What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-02-01 compared with 2022-11-01 · 213 added, 220 removed, 470 unchanged (48% of the section changed)

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We expect that our investment portfolio over time will consist of approximately 75% in debt investments and 25% in equity investments, at cost.

As of September 30, 2022, our investment portfolio was comprised of 76.6% in debt investments and 23.4% in equity investments, at cost.

As of December 31, 2022, our investment portfolio was comprised of 77.2 % in debt investments and 22.8 % in equity investments, at cost.

We focus on investing in lower middle market private businesses (which we generally define as companies with annual earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $3 million to $20 million) (“Lower Middle Market”) in the U.S.

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While the business environment remains competitive, we continue to see new investment opportunities consistent with our investment strategy of providing a combination of debt and equity in support of management and independent sponsor-led buyouts of Lower Middle Market companies in the U.S.

During the six months ended September 30, 2022, we invested in one new portfolio company and exited one portfolio company.

From our initial public offering in June 2005 through September 30, 2022, we invested in 56 companies, excluding investments in syndicated loans, for a total of approximately $1.6 billion, before giving effect to principal repayments and divestitures.

During the nine months ended December 31, 2022, we invested in one new portfolio company and exited two portfolio companies.

From our initial public offering in June 2005 through December 31, 2022, we invested in 56 companies, excluding investments in syndicated loans, for a total of approximately $1.6 billion, before giving effect to principal repayments and divestitures.

The majority of the debt securities in our portfolio have a success fee component, which enhances the yield on our debt investments.

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Due to the contingent nature of success fees, there are no guarantees that we will be able to collect any or all of these success fees or know the timing of any such collections.

As a result, as of September 30, 2022, we had unrecognized, contractual success fees of $50.7 million, or $1.53 per common share.

As a result, as of December 31, 2022, we had unrecognized, contractual success fees of $53.1 million, or $1.59 per common share.

Consistent with accounting principles generally accepted in the U.S.

(“GAAP”), we have not recognized success fee receivables and related income in our accompanying Consolidated Financial Statements until earned.

From inception through September 30, 2022, we completed sales of 28 portfolio companies that we acquired under our buyout strategy (which excludes investments in syndicated loans).

From inception through December 31, 2022, we completed sales of 29 portfolio companies that we acquired under our buyout strategy (which excludes investments in syndicated loans).

In the aggregate, these sales have generated $260.1 million in net realized gains and $40.4 million in other income upon exit, for a total increase to our net assets of $300.5 million.

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The 29 liquidity events have offset any realized losses since inception, which were primarily incurred during the 2008-2009 recession in connection with the sale of performing syndicated loans at a realized loss to pay off a former lender.

The successful exits, in part, enabled us to increase the monthly distribution by 87.5% from March 2011 through September 30, 2022, and allowed us to declare and pay 16 supplemental distributions to common stockholders through September 30, 2022.

The successful exits, in part, enabled us to increase the monthly distribution by 100.0% from March 2011 through December 31, 2022, and allowed us to declare and pay 17 supplemental distributions to common stockholders through December 31, 2022.

Capital Raising Efforts

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During the year ended March 31, 2022, we issued our 2028 Notes for gross proceeds of $134.6 million.

During the three and six months ended September 30, 2022, we sold 29,640 shares of our common stock under our "at-the-market" program (the "Common Stock ATM Program") for gross proceeds of approximately $0.5 million.

During the nine months ended December 31, 2022, we sold 241,978 shares of our common stock under our "at-the-market" program (the "Common Stock ATM Program") for gross proceeds of approximately $3.5 million.

Refer to “ Liquidity and Capital Resources — Revolving Line of Credit ” for further discussion of the Credit Facility and to “ Liquidity and Capital Resources — Equity — Common Stock ” further discussion of our common stock.

Although we have been able to access the capital markets historically, market conditions, including the impact of COVID-19, inflation, and rising interest rates, may continue to affect the trading price of our common stock and thus our ability to finance new investments through the issuance of common equity.

On September 30, 2022, the closing market price of our common stock was $ 12.10 per share, representing a 9.1 % discount to our net asset value (“NAV”) of $ 13.31 per share as of September 30, 2022.

On December 31, 2022, the closing market price of our common stock was $ 12.91 per share, representing a 3.9 % discount to our net asset value (“NAV”) of $ 13.43 per share as of December 31, 2022.

When our common stock trades below NAV, our ability to issue additional equity is constrained by provisions of the 1940 Act, which generally prohibits the issuance and sale of our common stock at an issuance price below the then-current NAV per share without stockholder approval, other than through sales to our then-existing stockholders pursuant to a rights offering.

ATM sales during the three and six months ended September 30, 2022 were above our then-current estimated NAV per share.

ATM sales during the nine months ended December 31, 2022 were above our then-current estimated NAV per share.

Regulatory Compliance

Our ability to seek external debt financing, to the extent that it is available under current market conditions, is further subject to the asset coverage limitations of the 1940 Act, which require us to have asset coverage (as defined in Sections 18 and 61 of the 1940 Act), of at least 150% on each of our senior securities representing indebtedness and our senior securities that are stock (such as our previously outstanding series of term preferred stock).

and 61 of the 1940 Act), of at least 150% on each of our senior securities representing indebtedness and our senior securities that are stock (such as our previously outstanding series of term preferred stock).

