FS KKR Capital Corp 10-K

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. Market Information Our common stock has been listed on the NYSE since April 16, 2014. Our common stock traded under the ticker symbol “FSIC” until December 19, 2018 and has traded under the ticker symbol “FSK” since December 20, 2018. Prior to April 16, 2014, there was no public market for our common stock. Our shares of common stock have historically traded at prices both above and below our net asset value per share. It is not possible to predict whether shares of our common stock will trade at, above or below our net asset value in the future. See “Risk Factors—Risks Related to an Investment in Our Common Stock—Our shares of common stock may trade at a discount to net asset value.” As of February 22, 2021, we had 3,610 record holders of our common stock which does not include beneficial owners of shares of common stock held in “street name” by brokers and other institutions on behalf of stockholders. Distributions Subject to applicable legal restrictions and the sole discretion of our board of directors, we intend to declare and pay regular cash distributions on a quarterly basis. From time to time, we may also pay special interim distributions in the form of cash or shares of our common stock at the discretion of our board of directors. The timing and amount of any future distributions to stockholders are subject to applicable legal restrictions and the sole discretion of our board of directors. The following table reflects the cash distributions per share that we have declared on our common stock during the years ended December 31, 2020, 2019 and 2018: Distribution For the Year Ended December 31, Per Share (1) Amount 2018 (2) $ 3.40000 $ 205 2019 $ 3.04000 $ 393 2020 $ 2.56000 $ 318 (1) The amount of each per share distribution has been retroactively adjusted to reflect the Reverse Stock Split as discussed in Note 3 to our consolidated financial statements. (2) Includes a $0.36 per share special cash distribution that was paid on December 3, 2018. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations—RIC Status and Distributions” and Note 5 to our consolidated financial statements contained in this annual report on Form 10-K for additional information regarding our distributions and our distribution reinvestment plan. Stock Repurchase Programs February 2018 Share Repurchase Program In February 2018, our board of directors authorized a stock repurchase program. Under the program, we were permitted to repurchase up to $50 in the aggregate of our outstanding common stock in the open market at prices below the then current net asset value per share. During the year ended December 31, 2018, we repurchased 1,642,837 shares of common stock pursuant to the share repurchase program at an average price per share (inclusive of commissions paid) of $30.44 (totaling $50). The program has terminated since the aggregate repurchase amount that was approved by our board of directors has been expended. December 2018 Share Repurchase Program In December 2018, our board of directors authorized a stock repurchase program. Under the program, we are permitted to repurchase up to $200 in the aggregate of our outstanding common stock in the open market at prices below the then current net asset value per share. During the year ended December 31, 2020, the Company repurchased 2,823,750 shares of common stock pursuant to the share repurchase program at an average price per share (inclusive of commissions paid) of $16.71 (totaling $47). During the year ended 47 Table of Contents December 31, 2019, the Company repurchased 6,287,919 shares of common stock pursuant to the share repurchase program at an average price per share (inclusive of commissions paid) of $24.30 (totaling $153). The program has concluded since the aggregate repurchase amount that was approved by the Company’s board of directors has been expended. The number of shares repurchased and the average price per share amounts have been retroactively adjusted to reflect the Reverse Stock Split as discussed below. As previously disclosed, certain affiliates of the owners of the Advisor committed $100 to a $350 investment vehicle that may invest from time to time in shares of the Company. In June 2020, that investment vehicle entered into a written trading plan with a third party broker in accordance with Rule 10b5-1 and Rule 10b-18 promulgated under the Exchange Act, or the Affiliated Purchaser Program, to facilitate the purchase of shares of our common stock pursuant to the terms and conditions of such plan. The Affiliated Purchaser Program provides for the purchase of up to $100 worth of shares of our common stock, subject to the limitations provided therein. During the year ended December 31, 2020, the Affiliated Purchaser Program purchased 3,921,610 shares of common stock at an average price per share (inclusive of commissions paid) of $15.51 (totaling $61). The table below provides information concerning purchases of our shares of common stock by or on behalf of the Company or any “affiliated purchaser,” as defined by Rule 10b-18(a)(3) promulgated under the Exchange Act during the quarterly period ended December 31, 2020. Dollar amounts in the table below and the related notes are presented in millions, except for share and per share amounts. Share and per share amounts in the table below have been retroactively adjusted to reflect the Reverse Stock Split. Period Total Number of Shares Purchased Average Price Paid per Share (1) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs October 1, 2020 through October 31, 2020 632,082 15.61 632,082 199 November 1, 2020 through November 30, 2020 423,393 16.01 423,393 193 December 1, 2020 through December 31, 2020 181,610 18.58 181,610 181 1,237,085 16.18 1,237,085 (1) Amount includes commissions paid. (2) Includes amounts pursuant to the Affiliated Purchaser Program. Stock Performance Graph This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of FS KKR Capital Corp. under the Securities Act. 48 Table of Contents The following graph shows a comparison from April 16, 2014 (the date our shares of common stock commenced trading on the NYSE) through December 31, 2020 of the cumulative total return for our common stock, the S&P 500 Index, the Russell 2000 Financial Services Index and the Wells Fargo ® BDC Index. The graph assumes that $100 was invested at the market close on April 16, 2014 in our common stock, the S&P 500 Index, the Russell 2000 Financial Services Index and the Wells Fargo ® BDC Index, is based on historical stock prices and assumes all dividends or distributions are reinvested on the respective dividend or distribution payment dates without commissions. The stock price performance reflected by the following graph is not necessarily indicative of future stock price performance. 49 Table of Contents Item 6. Selected Financial Data. The following selected consolidated financial data for the years ended December 31, 2020, 2019, 2018, 2017 and 2016 is derived from our consolidated financial statements. Our consolidated financial statements for the years ended December 31, 2020 and 2019 were audited by Deloitte & Touche LLP, our independent registered public accounting firm, while our consolidated financial statements for the years ended December 31, 2018, 2017, and 2016 were audited by RSM US LLP, our former independent registered public accounting firm. The data should be read in conjunction with our consolidated financial statements and related notes thereto and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this annual report on Form 10-K. Year Ended December 31, 2020 2019 2018 2017 2016 Statements of operations data: Investment income $ 639 $ 779 $ 394 $ 419 $ 423 Operating expenses Total expenses and excise taxes 308 369 192 218 216 Less: Management fee waiver — — (3 ) (3 ) — Net expenses and excise taxes 308 369 189 215 216 Net investment income (loss) 331 410 205 204 207 Total net realized and unrealized gain (loss) (736 ) (164 ) 364 (22 ) 87 Net increase (decrease) in net assets resulting from operations $ (405 ) $ 246 $ 569 $ 182 $ 294 Per share data: (1) Net investment income (loss)—basic and diluted $ 2.66 $ 3.16 $ 3.28 $ 3.32 $ 3.40 Net increase (decrease) in net assets resulting from operations—basic and diluted $ (3.26 ) $ 1.90 $ 9.05 $ 2.96 $ 4.84 Distributions declared (2) $ 2.56 $ 3.04 $ 3.40 $ 3.44 $ 3.56 Balance sheet data: Total assets $ 7,237 $ 8,216 $ 7,705 $ 4,104 $ 4,110 Credit facilities, notes, secured borrowing and repurchase agreement payable $ 3,997 $ 4,173 $ 3,391 $ 1,712 $ 1,694 Total net assets $ 3,096 $ 3,866 $ 4,166 $ 2,285 $ 2,297 Other data: Total return based on net asset value (3) (9.69 )% 7.14 % (6.56 )% 7.97 % 13.19 % Total return based on market value (4) (19.73 )% 33.80 % (20.15 )% (21.39 )% 25.91 % Number of portfolio company investments at period end 164 210 204 100 102 Total portfolio investments for the period (5) $ 2,336 $ 2,907 $ 5,189 $ 1,284 $ 1,158 Proceeds from sales and prepayments of investments $ 2,301 $ 2,854 $ 1,187 $ 1,135 $ 1,588 (1) The per share data was derived by using the weighted average shares outstanding during the applicable period. The share information utilized to determine per share data has been retroactively adjusted to reflect the Reverse Stock Split. (2) The per share data for distributions reflect the actual amount of distributions paid per share during the applicable period. (3) The total return based on net asset value for each year presented was calculated by taking the net asset value per share as of the end of the applicable year, adding the cash distributions per share that were declared during the applicable calendar year and dividing the total by the net asset value per share at the beginning of the applicable year. Total return based on net asset value does not consider the effect of any sales commissions or charges that may be incurred in connection with the sale of shares of our common stock. The historical calculation of total return based on net asset value in the table should not be considered