Preferred Stock into Common Stock would dilute the ownership interest of existing holders of our Common Stock.

The Series A Preferred Stock may be unrated securities.

The Company intends to achieve an investment grade rating for the Series A Preferred Stock from a nationally recognized statistical ratings organization (“NRSRO”) and to seek a second rating from another NRSRO within two years of the initial closing of the private placement of the Series A Preferred Stock.

However, there is no assurance that the Company will receive a rating, or the desired rating, from a NRSRO and may remain unrated.

Our Series A Preferred Stock is subordinate to our existing and future indebtedness.

While preferred stockholders, including holders of the Series A Preferred Stock, will have equal liquidation and distribution rights to any other series of preferred stock, they are subordinated to our existing and future indebtedness.

Therefore, dividends, distributions and other payments to preferred stockholders in liquidation or otherwise may be subject to prior payments due to the holders of senior indebtedness.

Holders of our Series A Preferred Stock bear dividend risk.

We may be unable to pay dividends on our Series A Preferred Stock under some circumstances.

The terms of any future indebtedness we may incur could preclude the payment of dividends in respect of equity securities, including our Series A Preferred Stock, under certain conditions.

FEDERAL INCOME TAX RISKS

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If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus become subject to corporate-level income tax.

Stockholders may receive shares of our Common Stock as distributions which could result in adverse tax consequences to stockholders.

You may receive shares of our Common Stock as distributions which could result in adverse tax consequences to you.

In order to satisfy the Annual Distribution Requirement applicable to RICs, we may have the ability to declare a large portion of a distribution in shares of our Common Stock instead of in cash, provided that stockholders have the right to elect to receive their distribution in cash.

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In addition, if a significant number of our stockholders determine to sell shares of our stock in order to pay taxes owed on dividends, then such sales may put downward pressure on the trading price of our stock.

Stockholders may have current tax liability on distributions they elect to reinvest in our Common Stock but would not receive cash from such distributions to pay such tax liability.

You may have current tax liability on distributions you elect to reinvest in our Common Stock but would not receive cash from such distributions to pay such tax liability.

Participants in our distribution reinvestment plan will be deemed to have received, and for U.S.

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GENERAL RISK FACTORS

Global economic, political and market conditions may adversely affect our business, results of operations and financial condition, including our revenue growth and profitability.

The current worldwide financial market situation, as well as growing social and political tensions in the United States and around the world, may contribute to increased market volatility, may have long-term effects on the United States and worldwide financial markets, and may cause economic uncertainties or deterioration in the United States and worldwide through economic sanctions and otherwise.

In December 2020, the United Kingdom reached the end of the transition period which followed its exit from the European Union on January 31, 2020.

The new Trade and Cooperation Agreement reached between the European Union and United Kingdom in late 2020 is untested and may lead to ongoing political and economic uncertainty and periods of exacerbated volatility in both the United Kingdom and in wider European and global markets for some time.

In addition, the fiscal, trade and foreign policies of foreign nations, such as China, North Korea and Iran, may have a severe impact on the worldwide and U.S.

financial markets.

In addition, the policies of the U.S.

administration may impact, among other things, the U.S.

and global economy and international trade and relation, among other areas, and the impact of such policies on us, are unclear at present.

We do not know how long the financial markets will be affected by these events and cannot predict the effects of these or similar events in the future on the U.S.

economy and securities markets or on our investments.

We monitor developments and seek to manage our investments in a manner consistent with achieving our investment objective, but there can be no assurance that we will be successful in doing so.

Changes to U.S.

tariff and import/export regulations may affect our portfolio companies, and may negatively impact our business, results of operations or financial condition.

There has been ongoing discussion and commentary regarding potential significant changes to U.S.

trade policies, treaties and tariffs, creating uncertainty about the future relationship between the United States and other countries.

These developments, or the perception that any of them could occur, may have a material adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade.

Any of these factors could dampen economic activity, and limit our portfolio companies’ access to suppliers or customers, resulting in a material adverse effect on their business, financial condition and results of operations, which in turn would negatively impact us.

Events beyond our control, including public health crises, could adversely impact our portfolio companies and our results of our operations.

Periods of market volatility have occurred and may in the future occur in response to pandemics or other events that are beyond our control.

These types of events have impacted and could continue to impact our operating results and the operating results of our portfolio companies.