On April 10, 2018, our Board of Directors, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) thereof, approved the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act.

As a result, our asset coverage requirements for senior securities changed from 200% to 150%, which was effective as of April 10, 2019, one year after the date of the Board of Directors’ approval.

As of September 30, 2022, our asset coverage ratio on our senior securities representing indebtedness was 254.1%.

As of December 31, 2022, our asset coverage ratio on our senior securities representing indebtedness was 250.5%.

Investment Highlights

Investment Activity

During the six months ended September 30, 2022, the following significant transactions occurred:

During the nine months ended December 31, 2022, the following significant transactions occurred:

• In May 2022, we invested an additional $6.4 million in the form of secured first lien debt in Nocturne Villa Rentals, Inc.

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• In August 2022, in conjunction with a refinancing at Ginsey Home Solutions, Inc.

("Ginsey"), our outstanding $13.3 million of secured second lien debt was reduced to $12.2 million and converted to secured first lien debt.

("Ginsey"), our $13.3 million secured second lien debt investment was reduced to $12.2 million and converted to secured first lien debt.

The reduction in our cost basis was the result of a $5.1 million payment made by Ginsey to extinguish our secured borrowing liability, which was partially offset by an additional investment in Ginsey of $4.0 million.

Subsequent to September 30, 2022, in October 2022, we invested an additional $8.4 million in the form of secured first lien debt in Nocturne to fund an add-on acquisition.

Also refer to Note 13 – Subsequent Events in the accompanying Notes to Consolidated Financial Statements .

• In October 2022, we invested an additional $8.4 million in the form of secured first lien debt in Nocturne to fund an add-on acquisition.

• In November 2022, our $1.5 million secured second lien debt investment in Country Club Enterprises, LLC ("CCE") was repaid at par.

In connection with the repayment, we received success fee income of $1.1 million and our $1.0 million guaranty was released.

• In December 2022, we recapitalized our investment in Old World Christmas, Inc.

(“Old World”) and invested an additional $15.5 million in the form of secured first lien debt.

In connection with this investment, we received proceeds of $17.9 million, of which $13.4 million was recognized as a realized gain and $4.5 million was recognized as dividend income.

• In December 2022, we entered into a new $3.2 million secured second lien term loan with The Mountain Corporation ("The Mountain"), replacing our previously outstanding second lien term loan and second lien delayed draw term loan with an aggregate cost basis of $13.2 million, which resulted in a realized loss of $10.0 million.

The new term loan has a stated interest rate of LIBOR + 10.3% and matures October 1, 2024.

Recent Developments

Distributions and Dividends

In October 2022, our Board of Directors declared the following monthly cash distributions to common stockholders:

In January 2023, our Board of Directors declared the following monthly cash distributions to common stockholders:

Payment Date Distribution per Common Share

October 21, 2022 October 31, 2022 $ 0.080

November 18, 2022 November 30, 2022 0.080

December 6, 2022 December 15, 2022 0.120 (A)

December 20, 2022 December 30, 2022 0.080

January 20, 2023 January 31, 2023 $ 0.08

February 17, 2023 February 28, 2023 0.08

March 3, 2023 March 15, 2023 0.24 (A)

March 17, 2023 March 31, 2023 0.08

Total for the Quarter:

(A) Represents a supplemental distribution to common stockholders.

Election of Director

Effective October 11, 2022, Paula Novara was elected to our Board of Directors.

Novara also serves as head of human resources, facilities and office management and IT of the Adviser and certain of its affiliates.

LIBOR Transition

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dollar LIBOR are currently anticipated to be phased out in June 2023.

LIBOR may transition to a new standard rate, the Secured Overnight Financing Rate (“SOFR”), which will incorporate certain overnight repo market data collected from multiple data sets.

LIBOR is expected to transition to a new standard rate, the Secured Overnight Financing Rate (“SOFR”), which will incorporate certain overnight repo market data collected from multiple data sets.

To attain an equivalent one-month rate, we currently intend to adjust the SOFR to minimize the difference between the interest that a borrower would be paying using LIBOR versus what it will be paying using SOFR.

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Impact of Inflation

We believe the effects of inflation, if any, on our historical results of operations and financial condition have been immaterial.

During the six months ended September 30, 2022, general inflationary pressures and certain commodity price volatility have impacted our portfolio companies to varying degrees;

We believe the effects of inflation on our historical results of operations and financial condition have been immaterial.

During the nine months ended December 31, 2022, general inflationary pressures and certain commodity price volatility have impacted our portfolio companies to varying degrees;

however, the broad based impact of these pricing changes have largely been mitigated by price adjustments without adverse sales implications, and thus, have not materially impacted our portfolio companies’ ability to service their indebtedness, including our loans.