a representation of our future total return based on net asset value, which may be greater or less than the return shown in the table due to a number of factors, including our ability or inability to make investments in companies that meet our investment criteria, the interest rates payable on the debt securities we acquire, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any previous period should not be 50 Table of Contents relied upon as being indicative of performance in future periods. The total return calculations set forth above represent the total return on our investment portfolio during the applicable period and do not represent an actual return to stockholders. (4) The total return based on market value for each period presented was calculated based on the change in market price during the applicable period, including the impact of distributions reinvested in accordance with the Company’s distribution reinvestment plan. Total return based on market value does not consider the effect of any sales commissions or charges that may be incurred in connection with the sale of shares of our common stock. The historical calculation of total return based on market value in the table should not be considered a representation of our future total return based on market value, which may be greater or less than the return shown in the table due to a number of factors, including our ability or inability to make investments in companies that meet its investment criteria, the interest rates payable on the debt securities we acquire, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets, general economic conditions and fluctuations in per share market value. As a result of these factors, results for any previous period should not be relied upon as being indicative of performance in future periods. (5) Total portfolio investments for the year ended December 31, 2018 include investments acquired at fair value of $4,168 in connection with the 2018 Merger. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The information contained in this section should be read in conjunction with our consolidated financial statements and related notes thereto appearing elsewhere in this annual report on Form 10-K. Forward-Looking Statements Some of the statements in this annual report on Form 10-K constitute forward-looking statements because they relate to future events or our future performance or financial condition. The forward-looking statements contained in this annual report on Form 10-K may include statements as to: • our future operating results; • our business prospects and the prospects of the companies in which we may invest, including our and their ability to achieve our respective objectives as a result of the current COVID-19 pandemic; • the impact of the investments that we expect to make; • the ability of our portfolio companies to achieve their objectives; • our current and expected financings and investments; • receiving and maintaining corporate credit ratings and changes in the general interest rate environment; • the adequacy of our cash resources, financing sources and working capital; • the timing and amount of cash flows, distributions and dividends, if any, from our portfolio companies; • our contractual arrangements and relationships with third parties; • actual and potential conflicts of interest with the other funds in the Fund Complex, their respective current or future investment advisers or any of their affiliates; • the dependence of our future success on the general economy and its effect on the industries in which we may invest; • general economic and political trends and other external factors, including the current COVID-19 pandemic and related disruptions caused thereby; • our use of financial leverage; • the ability of the Advisor to locate suitable investments for us and to monitor and administer our investments; • the ability of the Advisor or its affiliates to attract and retain highly talented professionals; • our ability to maintain our qualification as a RIC and as a BDC; • the impact on our business of the Dodd-Frank Act, and the rules and regulations issued thereunder; 51 Table of Contents • the effect of changes to tax legislation on us and the portfolio companies in which we may invest and our and their tax position; • the tax status of the enterprises in which we may invest; and • the 2021 Merger, the likelihood the 2021 Merger is completed and the anticipated timing of their completion. In addition, words such as “anticipate,” “believe,” “expect” and “intend” indicate a forward-looking statement, although not all forward-looking statements include these words. The forward-looking statements contained in this annual report on Form 10-K involve risks and uncertainties. Our actual results could differ materially from those implied or expressed in the forward-looking statements for any reason, including those factors set forth in “Item 1A. Risk Factors.” Factors that could cause actual results to differ materially include: • changes in the economy; • risks associated with possible disruption in our operations or the economy generally due to terrorism, natural disasters or pandemics; • future changes in laws or regulations and conditions in our operating areas; and • the price at which shares of our common stock may trade on the NYSE. We have based the forward-looking statements included in this annual report on Form 10-K on information available to us on the date of this annual report on Form 10-K. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise. Stockholders are advised to consult any additional disclosures that we may make directly to stockholders or through reports that we may file in the future with the SEC, including annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements and projections contained in this annual report on Form 10-K are excluded from the safe harbor protection provided by Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Exchange Act. Overview We were incorporated under the general corporation laws of the State of Maryland on December 21, 2007 and formally commenced investment operations on January 2, 2009. We are an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act and has elected to be treated for U.S. federal income tax purposes, and intends to qualify annually, as a RIC under Subchapter M of the Code. We are externally managed by the Advisor pursuant to the investment advisory agreement and supervised by our board of directors, a majority of whom are independent. On April 9, 2018, GSO / Blackstone Debt Funds Management LLC, or GDFM, resigned as our investment sub-adviser and terminated its investment sub-advisory agreement effective April 9, 2018. In connection with GDFM’s resignation as our investment sub-adviser on April 9, 2018, we entered into an investment advisory agreement, dated as of April 9, 2018, with the Advisor, or the prior investment advisory agreement, which replaced an investment advisory agreement with our former investment adviser, FB Income Advisor, LLC, or FB Income Advisor. Following the consummation of the 2018 Merger, we entered into the investment advisory agreement with the Advisor, which replaced the prior investment advisory agreement. Our investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation. We seek to meet our investment objectives by: • utilizing the experience and expertise of the management team of the Advisor; • employing a defensive investment approach focused on long-term credit performance and principal protection; • focusing primarily on debt investments in a broad array of private U.S. companies, including middle-market companies, which we define as companies with annual EBITDA of $25 million to $100 million at the time of investment; • investing primarily in established, stable enterprises with positive cash flows; and • maintaining rigorous portfolio monitoring in an attempt to anticipate and pre-empt negative credit events within our portfolio, such as an event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company. 52 Table of Contents We pursue our investment objective by investing primarily in the debt of middle market U.S. companies with a focus on originated transactions sourced through the network of the Advisor and its affiliates. We define direct originations as any investment where the Company’s investment adviser, sub-advsier or their affiliates had negotiated the terms of the transaction beyond just the price, which, for example, may include negotiating financial covenants, maturity dates or interest rate terms. These directly originated transactions include participation in other originated transactions where there may be third parties involved, or a bank acting as an intermediary, for a closely held club, or similar transactions. These direct originations include investments originated by FB Income Advisor, GDFM or their affiliates. Our portfolio is comprised primarily of investments in senior secured loans and second lien secured loans of private middle market U.S. companies and, to a lesser extent, subordinated loans and certain asset-based financing loans of private U.S. companies. Although we do not expect a significant portion of our portfolio to be comprised of subordinated loans, there is no limit on the amount of such loans in which we may invest. We may purchase interests in loans or make other debt investments, including investments in senior secured bonds, through secondary market transactions in the OTC market or directly from our target companies as primary market or directly originated investments. In connection with our debt investments, we may on occasion receive equity interests such as warrants or options as additional consideration. We may also purchase or otherwise acquire interests in the form of common or preferred equity or equity-related securities, such as rights and warrants that may be converted into or exchanged for common stock or other equity or the cash value of common stock or other equity, including through a co-investment with a financial sponsor or possibly the restructuring of an