COVID-19 emerged in December 2019 and has been identified as a global pandemic by the World Health Organization.

The COVID-19 pandemic continues to adversely impact global economic activity and has contributed to substantial instability in financial markets.

In response, governmental authorities in affected jurisdictions, including the United States, have implemented drastic measures, including quarantines, “stay at home” orders, travel and hospitality restrictions and bans, and the temporary closures and limited operations of many businesses (including corporate offices, retail stores, restaurants, fitness clubs, manufacturing facilities and factories, and other businesses).

COVID-19 has effectively resulted in the cessation of all “non-essential” business activities for a period of time.

While certain state and local governments across the United States have taken steps to re-open their economies by lifting “stay at home” orders and re-opening businesses, a number of states and local governments have needed to pause or slow the re-opening or impose new shut-down orders due to a resurgence of COVID-19 cases and the emergence of a more contagious strain of the virus.

The COVID-19 pandemic and the resulting economic dislocations have and continue to have adverse consequences for the business operations and financial performance of some of our portfolio companies, which impacts the valuation of our investments.

Local, state and federal governmental authorities in the United States and around the world have imposed travel restrictions, business closures or limited business operations and other quarantine measures on businesses and individuals that remain in effect as of the date of this Annual Report on Form 10-K.

We will be impacted in the event that the operations of our Adviser or our portfolio companies (or any of their key personnel or service providers) are compromised or if necessary or beneficial systems and processes are disrupted as a result of stay-at-home orders or other related interruptions to business operations.

We are closely monitoring the developments of COVID-19 and continually assessing the potential impact on our business and the business of our portfolio companies, including the impact of the closures and restrictions described above.

Depending on the duration and magnitude of the disruption to the business operations of our portfolio companies, we expect some portfolio companies, particularly those in impacted industries, such as travel and hospitality, to experience financial distress and possibly to default on their financial obligations to us and/or their other capital providers.

In addition, if such portfolio companies are subjected to prolonged and severe financial distress, we expect some of them to substantially curtail their operations, defer capital expenditures and lay off workers.

Although it is impossible to predict the consequences of these governmental actions, it is clear that these types of events are impactful and will continue to impact us and our portfolio companies in the future.

The effects of the COVID-19 pandemic may materially impact (i) the value of our investments and the performance of us and our portfolio companies, (ii) the ability of our portfolio companies to continue to satisfy loan covenants or make timely payments under loans provided by us, which may require us to restructure our investments or write down the value of our investments, (iii) our ability to repay debt obligations to our lenders on time or at all, or (iv) our ability to source, manage and achieve our investment objectives, all of which could adversely impact our portfolio companies and our results of operations.

Global markets could enter a period of severe disruption and instability due to catastrophic events, such as terrorist attacks, acts of war, natural disasters, and outbreaks of epidemic, pandemic or contagious diseases, which could impair our portfolio companies’ financial positions and operating results and affect the industries in which we invest and, in turn, harm our operating results.

and global markets have, from time to time, experienced periods of disruption due to events such as terrorist attacks;

natural disasters, such as earthquakes, tsunamis, fires, floods or hurricanes;

and outbreaks of epidemic, pandemic or contagious diseases.

Such events have created, and continue to create, economic and political uncertainties and have contributed to recent global economic instability.

In particular, outbreaks of epidemic, pandemic or contagious diseases may cause serious harm to our business, operating results and financial condition.

Historically, disease pandemics such as the Ebola virus, Middle East Respiratory Syndrome, Severe Acute Respiratory Syndrome or the H1N1 virus, and, presently, COVID-19, have diverted resources and priorities towards the treatment of such diseases.

We continually assess the potential impact of COVID-19 on our business and the business of our portfolio companies, including the effects described below.

Any prolonged disruptions in the business of our portfolio companies, including a disruption in their supply chains may adversely affect their ability to obtain the necessary raw materials or components to make their products or cause a decline in the demand for their products or services, leading to a negative impact on their operating results.

In addition, such events may lead to restrictions on travel to and from the affected areas, making it more difficult for our portfolio companies to conduct their businesses.

As a result of pandemic outbreaks, including COVID-19, businesses can be shut down, supply chains can be interrupted, slowed, or rendered inoperable, and individuals can become ill, quarantined, or otherwise unable to work and/or travel due to health reasons or governmental restrictions.