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RESULTS OF OPERATIONS

Comparison of the Three Months Ended September 30, 2022 to the Three Months Ended September 30, 2021

For the Three Months Ended September 30,

Comparison of the Three Months Ended December 31, 2022 to the Three Months Ended December 31, 2021

For the Three Months Ended December 31,

2022 2021 $ Change % Change

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Total expenses, net of credits to fees 13,025 8,343 4,682 56.1 %

NET INVESTMENT INCOME (LOSS) 11,416 2,165 9,251 NM

NET INVESTMENT INCOME 8,569 8,399 170 2.0 %

REALIZED AND UNREALIZED GAIN (LOSS)

Net realized gain on investments 3,844 22,049 (18,205) (82.6) %

Net realized loss on other — (1,998) 1,998 100.0 %

Net unrealized (depreciation) appreciation of investments (10,643) 27,504 (38,147) (138.7) %

Net realized and unrealized (loss) gain (8,341) 25,970 (34,311) (132.1) %

Net unrealized appreciation (depreciation) of investments 3,366 (20,102) 23,468 NM

Net realized and unrealized gain (loss) 7,210 1,947 5,263 270.3 %

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 15,779 $ 10,346 $ 5,433 52.5 %

WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING

Basic and diluted 33,218,901 33,205,023 13,878 NM

Basic and diluted 33,316,055 33,205,023 111,032 0.3 %

BASIC AND DILUTED PER COMMON SHARE:

Net investment income (loss) $ 0.34 $ 0.07 $ 0.27 385.7 %

Net investment income $ 0.26 $ 0.25 $ 0.01 4.0 %

Net increase in net assets resulting from operations $ 0.47 $ 0.31 $ 0.16 51.6 %

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Investment Income

Total investment income increased 12.2% for the three months ended September 30, 2022, as compared to the prior year period, due to an increase in dividend and success fee income, partially offset by a decrease in interest income.

Interest income from our investments in debt securities decreased 0.4% for the three months ended September 30, 2022, as compared to the prior year period.

During the three months ended September 30, 2021, we received $1.6 million of past due interest from certain loans that were previously on non-accrual status compared to no such collection in the current year period.

Total investment income increased 29.0% for the three months ended December 31, 2022, as compared to the prior year period, due to an increase in interest income, as well as an increase in dividend and success fee income.

Interest income from our investments in debt securities increased 20.4% for the three months ended December 31, 2022, as compared to the prior year period.

Generally, the level of interest income from investments is directly related to the principal balance of our interest-bearing investment portfolio outstanding during the period multiplied by the weighted-average yield.

The weighted-average principal balance of our interest-bearing investment portfolio during the three months ended September 30, 2022 was $467.0 million, compared to $425.5 million for the prior year period.

This increase was primarily due to the $84.4 million of follow-on debt investments in existing portfolio companies, the origination of $57.3 million of new debt investments, and $11.7 million of loans returned to accrual status, partially offset by $90.4 million of pay-offs, restructurings, or write-offs of debt investments, and $52.5 million of loans placed on non-accrual status, after June 30, 2021, and their respective impact on the weighted-average principal balance when considering timing of new investments, pay-offs, restructurings, write-offs, and accrual status changes, as applicable.

The weighted-average yield on our interest-bearing investments, excluding cash and cash equivalents and receipts recorded as dividend and success fee income, was 12.1% for the three months ended September 30, 2022, compared to 13.3% for the prior year period.

The weighted-average principal balance of our interest-bearing investment portfolio during the three months ended December 31, 2022 was $474.1 million, compared to $443.6 million for the prior year period.

This increase was primarily due to the $105.4 million of follow-on debt investments in existing portfolio companies, the origination of $39.1 million of new debt investments, and $14.9 million of loans returned to accrual status, partially offset by $92.7 million of pay-offs, restructurings, or write-offs of debt investments, and $9.2 million of loans placed on non-accrual status, after September 30, 2021, and their respective impact on the weighted-average principal balance when considering timing of new investments, pay-offs, restructurings, write-offs, and accrual status changes, as applicable.

The weighted-average yield on our interest-bearing investments, excluding cash and cash equivalents and receipts recorded as dividend and success fee income, was 13.4% for the three months ended December 31, 2022, compared to 11.9% for the prior year period.

The weighted-average yield may vary from period to period, based on the current stated interest rate on interest-bearing investments, coupled with any collection of past due interest during the period.

During the three months ended September 30, 2021, we collected $1.6 million in past due interest from portfolio companies that were previously on non-accrual status, including $1.5 million from B+T Group Acquisition, Inc.

("B+T"), $0.1 million from Horizon and $45 thousand from PSI Molded Plastics, Inc.

("PSI Molded").

We had no collections of past due interest during the three months ended September 30, 2022.

As of September 30, 2022, our loans to J.R.

Hobbs and The Mountain Corporation (“The Mountain”) were on non-accrual status, with an aggregate debt cost basis of $63.4 million.

As of September 30, 2021, our loans to J.R.

As of December 31, 2022, our loans to Edge Adhesives Holdings, Inc.

("Edge"), J.R.

Hobbs and The Mountain were on non-accrual status, with an aggregate debt cost basis of $66.6 million.

As of December 31, 2021, our loans to J.R.

Hobbs, The Mountain and SFEG Holdings, Inc.

("SFEG") were on non-accrual status, with an aggregate debt cost basis of $81.3 million.

Dividend and success fee income for the three months ended September 30, 2022 increased $2.3 million from the prior year period.