investment. In addition, a portion of our portfolio may be comprised of corporate bonds, structured products, other debt securities and derivatives, including total return swaps and credit default swaps. The Advisor will seek to tailor our investment focus as market conditions evolve. Depending on market conditions, we may increase or decrease our exposure to less senior portions of the capital structures of our portfolio companies or otherwise make opportunistic investments, such as where the market price of loans, bonds or other securities reflects a lower value than deemed warranted by the Advisor’s fundamental analysis. Such investment opportunities may occur due to general dislocations in the markets, a misunderstanding by the market of a particular company or an industry being out of favor with the broader investment community and may include event driven investments, anchor orders and structured products. The senior secured loans, second lien secured loans and senior secured bonds in which we invest generally have stated terms of three to seven years and subordinated debt investments that we make generally have stated terms of up to ten years, but the expected average life of such securities is generally three to four years. However, we may invest in loans and securities with any maturity or duration. Our debt investments may be rated by a NRSRO and, in such case, generally will carry a rating below investment grade (rated lower than “Baa3” by Moody’s or lower than “BBB-” by S&P). We may invest without limit in debt or other securities of any rating, as well as debt or other securities that have not been rated by a NRSRO. Corporate Capital Trust, Inc. Acquisition On December 19, 2018, we completed the 2018 Merger. Pursuant to the 2018 Merger Agreement, CCT was first merged with and into Merger Sub, with CCT as the surviving corporation, and, immediately following such merger, CCT was then merged with and into the Company, with the Company as the surviving company. In accordance with the terms of the 2018 Merger Agreement, at the time of the transactions contemplated by the 2018 Merger Agreement, each outstanding share of CCT common stock was converted into the right to receive 2.3552 shares of our common stock. As a result, we issued an aggregate of approximately 292,324,670 shares of our common stock to former CCT stockholders. Following the consummation of the 2018 Merger, we entered into the investment advisory agreement, which replaced the prior investment advisory agreement. Share and exchange ratio amounts in the foregoing do not reflect the Reverse Stock Split. Pending Merger with FSKR On November 23, 2020, we entered into an Agreement and Plan of Merger, or the 2020 Merger Agreement with FS KKR Capital Corp II., a Maryland corporation, or FSKR, and together with FSK, the Funds, Rocky Merger Sub, Inc., a Maryland corporation and wholly-owned subsidiary of FSK, or Merger Sub and the Advisor. The 2020 Merger Agreement provides that, subject to the conditions set forth in the 2020 Merger Agreement, Merger Sub will merge with and into FSKR, with FSKR continuing as the surviving company and as a wholly-owned subsidiary of FSK, or the First Merger, and, immediately thereafter, FSKR will merge with and into the Company, with the Company continuing as the surviving company, or together with the First Merger, the 2021 Merger. The board of directors of each Fund has approved the 2021 Merger, with the participation throughout by, and the unanimous support of, its respective independent directors. The parties to the 2020 Merger Agreement intend the 2021 Merger to be treated as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. 53 Table of Contents In the 2021 Merger, each share of FSKR’s common stock issued and outstanding immediately prior to the effective time of the First Merger will be converted into a number of shares of the Company’s common stock equal to an exchange ratio to be determined in connection with the closing of the 2021 Merger, or the Exchange Ratio. The Exchange Ratio will equal the net asset value per share of FSKR’s common stock, respectively (determined no earlier than 48 hours (excluding Sundays and holidays) prior to the closing date of the 2021 Merger), divided by the net asset value per share of the Company’s common stock (determined, in each case, no earlier than 48 hours (excluding Sundays and holidays) prior to the closing date of the 2021 Merger). Holders of the FSKR’s common stock may receive fractional shares or cash in lieu of fractional shares, at the election of the Company. The 2020 Merger Agreement contains representations, warranties and covenants, including, among others, covenants relating to the operation of each of the Funds and the Advisor’s businesses during the period prior to the closing of the 2021 Merger. The Funds have agreed to convene and hold meetings of their respective stockholders for the purpose of obtaining the required approvals of the Funds’ stockholders, respectively, and have agreed to recommend that their stockholders approve their respective proposals. The 2020 Merger Agreement provides that the board of directors of each Fund may not solicit proposals relating to alternative transactions, or, subject to certain exceptions, enter into discussions or negotiations or provide information in connection with any proposal for an alternative transaction. However, each of the Funds may, subject to certain conditions, change its recommendation to their respective stockholders, terminate the 2020 Merger Agreement and enter into an agreement with respect to a superior alternative proposal if the board of directors of such Fund determines in its reasonable good faith judgment, after consultation with its outside legal counsel, that the failure to take such action would be reasonably likely to breach its standard of conduct under applicable law (taking into account any changes to the 2020 Merger Agreement proposed by the other Fund). Consummation of the 2021 Merger, which is currently anticipated to occur during the second or third quarter of 2021, is subject to certain closing conditions, including (1) requisite approvals of the Funds’ stockholders, (2) the absence of certain legal impediments to the consummation of the 2021 Merger, (3) effectiveness of the registration statement on Form N-14, which includes a joint proxy statement of the Funds and a prospectus of the Company, or the Proxy Statement, (4) subject to certain exceptions, the accuracy of the representations and warranties and compliance with the covenants of each party to the 2020 Merger Agreement and (5) required regulatory approvals (including expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended). The 2020 Merger Agreement also contains certain termination rights in favor of each Fund including if the 2021 Merger is not completed on or before November 23, 2021 or if the requisite approvals of the applicable Fund’s stockholders are not obtained. The 2020 Merger Agreement also provides that, upon the termination of the 2020 Merger Agreement under certain circumstances, a third party may be required to pay FSKR a termination fee of approximately $90.8, or a third party may be required to pay FSK a termination fee of approximately $126.2. In connection with the 2021 Merger, the Company is seeking stockholder approval to amend the Company’s investment advisory agreement to (a) reduce FSK’s income incentive fee rate from 20% to 17.5% and (b) remove the total return lookback provision applicable to the subordinated incentive fee on income. The Advisor has also agreed to waive income incentive fees in the amount of $15 per quarter for the first six full fiscal quarters of operations following the 2021 Merger for a total waiver of $90. Revenues The principal measure of our financial performance is net increase in net assets resulting from operations, which includes net investment income, net realized gain or loss on investments, net realized gain or loss on foreign currency, net unrealized appreciation or depreciation on investments and net unrealized gain or loss on foreign currency. Net investment income is the difference between our income from interest, dividends, fees and other investment income and our operating and other expenses. Net realized gain or loss on investments is the difference between the proceeds received from dispositions of portfolio investments and their amortized cost, including the respective realized gain or loss on foreign currency for those foreign denominated investment transactions. Net realized gain or loss on foreign currency is the portion of realized gain or loss attributable to foreign currency fluctuations. Net unrealized appreciation or depreciation on investments is the net change in the fair value of our investment portfolio, including the respective unrealized gain or loss on foreign currency for those foreign denominated investments. Net unrealized gain or loss on foreign currency is the net change in the value of receivables or accruals due to the impact of foreign currency fluctuations. 