Governmental mandates may require forced shutdowns of our portfolio companies’ facilities for extended or indefinite periods.

In addition, these widespread outbreaks of illness, particularly in China, North America, Europe, or other locations significant to the operations of our portfolio companies, could adversely affect their workforce, resulting in serious health issues and absenteeism, and may cause serious harm to our results of operations, business, or prospects.

Furthermore, future terrorist activities, military or security operations, natural disasters, disease outbreaks, pandemics or other similar events could further weaken the domestic/global economies and create additional uncertainties, which may negatively impact our portfolio companies.

During these periods of disruption, general economic conditions may deteriorate with material and adverse consequences for the broader financial and credit markets, and the availability of debt and equity capital for the market as a whole, and financial services firms in particular.

Such economic adversity could impair our portfolio companies’ financial positions and operating results and affect the industries in which we invest, which could, in turn, harm our operating results.

These conditions may reoccur for a prolonged period of time or materially worsen in the future.

Political, social and economic uncertainty, including uncertainty related to the COVID-19 pandemic, creates and exacerbates risks.

Social, political, economic and other conditions and events (such as natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) will occur that create uncertainty and have significant impacts on issuers, industries, governments and other systems, including the financial markets, to which the Company and its investments are exposed.

As global systems, economies and financial markets are increasingly interconnected, events that once had only local impact are now more likely to have regional or even global effects.

Events that occur in one country, region or financial market will, more frequently, adversely impact issuers in other countries, regions or markets, including in established markets such as the United States.

These impacts can be exacerbated by failures of governments and societies to adequately respond to an emerging event or threat.

Uncertainty can result in or coincide with, among other things:

increased volatility in the financial markets for securities, derivatives, loans, credit and currency;

a decrease in the reliability of market prices and difficulty in valuing assets (including portfolio company assets);

greater fluctuations in spreads on debt investments and currency exchange rates;

increased risk of default (by both government and private obligors and issuers);

further social, economic, and political instability;

nationalization of private enterprise;

greater governmental involvement in the economy or in social factors that impact the economy;

changes to governmental regulation and supervision of the loan, securities, derivatives and currency markets and market participants and decreased or revised monitoring of such markets by governments or self-regulatory organizations and reduced enforcement of regulations;

limitations on the activities of investors in such markets;

controls or restrictions on foreign investment, capital controls and limitations on repatriation of invested capital;

the significant loss of liquidity and the inability to purchase, sell and otherwise fund investments or settle transactions (including, but not limited to, a market freeze);

unavailability of currency hedging techniques;

substantial, and in some periods extremely high rates of inflation, which can last many years and have substantial negative effects on credit and securities markets as well as the economy as a whole;

and difficulties in obtaining and/or enforcing legal judgments.

For example, in December 2019, COVID-19 emerged in China and has since spread rapidly to other countries, including the United States.

General uncertainty surrounding the dangers and impact of COVID-19 (including the preventative measures taken in response thereto) and additional uncertainty regarding new variants of COVID-19, most notably the Delta and Omicron variants, has to date created significant disruption in supply chains and economic activity, contributed to labor difficulties and are having a particularly adverse impact on transportation, hospitality, tourism, entertainment and other industries.

Although it is impossible to predict the precise nature and consequences of these events, or of any political or policy decisions and regulatory changes occasioned by emerging events or uncertainty on applicable laws or regulations that impact us, our portfolio companies and our investments, it is clear that these types of events will, for at least some time, impact us and our portfolio companies.

In many instances, the impact may be adverse and profound.

The effects of a public health emergency, such as COVID-19, may materially and adversely impact (i) our and our portfolio companies’ value and performance, (ii) the ability of our borrowers to continue to meet loan covenants or repay loans provided by us on a timely basis or at all, which may require us to restructure our investments or write down the value of our investments, (iii) our ability to comply with the covenants and other terms of our debt obligations and to repay such obligations, on a timely basis or at all, (iv) our ability to comply with certain regulatory requirements, such as asset coverage requirements under the 1940 Act, (v) our ability maintain our distributions at their current level or to pay them at all or (vi) our ability to source, manage and divest investments and achieve our investment objectives, all of which could result in significant losses to us.