During the three months ended September 30, 2022, dividend and success fee income consisted of $4.8 million of dividend income and $1.7 million of success fee income.

During the three months ended September 30, 2021, dividend and success fee income consisted of $2.6 million of success fee income and $1.6 million of dividend income.

As of September 30, 2022, our investment in Horizon represented 10.7% of the total investment portfolio at fair value.

As of March 31, 2022, no single investment represented greater than 10% of the total investment portfolio at fair value.

Total expenses, net of any non-contractual, unconditional, and irrevocable credits from the Adviser, decreased 42.7% during the three months ended September 30, 2022, as compared to the prior year period, primarily due to a decrease in the incentive fee.

In accordance with GAAP, we recorded a $1.7 million reversal of previously accrued capital gains-based incentive fee during the three months ended September 30, 2022, compared to a capital gains-based incentive fee of $5.6 million during the three months ended September 30, 2021.

Dividend and success fee income for the three months ended December 31, 2022 increased $2.1 million from the prior year period.

During the three months ended December 31, 2022, dividend and success fee income consisted of $4.5 million of dividend income and $1.1 million of success fee income.

During the three months ended December 31, 2021, dividend and success fee income consisted of $3.4 million of success fee income.

As of December 31, 2022 and March 31, 2022, no single investment represented greater than 10% of the total investment portfolio at fair value.

Total expenses, net of any non-contractual, unconditional, and irrevocable credits from the Adviser, increased 56.1% during the three months ended December 31, 2022, as compared to the prior year period, primarily due to a decrease in the incentive fee.

In accordance with GAAP, we recorded a $1.4 million capital gains-based incentive fee during the three months ended December 31, 2022, compared to a capital gains-based incentive fee of $0.4 million during the three months ended December 31, 2021.

The capital gains-based incentive fee was a result of the net impact of net realized gains and net unrealized appreciation (depreciation) on investments during the respective periods.

The income-based incentive fee increased by $0.7 million for the three months ended September 30, 2022, as compared to the prior year period, primarily due to an increase in pre-incentive fee net investment income, coupled with an increase in net assets, which drives the hurdle rate.

The income-based incentive fee increased by $0.3 million for the three months ended December 31, 2022, as compared to the prior year period, primarily due to an increase in pre-incentive fee net investment income, coupled with an increase in net assets, which drives the hurdle rate.

The base management fee, loan servicing fee, incentive fee, and their related non-contractual, unconditional, and irrevocable credits are computed quarterly, as described under “Transactions with the Adviser” in Note 4 — Related Party Transactions in the accompanying Notes to Consolidated Financial Statements and are summarized in the following table:

Three Months Ended September 30,

Three Months Ended December 31,

Average total assets subject to base management fee (A)

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Incentive fee – capital gains-based (C)

(1,669) 5,594

Total incentive fee (B)

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(C) The capital gains-based incentive fees are recorded in accordance with GAAP and do not necessarily reflect amounts contractually due under the terms of the Advisory Agreement.

Interest and dividend expense decreased 0.7% during the three months ended September 30, 2022, as compared to the prior year period, due to a decrease in dividend expense, partially offset by an increase in interest expense.

Dividend expense decreased by $0.8 million as a result of the 6.375% Series E Cumulative Term Preferred Stock (“Series E Term Preferred Stock”) redemption August 2021.

Interest expense increased by $0.8 million primarily due to the issuance of the 2028 Notes in August 2021, which was partially offset by lower interest expense related to the Credit Facility.

The weighted-average balance outstanding on the Credit Facility during the three months ended September 30, 2022, was $11.7 million as compared to $24.4 million in the prior year period.

The effective interest rate on the Credit Facility, excluding the impact of deferred financing costs, during the three months ended September 30, 2022 was 20.1%, as compared to 10.0% in the prior year period.

The increase in the effective interest rate on the Credit Facility was primarily a result of an increase in unused commitment fees on the undrawn portion of the Credit Facility as well as increased interest rates on the drawn portion of the Credit Facility.

Interest and dividend expense increased 4.0% during the three months ended December 31, 2022, as compared to the prior year period, due to an increase in interest expense.

Interest expense increased by $0.2 million primarily due to higher interest expense related to the Credit Facility.

The weighted-average balance outstanding on the Credit Facility during the three months ended December 31, 2022 was $26.1 million as compared to $21.2 million in the prior year period.

The effective interest rate on the Credit Facility, excluding the impact of deferred financing costs, during the three months ended December 31, 2022 was 12.8%, as compared to 11.1% in the prior year period.

The increase in the effective interest rate on the Credit Facility was primarily a result of an increase in interest rates on the drawn portion of the Credit Facility.

Realized and Unrealized Gain (Loss)

The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the three months ended September 30, 2022 and 2021 were as follows:

Three Months Ended September 30, 2022

The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the three months ended December 31, 2022 and 2021 were as follows:

Three Months Ended December 31, 2022

Portfolio Company Realized Gain (Loss) Unrealized Appreciation (Depreciation) Reversal of Unrealized (Appreciation) Depreciation Net Gain (Loss)

Brunswick Bowling Products, Inc.