54 Table of Contents We principally generate revenues in the form of interest income on the debt investments we hold. In addition, we generate revenues in the form of non-recurring commitment, closing, origination, structuring or diligence fees, monitoring fees, fees for providing managerial assistance, consulting fees, prepayment fees and performance-based fees. We may also generate revenues in the form of dividends and other distributions on the equity or other securities we hold. Expenses Our primary operating expenses include the payment of management and incentive fees and other expenses under the investment advisory agreement and the administration agreement, interest expense from financing arrangements and other indebtedness, and other expenses necessary for our operations. The management and incentive fees compensate the Advisor for its work in identifying, evaluating, negotiating, executing, monitoring and servicing our investments. The Advisor oversees our day-to-day operations, including the provision of general ledger accounting, fund accounting, legal services, investor relations, certain government and regulatory affairs activities, and other administrative services. The Advisor also performs, or oversees the performance of, our corporate operations and required administrative services, which includes being responsible for the financial records that we are required to maintain and preparing reports for our stockholders and reports filed with the SEC. In addition, the Advisor assists us in calculating our net asset value, overseeing the preparation and filing of tax returns and the printing and dissemination of reports to our stockholders, and generally overseeing the payment of our expenses and the performance of administrative and professional services rendered to us by others. Pursuant to the administration agreement, we reimburse the Advisor for expenses necessary to perform services related to our administration and operations, including the Advisor’s allocable portion of the compensation and related expenses of certain personnel of FS Investments and KKR Credit providing administrative services to us on behalf of the Advisor. We reimburse the Advisor no less than quarterly for all costs and expenses incurred by the Advisor in performing its obligations and providing personnel and facilities under the administration agreement. The Advisor allocates the cost of such services to us based on factors such as total assets, revenues, time allocations and/or other reasonable metrics. Our board of directors reviews the methodology employed in determining how the expenses are allocated to us and the proposed allocation of administrative expenses among us and certain affiliates of the Advisor. Our board of directors then assesses the reasonableness of such reimbursements for expenses allocated to us based on the breadth, depth and quality of such services as compared to the estimated cost to us of obtaining similar services from third-party service providers known to be available. In addition, our board of directors considers whether any single third-party service provider would be capable of providing all such services at comparable cost and quality. Finally, our board of directors compares the total amount paid to the Advisor for such services as a percentage of our net assets to the same ratio as reported by other comparable BDCs. We bear all other expenses of our operations and transactions, including (without limitation) fees and expenses relating to: • corporate and organization expenses relating to offerings of our securities, subject to limitations included in the investment advisory agreement; • the cost of calculating our net asset value, including the cost of any third-party pricing or valuation services; • the cost of effecting sales and repurchases of shares of our common stock and other securities; • investment advisory fees; • fees payable to third parties relating to, or associated with, making investments and valuing investments, including fees and expenses associated with performing due diligence reviews of prospective investments; • interest payments on our debt or related obligations; • transfer agent and custodial fees; • research and market data (including news and quotation equipment and services, and any computer hardware and connectivity hardware (e.g., telephone and fiber optic lines) incorporated into the cost of obtaining such research and market data); • fees and expenses associated with marketing efforts; • federal and state registration fees; • federal, state and local taxes; 55 Table of Contents • fees and expenses of directors not also serving in an executive officer capacity for us or the Advisor; • costs of proxy statements, stockholders’ reports, notices and other filings; • fidelity bond, directors and officers/errors and omissions liability insurance and other insurance premiums; • direct costs such as printing, mailing, long distance telephone and staff; • fees and expenses associated with accounting, corporate governance, government and regulatory affairs activities, independent audits and outside legal costs; • costs associated with our reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws, including compliance with the Sarbanes-Oxley Act; • brokerage commissions for our investments; and • all other expenses incurred by the Advisor or us in connection with administering our business, including expenses incurred by the Advisor in performing administrative services for us and administrative personnel paid by the Advisor, to the extent they are not controlling persons of the Advisor or any of its affiliates, subject to the limitations included in the investment advisory agreement and the administration agreement. In addition, we have contracted with State Street Bank and Trust Company to provide various accounting and administrative services, including, but not limited to, preparing preliminary financial information for review by the Advisor, preparing and monitoring expense budgets, maintaining accounting and corporate books and records, processing trade information provided by us and performing testing with respect to RIC compliance. COVID-19 Developments The rapid spread of the COVID-19 pandemic, and associated impacts on the U.S. and global economies, has negatively impacted, and is likely to continue to negatively impact, the business operations of some of our portfolio companies. We cannot at this time fully predict the continued impact of COVID-19 on our business or the business of our portfolio companies, its duration or magnitude or the extent to which it will negatively impact our portfolio companies’ operating results or our own results of operations or financial condition. We expect that certain of our portfolio companies will continue to experience economic distress for the foreseeable future and may significantly limit business operations if subjected to prolonged economic distress. These developments could result in a decrease in the value of our investments. COVID-19 has already had adverse effects on our investment income and we expect that such adverse effects will continue for some time. These adverse effects may require us to restructure certain of our investments, which could result in further reductions to our investment income or in impairments on our investments. In addition, disruptions in the capital markets have resulted in illiquidity in certain market areas. These market disruptions and illiquidity are likely to have an adverse effect on our business, financial condition, results of operations and cash flows. Unfavorable economic conditions caused by COVID-19 can also be expected to increase our funding costs and limit our access to the capital markets. These events have limited our investment originations, which is likely to continue for the immediate future, and have also had a material negative impact on our operating results. We will continue to carefully monitor the impact of the COVID-19 pandemic on our business and the business of our portfolio companies. Because the full effects of the COVID-19 pandemic are not capable of being known at this time, we cannot estimate the impacts of COVID-19 on our future financial condition, results of operations or cash flows. We do, however, expect that it will continue to have a negative impact on our business and the financial condition of certain of our portfolio companies. Portfolio Investment Activity for the Years Ended December 31, 2020 and 2019 Total Portfolio Activity The following tables present certain selected information regarding our portfolio investment activity for the years ended December 31, 2020 and 2019: For the Year Ended Net Investment Activity December 31, 2020 December 31, 2019 Purchases (1) $ 2,336 $ 2,907 Sales and Repayments (2,301 ) (2,854 ) Net Portfolio Activity $ 35 $ 53 56 Table of Contents For the Year Ended December 31, 2020 December 31, 2019 New Investment Activity by Asset Class Purchases Percentage Purchases Percentage Senior Secured Loans—First Lien $ 1,464 62.7 % $ 1,872 64.4 % Senior Secured Loans—Second Lien 99 4.2 % 326 11.2 % Other Senior Secured Debt 3 0.1 % 34 1.2 % Subordinated Debt 25 1.1 % 75 2.6 % Asset Based Finance 426 18.2 % 361 12.4 % Strategic Credit Opportunities Partners, LLC 319 13.7 % 197 6.8 % Equity/Other — — 42 1.4 % Total $ 2,336 100.0 % $ 2,907 100.0 % The following table summarizes the composition of our investment portfolio at cost and fair value as of December 31, 2020 and 2019: December 31, 2020 December 31, 2019 Amortized Cost (1) Fair Value Percentage of Portfolio Amortized Cost (1) Fair Value Percentage of Portfolio Senior Secured Loans—First Lien $ 3,597 $ 3,449 50.9 % $ 3,868 $ 3,724 50.6 % Senior Secured Loans—Second Lien 1,035 880 13.0 % 1,273 1,196 16.3 % Other Senior Secured Debt 127 86 1.3 % 299 239 3.2 % Subordinated Debt 243 171 2.5 % 479 409 5.6 % Asset Based Finance 1,025 951 14.0 % 761 737 10.0 % Strategic Credit Opportunities Partners, LLC 810 713 10.5 % 491 479 6.5 % Equity/Other 616 530 7.8 % 638 573 7.8 % Total $ 7,453 $ 6,780 100.0 % $ 7,809 $ 7,357 100.0 % (1) Amortized costs represent the original cost adjusted for the amortization of premiums and/or accretion of discounts, as applicable, on investments. The following table presents certain selected information regarding the composition of our investment portfolio as of December 31, 2020 and 2019: December 31, 2020 December 31, 2019 Number of Portfolio Companies 164 210 % Variable Rate Debt Investments (based on fair value) (1)(2) 63.5 % 64.8 % % Fixed Rate Debt Investments (based on fair value) (1)(2) 9.0 % 14.6 % % Other Income Producing Investments (based on fair value) (3) 16.9 % 11.2 % % Non-Income Producing Investments (based on fair value) (2) 8.1 % 6.6 % % of Investments on Non-Accrual (based on fair value) 2.5 % 2.8 % Weighted Average Annual Yield on Accruing Debt Investments (2)(4) 8.8 % 9.7 % Weighted Average Annual Yield on All Debt Investments (5) 7.9 % 8.8 % (1) “Debt Investments” means investments that pay or are expected to pay a stated interest rate, stated dividend rate or other similar stated return. (2) Does not include investments on non-accrual status. (3) “Other Income Producing Investments” means investments that pay or are expected to pay interest, dividends or other income to the Company on an ongoing basis but do not have a stated interest rate, stated dividend rate or other similar stated return. (4) The Weighted Average Annual Yield on Accruing Debt Investments is computed as (i) the sum of (a) the stated annual interest rate, dividend rate or other similar stated return of each accruing Debt Investment, multiplied by its par amount, adjusted to U.S. dollars and for any partial income accrual when necessary, as of the end of the applicable reporting period, plus (b) the annual amortization of the purchase or original issue discount or premium of each accruing Debt Investment; divided by (ii) the total amortized cost of Debt Investments included in the calculated group as of the end of the applicable reporting period. 