We will also be negatively affected if the operations and effectiveness of any of our portfolio companies (or any of the key personnel or service providers of the foregoing) is compromised or if necessary or beneficial systems and processes are disrupted.

See “The capital markets are currently in a period of disruption and economic uncertainty.

Such market conditions have materially and adversely affected debt and equity capital markets, which have had, and may continue to have, a negative impact on our business and operations.”

In addition, 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 can be expected to have an adverse effect on our business, financial condition, results of operations and cash flows.

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

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

Such market conditions have adversely affected debt and equity capital markets, which have had, and may continue to have, a negative impact on our business and operations.

capital markets have experienced extreme disruption since the global outbreak of COVID-19.

Such disruptions have been evidenced by volatility in global stock markets as a result of, among other things, uncertainty regarding the COVID-19 pandemic and the fluctuating price of commodities such as oil.

Despite actions of the U.S.

federal government and foreign governments, these events have contributed to worsening general economic conditions that are materially and adversely impacting broader financial and credit markets and reducing the availability of debt and equity capital for the market as a whole.

These conditions could continue for a prolonged period of time or worsen in the future.

Significant changes or volatility in the capital markets may negatively affect, the valuations of our investments.

Our valuations, and particularly valuations of private investments and private companies, are inherently uncertain, fluctuate over short periods of time and are often based on estimates, comparisons and qualitative evaluations of private information that may not reflect the full impact of the COVID-19 pandemic and measures taken in response thereto.

Any public health emergency, including the COVID-19 pandemic or an 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 and our portfolio companies.

Significant changes in the capital markets, such as the disruption in economic activity caused by the COVID-19 pandemic, have limited and could continue to limit our investment originations, limit our ability to grow and have a material negative impact on our and our portfolio companies’ 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.

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 to increase our liquidity.

An inability on our part to raise incremental 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.

Further, current market conditions may make it difficult to raise equity capital, extend the maturity of or refinance our existing indebtedness or obtain new indebtedness with similar terms and any failure to do so could have a material adverse effect on our business.

The debt capital available to us in the future, if available at all, may bear a higher interest rate and may be available only on terms and conditions less favorable than those of our existing debt and such debt may need to be incurred in a rising interest rate environment.

If we are unable to raise new debt or refinance our existing debt, then our equity investors will not benefit from the potential for increased returns on equity resulting from leverage, and we may be unable to make new commitments or to fund existing commitments to our portfolio companies.

Any inability to extend the maturity of or refinance our existing debt, or to obtain new debt, could have a material adverse effect on our business, financial condition or results of operations.

Inflation and Supply Chain Risk could adversely impact our portfolio companies and our results of our operations.

Economic activity has continued to accelerate across sectors and regions.

Nevertheless, due to global supply chain issues, a rise in energy prices and strong consumer demand as economies continue to reopen, inflation is showing signs of acceleration in the U.S.

and globally.

Inflation is likely to continue in the near to medium-term, particularly in the U.S., with the possibility that monetary policy may tighten in response.

Persistent inflationary pressures could affect our portfolio companies’ profit margins.

Uncertainty with respect to the financial stability of the United States and several countries in the European Union (“EU”) could have a significant adverse effect on our business, financial condition and results of operations.

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Government may not be able to meet its debt payments unless the federal debt ceiling is raised.

On August 2, 2019, the federal debt limit was suspended until July 2021.

If, prior to such date, legislation increasing the debt ceiling is not enacted and the debt ceiling is reached, the U.S.

If legislation increasing the debt ceiling is not enacted prior to reaching the debt ceiling and the debt ceiling is reached, the U.S.

federal government may stop or delay making payments on its obligations, which could negatively impact the U.S.

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Government’s credit and deficit concerns in general, including issues around the federal debt ceiling, could cause interest rates and borrowing costs to rise, which may negatively impact both the perception of credit risk associated with our debt portfolio and our ability to access the debt markets on favorable terms.

The discontinuation of LIBOR and the transition to any new reference rates may affect the value of our LIBOR-indexed portfolio investments and may increase the cost of borrowing under our credit facilities, which in each case could affect our results of operations or financial condition.

Financial Conduct Authority (the “FCA”), which regulates LIBOR, has announced that it intends not to compel panel banks to contribute to LIBOR after 2021.

Benchmarks Regulation imposed conditions under which only compliant benchmarks may be used in new contracts after 2021.