$ — $ 7,275 $ — $ 7,275

Mason West, LLC — 5,281 — 5,281

Old World Christmas, Inc.

13,371 (8,601) — 4,770

Nth Degree Investment Group, LLC — 5,055 — 5,055

Nocturne Villas Rentals, Inc.

Dema/Mai Holdings, Inc.

— 3,877 — 3,877

Brunswick Bowling Products, Inc.

Nth Degree Investment Group, LLC — 3,845 — 3,845

Schylling, Inc.

— 2,977 — 2,977

Horizon Facilities Service, Inc.

PSI Molded Plastics, Inc.

— 2,976 — 2,976

The Mountain Corporation (10,000) — 10,000 —

ImageWorks Display and Marketing Group, Inc.

— (920) — (920)

The Maids International, LLC — (1,424) — (1,424)

Educators Resources, Inc.

— (1,299) — (1,299)

- Atlanta, LLC — (2,398) — (2,398)

Galaxy Technologies Holding, Inc.

— (3,255) — (3,255)

Counsel Press, Inc.

B+T Group Acquisition, Inc.

— (3,747) — (3,747)

PSI Molded Plastics, Inc.

Nocturne Villas Rentals, Inc.

— (4,182) — (4,182)

B+T Group Acquisition, Inc — (3,033) — (3,033)

Edge Adhesives Holdings, Inc.

Horizon Facilities Service, Inc.

— (8,267) — (8,267)

- Atlanta, LLC — (6,410) — (6,410)

Other, net (<$1.0 million, net) 473 (197) 1 277

Total $ 3,844 $ (6,635) $ 10,001 $ 7,210

Three Months Ended September 30, 2021

Three Months Ended December 31, 2021

Portfolio Company Realized Gain (Loss) Unrealized Appreciation (Depreciation) Reversal of Unrealized (Appreciation) Depreciation Net Gain (Loss)

Schylling, Inc.

$ — $ 6,277 $ — $ 6,277

Bassett Creek Services, Inc.

— 5,474 — 5,474

Counsel Press, Inc.

— 4,903 — 4,903

Old World Christmas, Inc.

— 3,986 — 3,986

B +T Group Acquisition, Inc.

— 3,971 — 3,971

Educators Resources, Inc.

Brunswick Bowling Products, Inc.

$ — $ 10,344 $ — $ 10,344

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— 5,129 — 5,129

ImageWorks Display and Marketing Group, Inc.

Schylling, Inc.

— 2,931 — 2,931

Brunswick Bowling Products, Inc.

ImageWorks Display and Marketing Group, Inc.

— 1,019 — 1,019

Mason West, LLC — 2,064 — 2,064

The Maids International, LLC — (1,216) — (1,216)

SOG Specialty Knives and Tools, LLC — 1,796 — 1,796

Nocturne Villa Rentals, Inc.

Diligent Delivery Systems — 525 — 525

- Atlanta, LLC — (1,575) — (1,575)

SBS Industries Holdings, Inc.

Mason West, LLC — (3,390) — (3,390)

Pioneer Square Brands, Inc.

21,939 — (25,425) (3,486)

Ginsey Home Solutions, Inc.

Counsel Press, Inc.

— (3,679) — (3,679)

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Net Realized Gain (Loss) on Investments

During the three months ended September 30, 2022, we recorded net realized gains on investments of $2.3 million, primarily due to a $2.2 million realized gain from the recapitalization of Horizon and realized gains related to prior period exits of certain investments.

During the three months ended September 30, 2021, we recorded net realized gains on investments of $0.5 million, primarily related to previous exits of certain investments.

Net Realized Loss on Other

During the three months ended September 30, 2021, we recorded a net realized loss on other of $2.0 million, related to unamortized deferred issuance costs written off upon the redemption of our Series E Term Preferred Stock in August 2021.

During the three months ended September 30, 2022, there were no realized gains or losses on other.

During the three months ended December 31, 2022, we recorded net realized gains on investments of $3.8 million, primarily due to a $13.4 million realized gain from the recapitalization of Old World and $0.5 million of realized gains related to prior period exits of certain investments, partially offset by the $10.0 million realized loss recognized in conjunction with the replacement of our existing investment in The Mountain.

During the three months ended December 31, 2021, we recorded net realized gains on investments of $22.0 million, primarily due to a $21.9 million realized gain from the exit of Pioneer Square Brands, Inc.

and realized gains related to prior period exits of certain investments.

Net Unrealized Appreciation (Depreciation) of Investments

Net unrealized depreciation of investments of $10.6 million for the three months ended September 30, 2022 was primarily due to the decreased performance of certain of our portfolio companies and decreased comparable transaction multiples used to estimate the fair value of certain of our portfolio companies.

Net unrealized appreciation of investments of $3.4 million for the three months ended December 31, 2022 was primarily due to the reversal of unrealized depreciation of our investment in The Mountain upon the replacement of the existing investment, partially offset by net unrealized depreciation across our portfolio.

The net unrealized depreciation was driven by decreased performance of certain of our portfolio companies and decreased comparable transaction multiples used to estimate the fair value of certain of our portfolio companies.