57 Table of Contents (5) The Weighted Average Annual Yield on All Debt Investments is computed as (i) the sum of (a) the stated annual interest rate, dividend rate or other similar stated return of each Debt Investment, multiplied by its par amount, adjusted to U.S. dollars and for any partial income accrual when necessary, as of the end of the applicable reporting period, plus (b) the annual amortization of the purchase or original issue discount or premium of each Debt Investment; divided by (ii) the total amortized cost of Debt Investments included in the calculated group as of the end of the applicable reporting period. For the year ended December 31, 2020, our total return based on net asset value was (9.69)% and our total return based on market value was (19.73)%. For the year ended December 31, 2019, our total return based on net asset value was 7.14% and our total return based on market value was 33.80%. See footnotes 7 and 8 to the table included in Note 12 to our audited consolidated financial statements included herein for information regarding the calculation of our total return based on net asset value and total return based on market value, respectively. Direct Originations We define Direct Originations as any investment where the Advisor or its affiliates negotiates the terms of the transaction beyond just the price, which, for example, may include negotiating financial covenants, maturity dates or interest rate terms. These Direct Originations include participation in other originated transactions where there may be third parties involved, or a bank acting as an intermediary, for a closely held club, or similar transactions. The following table presents certain selected information regarding our Direct Originations as of December 31, 2020 and 2019: Characteristics of All Direct Originations held in Portfolio December 31, 2020 December 31, 2019 Number of Portfolio Companies 135 133 % of Investments on Non-Accrual 2.6 % 3.1 % Total Cost of Direct Originations $ 7,048.4 $ 6,923.9 Total Fair Value of Direct Originations $ 6,447.3 $ 6,491.5 % of Total Investments, at Fair Value 95.1 % 88.2 % Weighted Average Annual Yield on Accruing Debt Investments (1) 8.7 % 9.7 % Weighted Average Annual Yield on All Debt Investments (2) 7.8 % 8.8 % (1) The Weighted Average Annual Yield on Accruing Debt Investments is computed as (i) the sum of (a) the stated annual interest rate, dividend rate or other similar stated return of each accruing Debt Investment, multiplied by its par amount, adjusted to U.S. dollars and for any partial income accrual when necessary, as of the end of the applicable reporting period, plus (b) the annual amortization of the purchase or original issue discount or premium of each accruing Debt Investment; divided by (ii) the total amortized cost of Debt Investments included in the calculated group as of the end of the applicable reporting period. Does not include Debt Investments on non-accrual status. (2) The Weighted Average Annual Yield on All Debt Investments is computed as (i) the sum of (a) the stated annual interest rate, dividend rate or other similar stated return of each Debt Investment, multiplied by its par amount, adjusted to U.S. dollars and for any partial income accrual when necessary, as of the end of the applicable reporting period, plus (b) the annual amortization of the purchase or original issue discount or premium of each Debt Investment; divided by (ii) the total amortized cost of Debt Investments included in the calculated group as of the end of the applicable reporting period. 58 Table of Contents Portfolio Composition by Industry Classification The table below describes investments by industry classification and enumerates the percentage, by fair value, of the total portfolio assets in such industries as of December 31, 2020 and 2019: December 31, 2020 December 31, 2019 Industry Classification Fair Value Percentage of Portfolio Fair Value Percentage of Portfolio Automobiles & Components $ 104 1.5 % $ 247 3.4 % Banks 14 0.2 % 15 0.2 % Capital Goods 799 11.8 % 1,085 14.8 % Commercial & Professional Services 564 8.3 % 557 7.6 % Consumer Durables & Apparel 385 5.7 % 363 4.9 % Consumer Services 145 2.1 % 294 4.0 % Diversified Financials 467 6.9 % 575 7.8 % Energy 107 1.6 % 208 2.8 % Food & Staples Retailing 221 3.3 % 209 2.8 % Food, Beverage & Tobacco 106 1.6 % 119 1.6 % Health Care Equipment & Services 604 8.9 % 601 8.2 % Household & Personal Products 190 2.8 % 120 1.6 % Insurance 208 3.1 % 217 3.0 % Materials 147 2.2 % 260 3.5 % Media & Entertainment 36 0.5 % 94 1.3 % Pharmaceuticals, Biotechnology & Life Sciences 34 0.5 % 30 0.4 % Real Estate 555 8.2 % 236 3.2 % Retailing 344 5.1 % 457 6.2 % Semiconductors & Semiconductor Equipment — — 19 0.3 % Software & Services 770 11.3 % 805 10.9 % Strategic Credit Opportunities Partners, LLC 713 10.5 % 479 6.5 % Technology Hardware & Equipment 15 0.2 % 94 1.3 % Telecommunication Services 71 1.0 % 71 1.0 % Transportation 181 2.7 % 202 2.7 % Total $ 6,780 100.0 % $ 7,357 100.0 % Portfolio Asset Quality In addition to various risk management and monitoring tools, the Advisor uses an investment rating system to characterize and monitor the expected level of returns on each investment in our portfolio. The Advisor uses an investment rating scale of 1 to 4. The following is a description of the conditions associated with each investment rating: Investment Rating Summary Description 1 Performing Investment—generally executing in accordance with plan and there are no concerns about the portfolio company’s performance or ability to meet covenant requirements. 2 Performing investment—no concern about repayment of both interest and our cost basis but company’s recent performance or trends in the industry require closer monitoring. 3 Underperforming investment—some loss of interest or dividend possible, but still expecting a positive return on investment. 4 Underperforming investment—concerns about the recoverability of principal or interest. 59 Table of Contents The following table shows the distribution of our investments on the 1 to 4 investment rating scale at fair value as of December 31, 2020 and 2019: December 31, 2020 December 31, 2019 (1) Investment Rating Fair Value Percentage of Portfolio Fair Value Percentage of Portfolio 1 $ 4,538 67 % $ 4,588 62 % 2 1,537 23 % 2,056 28 % 3 349 5 % 451 6 % 4 356 5 % 262 4 % Total $ 6,780 100 % $ 7,357 100 % (1) Historically, the Adviser has rated its investment in SCJV as a 2 on the investment rating scale. As of December 31, 2020, the Advisor evaluates its investment in SCJV by rating each individual loan in SCJV’s portfolio on a look-through basis. The Advisor has re-evaluated its portfolio as of December 31, 2019 and has updated the investment rating scale in the table above in order to be in accordance with the current methodology. The amount of the portfolio in each grading category may vary substantially from period to period resulting primarily from changes in the composition of the portfolio as a result of new investment, repayment and exit activities. In addition, changes in the grade of investments may be made to reflect our expectation of performance and changes in investment values. Results of Operations Comparison of the Years Ended December 31, 2020, 2019 and 2018 Revenues Our investment income for the years ended December 31, 2020, 2019 and 2018 was as follows: Year Ended December 31, 2020 2019 2018 Amount Percentage of Total Income Amount Percentage of Total Income Amount Percentage of Total Income Interest income $ 444 69.5 % $ 610 78.3 % $ 317 80.4 % Paid-in-kind interest income 66 10.3 % 60 7.7 % 55 14.0 % Fee income 33 5.2 % 42 5.4 % 13 3.3 % Dividend income 96 15.0 % 67 8.6 % 9 2.3 Total investment income (1) $ 639 100.0 % $ 779 100.0 % $ 394 100.0 % (1) Such revenues represent $563, $705 and $332 of cash income earned as well as $76, $74 and $62 in non-cash portions relating to accretion of discount and PIK interest for the years ended December 31, 2020, 2019 and 2018, respectively. Cash flows related to such non-cash revenues may not occur for a number of reporting periods or years after such revenues are recognized. The level of interest income we receive is generally related to the balance of income-producing investments, multiplied by the weighted average yield of our investments. Fee income is transaction based, and typically consists of prepayment fees and structuring fees. As such, fee income is generally dependent on new Direct Origination investments and the occurrence of events at existing portfolio companies resulting in such fees. The decrease in interest income during the year ended December 31, 2020 compared to the year ended December 31, 2019 can primarily be attributed to the repayment of higher yielding assets replaced by lower yielding assets, the impact of the decline in LIBOR on our floating rate investments and the increase in our investment in Strategic Credit Opportunities Partners, LLC during the year ended December 31, 2020. A portion of each of these factors was impacted by the current COVID-19 pandemic. The increase in dividend income during the year ended December 31, 2020 compared to the year ended December 31, 2019 can be primarily attributed to the increase in dividends paid in respect to our investment in Strategic Credit Opportunities Partners, LLC during the year ended December 31, 2020, compared to the year ended December 31, 2019. The increase in investment income during the year ended December 31, 2019 compared to the year ended December 31, 2018 can be primarily attributed to the increase in investments as a result of the 2018 Merger. 