We are subject to risks associated with a rising interest rate environment that may affect our cost of capital and net investment income.

While interest rates remain relatively low, due to several factors, including longer-term inflationary pressure that may result from the U.S.

government’s fiscal policies, the end of the Federal Reserve quantitative easing program and recent increases in the Federal Funds rate, we expect to experience rising interest rates, rather than falling rates in the future.

Because we currently incur indebtedness to fund our investments, a portion of our income depends upon the difference between the interest rate at which we borrow funds and the interest rate at which we invest these funds.

To the extent our investments have fixed interest rates or have interest rate floors that are higher than the floor on, or interest rates that “reset” less frequently than, the Credit Facilities, increases in interest rates can lead to interest rate compression and have a material adverse effect on our net investment income.

In addition to increasing the cost of borrowed funds, which may materially reduce our net investment income, rising interest rates may also adversely affect our ability to obtain additional debt financing on terms as favorable as under our current debt financings, or at all.

In a rising interest rate environment, there is a risk that the portfolio companies in which we hold floating rate securities will be unable to pay escalating interest amounts, which could result in a default under their loan documents with us.

Rising interests rates could also cause portfolio companies to shift cash from other productive uses to the payment of interest, which may have a material adverse effect on their business and operations and could, over time, lead to increased defaults on our investments in such portfolio companies.

In addition, increasing payment obligations under floating rate loans may cause borrowers to refinance or otherwise repay our loans earlier than they otherwise would, requiring us to incur management time and expense to re-deploy such proceeds, including on terms that may not be as favorable as our existing loans.

In addition, rising interest rates may increase pressure on us to provide fixed rate loans to our portfolio companies, which could adversely affect our net investment income, as increases in our cost of borrowed funds would not be accompanied by increased interest income from such fixed-rate investments.

We may hedge against interest rate fluctuations by using hedging instruments such as caps, swaps, futures, options and forward contracts, subject to applicable legal requirements, including all necessary registrations (or exemptions from registration) with the Commodity Futures Trading Commission.

Quantitative and Qualitative Disclosures About Market Risk .

These activities may limit our ability to benefit from lower interest rates with respect to the hedged portfolio.

Adverse developments resulting from changes in interest rates or hedging transactions or any adverse developments from our use of hedging instruments could have a material adverse effect on our business, financial condition and results of operations.

In addition, we may be unable to enter into appropriate hedging transactions when desired and any hedging transactions we enter into may not be effective.

As a rise in the general level of interest rates can be expected to lead to higher interest rates applicable to our debt investments, an increase in interest rates would make it easier for us to meet or exceed the hurdle rate applicable to the incentive fee and may result in a substantial increase in the amount of incentive fees payable to the Advisor with respect to Pre-Incentive Fee Net Investment Income.

Also, an increase in interest rates on investments available to investors could make investment in our Common Stock less attractive if we are not able to increase our distributions, which could materially reduce the value of our Common Stock.

On March 5 2021, the Financial Conduct Authority (“FCA”) and ICE Benchmark Authority announced that the publication of all EUR and CHF LIBOR settings, the Spot Next/Overnight, 1 week, 2 month and 12 month JPY and GBP LIBOR settings, and the 1 week and 2 months US dollar LIBOR settings would cease after December 31, 2021, while the publication of the overnight, 1 month, 3 month, 6 month, and 12 months USD LIBOR settings will cease after June 30, 2023.

To identify a successor rate for U.S.

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Treasury-backed repurchase transactions.

In addition, on March25, 2020, the FCA reaffirmed the central assumption that firms cannot rely on LIBOR being published after the end of 2021.

However, the outbreak of COVID-19 may adversely impact the timing of many firms’ transition planning, and we continue to assess the potential impact of the COVID-19 outbreak on our transition plans.

Although SOFR appears to be the preferred replacement rate for U.S.

dollar LIBOR, at this time, it is not possible to predict the effect of any such changes, any establishment of alternative reference rates, whether the COVID-19 outbreak will have further effect on LIBOR transition timelines or plans, or other reforms to LIBOR that may be enacted in the United States, United Kingdom or elsewhere.

Furthermore, on November 30, 2020, Intercontinental Exchange, Inc.