These amounts were partially offset by increased performance of certain of our other portfolio companies, driven partially by the reversal of the impact of COVID-19 on certain of our portfolio companies and the markets in which they operate.

In part, the performance of certain of our portfolio companies was driven by the impact COVID-19, and its variants, has had or is expected to have on our portfolio companies and the markets in which they operate, including government restrictions on the portfolio companies’ ability to operate under historical conditions, current and future shutdowns and reopening restrictions, operating challenges, including but not limited to, labor shortages, supply chain delays, increased material costs and demand for their products, and general economic outlook, or the reversal of such impact towards pre-COVID-19 levels.

Net unrealized appreciation of investments of $27.5 million for the three months ended September 30, 2021 was primarily due to the increased performance of certain portfolio companies and an increase in comparable transaction multiples used to estimate the fair value of certain of our portfolio companies, which were partially offset by a decline in performance of certain other portfolio companies.

In part, the performance of certain of our portfolio companies was driven by the impact COVID-19, and its variants, has had or is expected to have on our portfolio companies and the markets in which they operate, including government restrictions on the portfolio companies’ ability to operate under historical conditions, current and future shutdowns and reopening restrictions, as well as demand for their products and general economic outlook.

Across our entire investment portfolio, we recorded net unrealized depreciation of $16.1 million on our debt positions and appreciation of $5.5 million million on our equity positions, for the three months ended September 30, 2022 .

As of September 30, 2022 , the fair value of our investment portfolio was more than the cost basis by $34.7 million, as compared to June 30, 2022, when the fair value of our investment portfolio was more than the cost basis by $45.4 million, representing net unrealized depreciation of $10.6 million for the three months ended September 30, 2022 .

Our entire portfolio had a fair value of 104.9% of cost as of September 30, 2022 .

Comparison of the Six Months Ended September 30, 2022 to the Six Months Ended September 30, 2021

For the Six Months Ended September 30,

Net unrealized depreciation of investments of $20.1 million for the three months ended December 31, 2021 was primarily due to the reversal of previously recorded unrealized appreciation of our investment in Pioneer upon its exit and the decreased performance of certain of our portfolio companies.

These amounts were partially offset by the increased performance of certain of our other portfolio companies, driven partially by the reversal of the impact of COVID-19 on certain of our portfolio companies and the markets in which they operate, and increased comparable transaction multiples used to estimate the fair value of certain of our portfolio companies.

In part, the performance of certain of our portfolio companies was driven by the impact COVID-19 has had or is expected to have on our portfolio companies and the markets in which they operate, including government restrictions on the portfolio companies’ ability to operate under historical conditions, current and future shutdowns and reopening restrictions, operating challenges, including but not limited to, labor shortages, supply chain delays, increased material costs and demand for their products, and general economic outlook, or the reversal of such impact towards pre-COVID-19 levels.

Across our entire investment portfolio, we recorded net unrealized appreciation of $7.2 million on our debt positions and depreciation of $3.9 million on our equity positions, for the three months ended December 31, 2022 .

As of December 31, 2022 , the fair value of our investment portfolio was more than the cost basis by $38.1 million, as compared to September 30, 2022, when the fair value of our investment portfolio was more than the cost basis by $34.7 million, representing net unrealized appreciation of $3.4 million for the three months ended December 31, 2022 .

Our entire portfolio had a fair value of 105.3% of cost as of December 31, 2022 .

Comparison of the Nine Months Ended December 31, 2022 to the Nine Months Ended December 31, 2021

For the Nine Months Ended December 31,

2022 2021 $ Change % Change

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Loan servicing fee 5,754 5,430 324 6.0 %

Incentive fee 3,777 19,599 (15,822) NM

Incentive fee 7,722 22,186 (14,464) (65.2) %

Administration fee 1,352 1,407 (55) (3.9) %

5 unchanged sentences

Total expenses, net of credits to fees 34,330 45,046 (10,716) (23.8) %

NET INVESTMENT INCOME (LOSS) 18,787 (139) 18,926 NM

NET INVESTMENT INCOME 27,356 8,260 19,096 231.2 %

REALIZED AND UNREALIZED GAIN (LOSS)

1 unchanged sentence

Net realized loss on other — (1,998) 1,998 (100.0) %

Net unrealized (depreciation) appreciation of investments (10,431) 75,018 (85,449) (113.9) %

Net realized and unrealized (loss) gain (3,677) 75,413 (79,090) (104.9) %

Net unrealized appreciation (depreciation) of investments (7,065) 54,916 (61,981) (112.9) %

Net realized and unrealized gain (loss) 3,533 77,360 (73,827) (95.4) %

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 30,889 $ 85,620 $ (54,731) (63.9) %

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BASIC AND DILUTED PER COMMON SHARE:

Net investment income (loss) $ 0.57 $ — $ 0.57 NM

Net investment income $ 0.82 $ 0.25 $ 0.57 228.0 %

Net increase in net assets resulting from operations $ 0.93 $ 2.58 $ (1.65) (64.0) %

1 unchanged sentence

Investment Income

Total investment income increased 9.6% for the six months ended September 30, 2022, as compared to the prior year period, due to an increase in dividend and success fee income, partially offset by a decrease in interest income.