60 Table of Contents Expenses Our operating expenses, together with excise taxes, for the years ended December 31, 2020, 2019 and 2018 were as follows: Year Ended December 31, 2020 2019 2018 Management fees $ 106 $ 115 $ 63 Subordinated income incentive fees — 57 26 Administrative services expenses 7 9 4 Accounting and administrative fees 2 2 1 Interest expense 170 170 84 Other expenses (1) 13 9 7 Total operating expenses $ 298 $ 362 $ 185 Management fee waiver — — (3 ) Net operating expenses before taxes 298 362 182 Excise taxes 10 7 7 Total net expenses, including excise taxes $ 308 $ 369 $ 189 (1) Other expenses during the years ended December 31, 2020 and 2018 include $1 and $1, respectively, of breakage fees associated with the paydown of certain debt facilities during the period. The following table reflects selected expense ratios as a percent of average net assets for the years ended December 31, 2020, 2019 and 2018: Year Ended December 31, 2020 2019 2018 Ratio of operating expenses and excise taxes to average net assets 9.71 % 9.09 % 8.57 % Ratio of management fee waiver to average net assets — — (0.13 )% Ratio of net operating expenses to average net assets 9.71 % 9.09 % 8.44 % Ratio of incentive fees, interest expense and excise taxes to average net assets (1) 5.67 % 5.77 % 5.23 % Ratio of net operating expenses, excluding certain expenses, to average net assets 4.04 % 3.32 % 3.21 % (1) Ratio data may be rounded in order to recompute the ending ratio of net operating expenses, excluding certain expenses, to average net assets. The increase in expense ratios during the year ended December 31, 2020 compared to the year ended December 31, 2019 can be primarily attributed to mark to market declines across the portfolio resulting in a lower asset base partially offset by the decrease in expenses during the year ended December 31, 2020. The increase in expenses during the year ended December 31, 2019 compared to the year ended December 31, 2018 can primarily be attributed to the increased management fee as a result of the higher asset base from the 2018 Merger and increased interest expense resulting from the higher debt outstanding due to the 2018 Merger. Incentive fees and interest expense, among other things, may increase or decrease our expense ratios relative to comparative periods depending on portfolio performance and changes in amounts outstanding under our financing arrangements and benchmark interest rates such as LIBOR, among other factors. Net Investment Income Our net investment income totaled $331 ($2.66 per share), $410 ($3.16 per share) and $205 ($3.28 per share) for the years ended December 31, 2020, 2019 and 2018, respectively. The decrease in net investment income during the year ended December 31, 2020 compared to the year ended December 31, 2019 can primarily be attributed to lower investment income during the year ended December 31, 2020 as discussed above, partially offset by lower expenses. The increase in net investment income for the year December 31, 2019 compared to December 31, 2018 can be attributed to higher income as discussed above. 61 Table of Contents Net Realized Gains or Losses Our net realized gains (losses) on investments, financial instruments, secured borrowing and foreign currency for the years ended December 31, 2020, 2019 and 2018 were as follows: Year Ended December 31, 2020 2019 2018 Net realized gain (loss) on investments (1) $ (490 ) $ (81 ) $ (125 ) Net realized gain (loss) on swap contracts — (11 ) 0 Net realized gain (loss) on foreign currency forward contracts — 12 — Net realized gain (loss) on secured borrowing — — — Net realized gain (loss) on foreign currency (6 ) 2 6 Total net realized gain (loss) $ (496 ) $ (78 ) $ (119 ) (1) We sold investments and received principal repayments, respectively, of $1,232 and $1,069 during the year ended December 31, 2020, $1,252 and $1,602 during the year ended December, 31, 2019 and $553 and $634 during the year ended December 31, 2018. Net Change in Unrealized Appreciation (Depreciation) Our net change in unrealized appreciation (depreciation) on investments, financial instruments, secured borrowing and unrealized gain (loss) on foreign currency for the years ended December 31, 2020, 2019 and 2018 were as follows: Year Ended December 31, 2020 2019 2018 Net change in unrealized appreciation (depreciation) on investments $ (221 ) $ (83 ) $ (218 ) Net change in unrealized appreciation (depreciation) on swap contracts — 16 (16 ) Net change in unrealized appreciation (depreciation) on foreign currency forward contracts (3 ) (2 ) 3 Net change in unrealized gain (loss) on foreign currency (16 ) (17 ) (3 ) Change in unrealized appreciation from merger accounting — — 717 Total net change in unrealized appreciation (depreciation) $ (240 ) $ (86 ) $ 483 During the year ended December 31, 2020, the net change in unrealized appreciation (depreciation) on our investments was driven primarily by mark to market declines across the portfolio resulting from uncertainty related to the current COVID-19 pandemic. During the year ended December 31, 2019, the net change in unrealized appreciation (depreciation) on our investments was primarily driven by mark to market declines in certain debt investments. During the year ended December 31, 2018, the net change in unrealized appreciation (depreciation) on our investments was primarily due to the decrease in valuation of certain of our equity/other investments, as well as the recognition of fair value of investments after the allocation of purchase price discount was applied to the fair value of CCT’s investments in connection with the 2018 Merger. Net Increase (Decrease) in Net Assets Resulting from Operations For the years ended December 31, 2020, 2019 and 2018, the net increase (decrease) in net assets resulting from operations was $(405) ($(3.26) per share), $246 ($1.90 per share) and $569 ($9.05 per share), respectively. This “Results of Operations” section should be read in conjunction with “COVID-19 Developments” above. Financial Condition, Liquidity and Capital Resources Overview As of December 31, 2020, we had $191 in cash and foreign currency, which we or our wholly-owned financing subsidiaries held in custodial accounts, and $1,040 in borrowings available under our financing arrangements, subject to borrowing base and other limitations. As of December 31, 2020, we also had broadly syndicated investments and opportunistic investments that could be sold to create additional liquidity. As of December 31, 2020, we had unfunded debt investments with aggregate unfunded commitments of $228.4, unfunded equity/other commitments of $142.9 and unfunded commitments of $65.8 of Strategic Credit Opportunities Partners, LLC. We maintain sufficient cash on hand, available borrowings and liquid securities to fund such unfunded commitments should the need arise. 62 Table of Contents We currently generate cash primarily from cash flows from fees, interest and dividends earned from our investments, as well as principal repayments and proceeds from sales of our investments. To seek to enhance our returns, we also employ leverage as market conditions permit and at the discretion of the Advisor, but in no event will leverage employed exceed the maximum amount permitted by the 1940 Act. Prior to June 14, 2019, in accordance with the 1940 Act, we were allowed to borrow amounts such that our asset coverage, calculated pursuant to the 1940 Act, was at least 200% after such borrowing. Effective June 15, 2019, our asset coverage requirement applicable to senior securities was reduced from 200% to 150%. As of December 31, 2020, the aggregate amount outstanding of the senior securities issued by us was $4.0 billion. As of December 31, 2020, our asset coverage was 177%. See “—Financing Arrangements.” Prior to investing in securities of portfolio companies, we invest the cash received from fees, interest and dividends earned from our investments and principal repayments and proceeds from sales of our investments primarily in cash, cash equivalents, including money market funds, U.S. government securities, repurchase agreements and high-quality debt instruments maturing in one year or less from the time of investment, consistent with our BDC election and our election to be taxed as a RIC. This “Financial Condition, Liquidity and Capital Resources” section should be read in conjunction with “COVID-19 Developments” above. Financing Arrangements The following table presents summary information with respect to our outstanding financing arrangements as of December 31, 2020: As of December 31, 2020 Arrangement Type of Arrangement Rate Amount Outstanding Amount Available Maturity Date CCT Tokyo Funding Credit Facility (2) Revolving Credit Facility L+1.75% - 2.00% (1)(3) $ 260 $ 40 December 2, 2023 Senior Secured Revolving Credit Facility (2) Revolving Credit Facility L+1.75% -2.00% (1)(4) 615 (5) 1,000 December 23, 2025 4.750% Notes due 2022 (6) Unsecured Notes 4.75% 450 — May 15, 2022 5.000% Notes due 2022 (6) Unsecured Notes 5.00% 245 — June 28, 2022 4.625% Notes due 2024 (6) Unsecured Notes 4.63% 400 — July 15, 2024 4.125% Notes due 2025 (6) Unsecured Notes 4.13% 470 — February 1, 2025 8.625% Notes due 2025 (6) Unsecured Notes 8.63% 250 — May 15, 2025 3.400% Notes due 2026 (6) Unsecured Notes 3.40% 1000 — January 15, 2026 2019-1 Notes (2)(7) Collateralized Loan Obligation L+1.85% -3.01% (1) 352 — January 15, 2031 Total $ 4,042 $ 1,040 (1) LIBOR is subject to a 0% floor. (2) The carrying amount outstanding under the facility approximates its fair value. (3) The spread over LIBOR is determined by reference to the amount