(“ICE”) announced that the ICE Benchmark Administration Limited (“IBA”), a wholly-owned subsidiary of ICE and the administrator of LIBOR, will consider extending the LIBOR transition deadline to June 30, 2023.

The announcement was supported by the FCA and the Federal Reserve.

Despite the announcement, regulators continue to emphasize the importance of LIBOR transition planning.

At this time, it is not possible to predict with complete certainty how the discontinuation of LIBOR will affect financial instruments that utilize LIBOR, whether SOFR or any other alternative reference rates will attain general acceptance in the financial markets, or the pace at which any such transition away from LIBOR and to any other reference rate may occur.

The process of phasing out LIBOR or any further changes or reforms to the determination or supervision of LIBOR or alternative reference rates, may result in a sudden or prolonged increase or decrease in reported LIBOR or alternative reference rates, which could have an adverse impact on the market for or value of any securities, loans, derivatives and other financial obligations or extensions of credit indexed to LIBOR or such alternative reference rate that may be held by or due to us or on our overall financial condition or results of operations.

Additionally, the effect of changes or reforms to LIBOR may require us to engage in time-consuming renegotiations of any credit or similar agreements with our portfolio companies that utilize LIBOR as a factor in determining the interest rate and extend beyond 2021.

We may need to renegotiate, among other provisions, the new reference rates to be used, the timing and frequency of determining rates and making interest payments and the methods for calculating or determining the interest rate adjustment.

If agreements with portfolio companies are unable to be renegotiated, our investments may bear interest at a lower rate, which would decrease investment income and potentially the value and liquidity of such investments.

This could have an adverse effect on our overall financial condition or results of operations.

On December 6, 2021, the ARRC released a statement selecting and recommending forms of SOFR, along with associated spread adjustments and conforming changes, to replace references to 1-week and 2-month U.S.

dollar (USD) LIBOR.

We expect that a substantial portion of our future floating rate Investments will be linked to SOFR.

At this time, it is not possible to predict the effect of the transition to SOFR.

In addition, we may need to renegotiate any credit agreements extending beyond June 2023 with our portfolio companies that utilize LIBOR terms as a factor in determining the interest rate, in order to replace LIBOR with the new standard that is established, which may have an adverse effect on our overall financial condition or results of operations.

As such, some or all of these credit agreements may bear a lower interest rate, which would adversely impact our financial condition or results of operations.

The amount of any distributions we pay is uncertain.

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We intend to declare and pay distributions on a quarterly basis.

We intend to pay these distributions to our stockholders out of assets legally available for distribution.

We will pay these distributions to our stockholders out of assets legally available for distribution.

We cannot assure stockholders that we will achieve investment results that will allow us to make a targeted level of distributions or year-to-year increases in distributions.

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A return of capital is a return of the initial investment in the Company rather than earnings or gains derived from our investment activities.

Price declines in the large corporate leveraged loan market may adversely affect the fair value of debt securities we hold, reducing our net asset value through increased net unrealized depreciation.

Price declines in the large corporate leveraged loan market may adversely affect the fair value of debt securities we hold, reducing our NAV through increased net unrealized depreciation.

Prior to the onset of the financial crisis, CLOs, a type of leveraged investment vehicle holding corporate loans, hedge funds and other highly leveraged investment vehicles, comprised a substantial portion of the market for purchasing and holding senior secured and second lien secured loans.

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We may face increasing competition for investment opportunities, which could delay deployment of our capital, reduce returns and result in losses.

We intend to compete for investments with other BDCs and investment funds (including private equity funds and mezzanine funds), as well as traditional financial services companies such as commercial banks and other sources of funding.

We will compete for investments with other BDCs and investment funds (including private equity funds and mezzanine funds), as well as traditional financial services companies such as commercial banks and other sources of funding.

Moreover, alternative investment vehicles, such as hedge funds, also make investments in middle market private U.S.

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Also, we may be required to incur significant legal fees and other expenses related to any securities litigation and stockholder activism matters.

A significant portion of our investment portfolio will be recorded at fair value as determined in good faith by our Board of Directors and, as a result, there is uncertainty as to the value of our portfolio investments.

A significant portion of our investment portfolio is recorded at fair value as determined in good faith by our Board of Directors and, as a result, there is uncertainty as to the value of our portfolio investments.

Under the 1940 Act, we are required to carry our portfolio investments at market value or, if there are no readily available market quotations, at fair value, as determined by our Board of Directors.