Interest income from our investments in debt securities decreased 10.9% for the six months ended September 30, 2022, as compared to the prior year period.

During the six months ended September 30, 2021, we received $3.9 million of past due interest from certain loans that were previously on non-accrual status compared to no such collection in the current year period.

Total investment income increased 15.7% for the nine months ended December 31, 2022, as compared to the prior year period, due to an increase in dividend and success fee income, partially offset by a decrease in interest income.

Interest income from our investments in debt securities decreased 1.3% for the nine months ended December 31, 2022, as compared to the prior year period.

During the nine months ended December 31, 2021, we received $3.9 million of past due interest from certain loans that were previously on non-accrual status compared to no such collection in the current year period.

The weighted-average principal balance of our interest-bearing investment portfolio during the six months ended September 30, 2022 was $449.1 million, compared to $445.7 million for the prior year period.

This increase was primarily due to the $91.2 million of follow-on debt investments in existing portfolio companies, the origination of $60.7 million of new debt investments, and $11.7 million of loans returned to accrual status, partially offset by $104.5 million of pay-offs, restructurings, or write-offs of debt investments and $64.2 million of loans placed on non-accrual status after March 31, 2021, and their respective impact on the weighted-average principal balance when considering timing of new investments, pay-offs, restructurings, write-offs, and accrual status changes, as applicable.

The weighted-average yield on our interest-bearing investments, excluding cash and cash equivalents and receipts recorded as dividend and success fee income, was 12.0% for the six months ended September 30, 2022, compared to 13.6% for the prior year period.

The weighted-average principal balance of our interest-bearing investment portfolio during the nine months ended December 31, 2022 was $457.9 million, compared to $444.9 million for the prior year period.

This increase was primarily due to $118.3 million of follow-on debt investments in existing portfolio companies, the origination of $60.7 million of new debt investments, and $14.9 million of loans returned to accrual status, partially offset by $106.8 million of pay-offs, restructurings, or write-offs of debt investments and $73.4 million of loans placed on non-accrual status after March 31, 2021, and their respective impact on the weighted-average principal balance when considering timing of new investments, pay-offs, restructurings, write-offs, and accrual status changes, as applicable.

The weighted-average yield on our interest-bearing investments, excluding cash and cash equivalents and receipts recorded as dividend and success fee income, was 12.5% for the nine months ended December 31, 2022, compared to 13.0% for the prior year period.

During the six months ended September 30, 2021, we collected $3.9 million in past due interest from portfolio companies that were previously on non-accrual status, including $2.8 million from B+T, $1.0 million from SOG Specialty Knives and Tools, LLC, $0.1 million from PSI, and $0.1 million from Horizon.

We had no collections of past due interest during six months ended September 30, 2022.

As of September 30, 2022, our loans to J.R.

During the nine months ended December 31, 2021, we collected $3.9 million in past due interest from portfolio companies that were previously on non-accrual status, including $2.8 million from B+T Group Acquisition, Inc., $1.0 million from SOG Specialty Knives and Tools, LLC, $0.1 million from PSI Molded Plastics, Inc., and $0.1 million from Horizon.

We had no collections of past due interest during the nine months ended December 31, 2022.

As of December 31, 2022, our loans to Edge, J.R.

Hobbs and The Mountain were on non-accrual status, with an aggregate debt cost basis of $66.6 million.

As of September 30, 2021, our loans to J.R.

As of December 31, 2021, our loans to J.R.

Hobbs, The Mountain and SFEG were on non-accrual status, with an aggregate debt cost basis of $81.3 million.

Dividend and success fee income for the six months ended September 30, 2022 increased $6.8 million from the prior year period.

During the six months ended September 30, 2022, dividend and success fee income consisted of $6.7 million of success fee income and $6.4 million of dividend income.

During the six months ended September 30, 2021, dividend and success fee income consisted primarily of $4.7 million of success fee income and $1.6 million of dividend income.

As of September 30, 2022, our investment in Horizon represented 10.7% of the total investment portfolio at fair value.

As of March 31, 2022, no single investment represented greater than 10% of the total investment portfolio at fair value.

Total expenses, net of any non-contractual, unconditional, and irrevocable credits from the Adviser, decreased 42.0% during the six months ended September 30, 2022, as compared to the prior year period, primarily due to a decrease in the incentive fee.

In accordance with GAAP, we recorded a $0.7 million reversal of previously accrued capital gains-based incentive fee during the six months ended September 30, 2022, compared to a $15.9 million capital gains-based incentive fee recorded during the six months ended September 30, 2021.

Dividend and success fee income for the nine months ended December 31, 2022 increased $9.0 million from the prior year period.

During the nine months ended December 31, 2022, dividend and success fee income consisted of $10.8 million of dividend income and $7.8 million of success fee income.

During the nine months ended December 31, 2021, dividend and success fee income consisted primarily of $8.1 million of success fee income and $1.6 million of dividend income.

As of December 31, 2022, and March 31, 2022, no single investment represented greater than 10% of the total investment portfolio at fair value.

Total expenses, net of any non-contractual, unconditional, and irrevocable credits from the Adviser, decreased 23.8% during the nine months ended December 31, 2022, as compared to the prior year period, primarily due to a decrease in the incentive fee.