outstanding under the facility. (4) The spread over LIBOR is determined by reference to the ratio of the value of the borrowing base to the aggregate amount of certain outstanding indebtedness of the Company. (5) Amount includes borrowing in Euros, Canadian dollars, pounds sterling and Australian dollars. Euro balance outstanding of €164 has been converted to U.S. dollars at an exchange rate of €1.00 to $1.22 as of December 31, 2020 to reflect total amount outstanding in U.S. dollars. Canadian dollar balance outstanding of CAD $63 has been converted to U.S dollars at an exchange rate of CAD $1.00 to $0.78 as of December 31, 2020 to reflect total amount outstanding in U.S. dollars. Pounds sterling balance outstanding of £111 has been converted to U.S. dollars at an exchange rate of £1.00 to $1.37 as of December 31, 2020 to reflect total amount outstanding in U.S. dollars. Australian dollar balance outstanding of A$6 has been converted to U.S dollars at an exchange rate of A$1.00 to $0.77 as of December 31, 2020 to reflect total amount outstanding in U.S. dollars. (6) As of December 31, 2020, the fair value of the 4.750% notes, the 5.000% notes, the 4.625% notes, the 4.125% notes, the 8.625% notes and the 3.400% notes was approximately $468, $245, $422, $490, $285 and $994 respectively. These valuations are considered Level 2 valuations within the fair value hierarchy. (7) As of December 31, 2020, there were $281.4 of Class A-1R notes outstanding at L+1.85%, $20.5 of Class A-2R notes outstanding at L+2.25%, $32.4 of Class B-1R notes outstanding at L+2.60% and $17.4 of Class B-2R notes outstanding at 3.011%. 63 Table of Contents See Note 9 to our consolidated financial statements included herein for additional information regarding our financing arrangements. RIC Status and Distributions We have elected to be subject to tax as a RIC under Subchapter M of the Code. In order to qualify for RIC tax treatment, we must, among other things, make distributions of an amount at least equal to 90% of our investment company taxable income, determined without regard to any deduction for distributions paid, each tax year. As long as the distributions are declared by the later of the fifteenth day of the ninth month following the close of a tax year or the due date of the tax return for such tax year, including extensions, distributions paid up to twelve months after the current tax year can be carried back to the prior tax year for determining the distributions paid in such tax year. We intend to make sufficient distributions to our stockholders to qualify for and maintain our RIC tax status each tax year. We are also subject to a 4% nondeductible federal excise tax on certain undistributed income unless we make distributions in a timely manner to our stockholders generally of an amount at least equal to the sum of (1) 98% of our net ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of our capital gain net income, which is the excess of capital gains in excess of capital losses, or “capital gain net income” (adjusted for certain ordinary losses), for the one-year period ending October 31 of that calendar year and (3) any net ordinary income and capital gain net income for the preceding years that were not distributed during such years and on which we paid no U.S. federal income tax. Any distribution declared by us during October, November or December of any calendar year, payable to stockholders of record on a specified date in such a month and actually paid during January of the following calendar year, will be treated as if it had been paid by us, as well as received by our stockholders, on December 31 of the calendar year in which the distribution was declared. We can offer no assurance that we will achieve results that will permit us to pay any cash distributions. If we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings. Subject to applicable legal restrictions and the sole discretion of our board of directors, we intend to authorize, declare and pay regular cash distributions on a quarterly basis. We will calculate each stockholder’s specific distribution amount for the period using record and declaration dates and each stockholder’s distributions will begin to accrue on the date that shares of our common stock are issued to such stockholder. From time to time, we may also pay special interim distributions in the form of cash or shares of our common stock at the discretion of our board of directors. During certain periods, our distributions may exceed our earnings. As a result, it is possible that a portion of the distributions we make may represent a return of capital. A return of capital generally is a return of a stockholder’s investment rather than a return of earnings or gains derived from our investment activities. Each year a statement on Form 1099-DIV identifying the sources of the distributions will be mailed to our stockholders. No portion of the distributions paid during the tax years ended December 31, 2020, 2019 or 2018 represented a return of capital. We intend to continue to make our regular distributions in the form of cash, out of assets legally available for distribution, except for those stockholders who receive their distributions in the form of shares of our common stock under our distribution reinvestment plan. Any distributions reinvested under the plan will nevertheless remain taxable to a U.S. stockholder. The following table reflects the cash distributions per share that we have declared on our common stock during the years ended December 31, 2020, 2019 and 2018: Distribution For the Year Ended December 31, Per Share (1) Amount 2018 (2) $ 3.40000 $ 205 2019 $ 3.04000 $ 393 2020 $ 2.56000 $ 318 (1) The amount of each per share distribution has been retroactively adjusted to reflect the Reverse Stock Split as discussed in Note 3 to our unaudited consolidated financial statements included herein. (2) Includes a $0.36 per share special cash distribution that was paid on December 3, 2018. See Note 5 to our consolidated financial statements contained in this annual report on Form 10-K for additional information regarding our distributions, including a reconciliation of our GAAP-basis net investment income to our tax-basis net investment income for the years ended December 31, 2020, 2019 and 2018. 64 Table of Contents Critical Accounting Policies Our financial statements are prepared in conformity with GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Management has utilized available information, including our past history, industry standards and the current economic environment, among other factors, in forming the estimates and judgments, giving due consideration to materiality. Actual results may differ from these estimates. In addition, other companies may utilize different estimates, which may impact the comparability of our results of operations to those of companies in similar businesses. Understanding our accounting policies and the extent to which we use management judgment and estimates in applying these policies is integral to understanding our financial statements. We describe our most significant accounting policies in “Note 2. Summary of Significant Accounting Policies” in our consolidated financial statements. Critical accounting policies are those that require the application of management’s most difficult, subjective or complex judgments, often because of the need to make estimates about the effect of matters that are inherently uncertain and that may change in subsequent periods. We evaluate our critical accounting estimates and judgments required by our policies on an ongoing basis and update them as necessary based on changing conditions. We have identified one of our accounting policies, valuation of portfolio investments, specifically the valuation of Level 3 investments, as critical because it involves significant judgments and assumptions about highly complex and inherently uncertain matters, and the use of reasonably different estimates and assumptions could have a material impact on our reported results of operations or financial condition. As we execute our operating plans, we will describe additional critical accounting policies in the notes to our future financial statements in addition to those discussed below. Valuation of Portfolio Investments We determine the net asset value of our investment portfolio each quarter. Securities are valued at fair value as determined in good faith by our board of directors. In connection with that determination, the Advisor provides our board of directors with portfolio company valuations which are based on relevant inputs, including, but not limited to, indicative dealer quotes, values of like securities, recent portfolio company financial statements and forecasts, and valuations prepared by independent third-party valuation services. ASC Topic 820 issued by the FASB clarifies the definition of fair value and requires companies to expand their disclosure about the use of fair value to measure assets and liabilities in interim and annual periods subsequent to initial recognition. ASC Topic 820 defines fair value as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 also establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, which includes inputs such as quoted prices for similar securities in active markets and quoted prices for identical securities where there is little or no activity in the market; and Level 3, defined as unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. With respect to investments for which market quotations are not readily available, we undertake a multi-step valuation process each quarter, as described below: • our quarterly fair valuation process begins by the Advisor providing financial and operating information with respect to each portfolio company or investment to our independent third-party valuation service providers; • our independent third-party valuation service providers review this information, along with other public and private information, and provide the Advisor with a valuation range for each portfolio company or investment; • the Advisor then discusses the independent third-party valuation service providers’ valuation ranges and provides the valuation committee of the board of directors, or the valuation committee, with a valuation recommendation for each investment, along with supporting materials; • preliminary valuations are then discussed with the valuation committee; • our valuation committee reviews the preliminary valuations and the Advisor, together with our independent third-party valuation service providers and, if applicable, supplements the preliminary valuations to reflect any comments provided by the valuation committee; • following the completion of its review, our valuation committee recommends that our board of directors approves the fair valuations determined by the valuation committee; and • our board of directors discusses the valuations and determines the fair value of each such investment in our portfolio in good faith based on various statistical and other factors, including the input and recommendation of the Advisor, the valuation committee and our independent third-party valuation service providers. 