However, the majority of our investments are not expected to be publicly traded or actively traded on a secondary market.

As a result, we will value these securities quarterly at fair value as determined in good faith by our Board of Directors.

However, the majority of our investments are not publicly traded or actively traded on a secondary market.

As a result, we value these securities quarterly at fair value as determined in good faith by our Board of Directors.

The determination of fair value, and thus the amount of unrealized losses we may incur in any year, is to a degree subjective, and our Adviser has a conflict of interest in providing input to the Board of Directors in making this determination.

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The determinations of fair value by our Board of Directors may differ materially from the values that would have been used if an active market and market quotations existed for these investments.

Our net asset value could be adversely affected if the determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such investments.

Our NAV could be adversely affected if the determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such investments.

Our Board of Directors may change our operating policies and strategies without prior notice or stockholder approval, the effects of which may be adverse.

Our Board of Directors has the authority to modify or waive our current operating policies, investment criteria and strategies without prior notice and without stockholder approval if it determines that doing so will be in the best interests of stockholders.

We cannot predict the effect any changes to our current operating policies, investment criteria and strategies would have on our business, net asset value, operating results and value of our stock.

We cannot predict the effect any changes to our current operating policies, investment criteria and strategies would have on our business, NAV, operating results and value of our stock.

However, the effects might be adverse, which could negatively impact our ability to pay distributions and cause stockholders to lose all or part of their investment.

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Losses from terrorist attacks and natural disasters are generally uninsurable.

See “ — Events beyond our control, including public health crises, could adversely impact our portfolio companies and our results of our operations.

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

Such market conditions have adversely affected debt and equity capital markets, which have had, and may continue to have, a negative impact on our business and operations.

capital markets have experienced significant volatility and disruption following the global outbreak of COVID-19 that began in December 2019, as evidenced by the volatility in global stock markets as a result of, among other things, uncertainty surrounding the COVID-19 pandemic and the fluctuating price of commodities such as oil.

Despite actions of the U.S.

federal government and foreign governments, these events have contributed to worsening general economic conditions that are negatively impacting the broader financial and credit markets and reducing the availability of debt and equity capital for the market as a whole.

These conditions could continue for a prolonged period of time or worsen in the future.

Significant changes or volatility in the capital markets may also have a negative effect on the valuations of our investments.

Our valuations, and particularly valuations of private investments and private companies, are inherently uncertain, may fluctuate over short periods of time and are often based on estimates, comparisons and qualitative evaluations of private information that may not show the complete impact of the COVID-19 pandemic and the resulting measures taken in response thereto.

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 could harm our business, financial condition, results of operations and cash flows.

Unfavorable economic conditions may also 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 negative impact on our and certain of our portfolio companies’ operating results and the fair values of our debt and equity investments.

Future disruptions or instability in capital markets could negatively impact our ability to raise capital, and have a material adverse effect on our business, financial condition, and results of operations.

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Significant changes or volatility in the capital markets may also have a negative effect on the valuations of our investments.

While most of our investments are not publicly traded, applicable accounting standards require us to assume as part of our valuation process that our investments are sold in a principal market to market participants (even if we plan on holding an investment through its maturity) and impairments of the market values or fair market values of our investments, even if unrealized, must be reflected in our consolidated financial statements for the applicable period, which could result in significant reductions to our net asset value for the period.

With certain limited exceptions, we are only allowed to borrow amounts or issue debt securities if our asset coverage, complies with the threshold set forth in the 1940 Act (currently at least 150% immediately after such borrowing).

Equity capital may also be difficult to raise during periods of adverse or volatile market conditions because, subject to some limited exceptions, as a BDC, we are generally not able to issue additional shares of our common stock at a price less than net asset value without first obtaining approval for such issuance from our

stockholders and our independent directors.

Equity capital may also be difficult to raise during periods of adverse or volatile market conditions because, subject to some limited exceptions, as a BDC, we are generally not able to issue additional shares of our Common Stock at a price less than NAV without first obtaining approval for such issuance from our stockholders and our independent directors.

If we are unable to raise capital or refinance existing debt on acceptable terms, then we may be limited in our ability to make new commitments or to fund existing commitments to our portfolio companies.

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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-K

Item 1A. Risk Factors