65 Table of Contents Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements refer to the uncertainty with respect to the possible effect of such valuations and any change in such valuations on our consolidated financial statements. In making its determination of fair value, our board of directors may use any approved independent third-party pricing or valuation services. However, our board of directors is not required to determine fair value in accordance with the valuation provided by any single source, and may use any relevant data, including information obtained from the Advisor or any approved independent third-party valuation or pricing service that our board of directors deems to be reliable in determining fair value under the circumstances. Below is a description of factors that the Advisor, any approved independent third-party valuation services and our board of directors may consider when determining the fair value of our investments. Valuation of fixed income investments, such as loans and debt securities, depends upon a number of factors, including prevailing interest rates for like securities, expected volatility in future interest rates, call features, put features and other relevant terms of the debt. For investments without readily available market prices, we may incorporate these factors into discounted cash flow models to arrive at fair value. Other factors that may be considered include the borrower’s ability to adequately service its debt, the fair market value of the borrower in relation to the face amount of its outstanding debt and the quality of collateral securing our debt investments. For convertible debt securities, fair value generally approximates the fair value of the debt plus the fair value of an option to purchase the underlying security (i.e., the security into which the debt may convert) at the conversion price. To value such an option, a standard option pricing model may be used. Our equity interests in portfolio companies for which there is no liquid public market are valued at fair value. Our board of directors, in its determination of fair value, may consider various factors, such as multiples of EBITDA, cash flows, net income, revenues or, in limited instances, book value or liquidation value. All of these factors may be subject to adjustments based upon the particular circumstances of a portfolio company or our actual investment position. For example, adjustments to EBITDA may take into account compensation to previous owners or acquisition, recapitalization, restructuring or other related items. The Advisor, any approved independent third-party valuation services and our board of directors may also consider private merger and acquisition statistics, public trading multiples discounted for illiquidity and other factors, valuations implied by third-party investments in the portfolio companies or industry practices in determining fair value. The Advisor, any approved independent third-party valuation services and our board of directors may also consider the size and scope of a portfolio company and its specific strengths and weaknesses, and may apply discounts or premiums, where and as appropriate, due to the higher (or lower) financial risk and/or the smaller size of portfolio companies relative to comparable firms, as well as such other factors as our board of directors, in consultation with the Advisor and any approved independent third-party valuation services, if applicable, may consider relevant in assessing fair value. Generally, the value of our equity interests in public companies for which market quotations are readily available is based upon the most recent closing public market price. Portfolio securities that carry certain restrictions on sale are typically valued at a discount from the public market value of the security. When we receive warrants or other equity securities at nominal or no additional cost in connection with an investment in a debt security, the cost basis in the investment will be allocated between the debt securities and any such warrants or other equity securities received at the time of origination. Our board of directors subsequently values these warrants or other equity securities received at their fair value. The fair values of our investments are determined in good faith by our board of directors. Our board of directors is responsible for the valuation of our portfolio investments at fair value as determined in good faith pursuant to our valuation policy and consistently applied valuation process. Our board of directors has delegated day-to-day responsibility for implementing our valuation policy to the Advisor, and has authorized the Advisor to utilize independent third-party valuation and pricing services that have been approved by our board of directors. The valuation committee is responsible for overseeing the Advisor’s implementation of the valuation process. See Note 8 to our consolidated financial statements included herein for additional information regarding the fair value of our financial instruments. Contractual Obligations We have entered into agreements with the Advisor to provide us with investment advisory and administrative services. Payments for investment advisory services under the investment advisory agreement are equal to (a) an annual base management fee based on the average weekly value of our gross assets (excluding cash and cash equivalents) and (b) an incentive fee based on our performance. The Advisor is reimbursed for administrative expenses incurred on our behalf. See Note 4 to our consolidated financial statements included herein for a discussion of these agreements and for the amount of fees and expenses accrued under these agreements during the years ended December 31, 2020, 2019 and 2018. 66 Table of Contents A summary of our significant contractual payment obligations for the repayment of outstanding indebtedness at December 31, 2020 is as follows: Payments Due By Period Maturity Date (1) Total Less than 1 year 1-3 years 3-5 years More than 5 years CCT Tokyo Funding Credit Facility (2) December 2, 2023 $260 — $ 260 — — Senior Secured Revolving Credit Facility (3) December 23, 2025 $615 — — $615 — 4.750% Notes due 2022 May 15, 2022 $450 — $ 450 — — 5.000% Notes due 2022 June 28, 2022 $245 — $ 245 — — 4.625% Notes due 2024 July 15, 2024 $400 — — $400 — 4.125% Notes due 2025 February 1, 2025 $470 — — $470 — 8.625% Notes due 2025 May 15, 2025 $250 — — $250 — 3.400% Notes due 2026 January 15, 2026 $1,000 — — — $1,000 2019-1 Notes January 15, 2031 $352 — — — $352 (1) Amounts outstanding under the financing arrangements will mature, and all accrued and unpaid interest thereunder will be due and payable, on the maturity date. (2) At December 31, 2020, $40 remained unused under the financing arrangement. (3) At December 31, 2020, $1,000 remained unused under the Senior Secured Revolving Credit Facility. Amount includes borrowing in Euros, Canadian dollars, pounds sterling and Australian dollars. Euro balance outstanding of €164 has been converted to U.S. dollars at an exchange rate of €1.00 to $1.22 as of December 31, 2020 to reflect total amount outstanding in U.S. dollars. Canadian dollar balance outstanding of CAD $63 has been converted to U.S dollars at an exchange rate of CAD $1.00 to $0.78 as of December 31, 2020 to reflect total amount outstanding in U.S. dollars. Pounds sterling balance outstanding of £111 has been converted to U.S dollars at an exchange rate of £1.00 to $1.37 as of December 31, 2020 to reflect total amount outstanding in U.S. dollars. Australian dollar balance outstanding of A$6 has been converted to U.S dollars at an exchange rate of A$1.00 to $0.77 as of December 31, 2020 to reflect total amount outstanding in U.S. dollars. Off-Balance Sheet Arrangements We currently have no off-balance sheet arrangements, including any risk management of commodity pricing or other hedging practices. Recently Issued Accounting Standards In August 2018, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820)— Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement , or ASU 2018-13. ASU 2018-13 introduces new fair value disclosure requirements and eliminates and modifies certain existing fair value disclosure requirements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company implemented ASU 2018-13 during the year ended December 31, 2020, and it did not have a significant impact on the Company’s disclosure over fair value. In March 2020, the FASB issued ASU No. 2020-04, “ Reference Rate Reform (Topic 848) ,” which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The expedients and exceptions provided by the amendments do not apply to contract modifications and hedging relationships entered into or evaluated after December 31, 2022, except for hedging transactions as of December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship. The Company is currently evaluating the impact of adopting ASU 2020-04 on its consolidated financial statements.