In accordance with GAAP, we recorded a $0.7 million capital gains-based incentive fee during the nine months ended December 31, 2022, compared to a $16.3 million capital gains-based incentive fee recorded during the nine months ended December 31, 2021.

The capital gains-based incentive fee was a result of the net impact of net realized gains and net unrealized appreciation (depreciation) on investments during the respective periods.

The income-based incentive fee increased by $0.8 million for the six months ended September 30, 2022, as compared to the prior year period, primarily due to an increase in pre-incentive fee net investment income, coupled with an increase in net assets, which drives the hurdle rate.

The income-based incentive fee increased by $1.1 million for the nine months ended December 31, 2022, as compared to the prior year period, primarily due to an increase in pre-incentive fee net investment income, coupled with an increase in net assets, which drives the hurdle rate.

Six Months Ended September 30,

Nine Months Ended December 31,

Average total assets subject to base management fee (A)

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(C) The capital gains-based incentive fees are recorded in accordance with GAAP and do not necessarily reflect amounts contractually due under the terms of the Advisory Agreement.

Interest and dividend expense decreased 0.6% during the six months ended September 30, 2022, as compared to the prior year period, due to a decrease in dividend expense, partially offset by an increase in interest expense.

Dividend expense decreased by $2.3 million as a result of the Series E Term Preferred Stock redemption August 2021.

Interest and dividend expense increased 0.9% during the nine months ended December 31, 2022, as compared to the prior year period, due to an increase in interest expense, partially offset by a decrease in dividend expense.

Interest expense increased by $2.4 million primarily due to the issuance of the 2028 Notes in August 2021, which was partially offset by lower interest expense related to the Credit Facility.

The weighted-average balance outstanding on the Credit Facility during the six months ended September 30, 2022, was $5.9 million as compared to $25.4 million in the prior year period.

The effective interest rate on the Credit Facility, excluding the impact of deferred financing costs, during the six months ended September 30, 2022 was 35.5%, as compared to 9.6% in the prior year period.

The weighted-average balance outstanding on the Credit Facility during the nine months ended December 31, 2022, was $12.6 million as compared to $24.0 million in the prior year period.

The effective interest rate on the Credit Facility, excluding the impact of deferred financing costs, during the nine months ended December 31, 2022 was 19.8%, as compared to 10.1% in the prior year period.

The increase in the effective interest rate on the Credit Facility was primarily a result of an increase in unused commitments fees on the undrawn portion of the Credit Facility as well as increased interest rates on the drawn portion of the Credit Facility.

Dividend expense decreased by $2.3 million as a result of the 6.375% Series E Cumulative Term Preferred Stock (“Series E Term Preferred Stock”) redemption August 2021.

Realized and Unrealized Gain (Loss)

The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the six months ended September 30, 2022 and 2021 were as follows:

Six Months Ended September 30, 2022

The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the nine months ended December 31, 2022 and 2021 were as follows:

Nine Months Ended December 31, 2022

Portfolio Company Realized Gain (Loss) Unrealized Appreciation (Depreciation) Reversal of Unrealized (Appreciation) Depreciation Net Gain (Loss)

Brunswick Bowling Products, Inc $ — $ 13,770 $ — $ 13,770

Nth Degree Investment Group, LLC — 11,525 — 11,525

Old World Christmas, Inc.

13,371 (2,815) — 10,556

Horizon Facilities Service, Inc.

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— 4,635 — 4,635

Nth Degree Investment Group, LLC — 7,680 — 7,680

Brunswick Bowling Products, Inc.

Dema/Mai Holdings, Inc.

— 3,877 — 3,877

Old World Christmas, Inc.

SFEG Holdings, Inc.

— 3,505 — 3,505

Specialized Fabrication Equipment Group, LLC — 3,584 — 3,584

Mason West, LLC — 3,343 — 3,343

Counsel Press, Inc.

— 2,165 — 2,165

Utah Pacific Bridge & Steel, Ltd.

— (882) — (882)

Schylling Inc.

— 1,633 — 1,633

Galaxy Technologies Holdings, Inc.

Utah Pacific Bridge & Steel, Ltd.

— (1,206) — (1,206)

Mason West, LLC — (1,938) — (1,938)

ImageWorks Display and Marketing Group, Inc.

Educators Resources, Inc.

— (1,614) — (1,614)

The Maids International, LLC — (2,679) — (2,679)

The Mountain, Inc.

The Mountain Corporation (10,000) (2,930) 10,000 (2,930)

Ginsey Home Solutions, Inc.

— (3,263) — (3,263)

PSI Molded Plastics, Inc.

ImageWorks Display and Marketing Group, Inc.

— (3,273) — (3,273)

Ginsey Home Solutions, Inc.

Galaxy Technologies Holdings, Inc.

— (4,804) — (4,804)

Edge Adhesives Holdings, Inc — (5,395) — (5,395)

— (5,247) — (5,247)

Bassett Creek Services, Inc.

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B+T Group Acquisition, Inc — (13,014) — (13,014)

— (9,267) — (9,267)

– Atlanta, LLC — (13,966) — (13,966)

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Total $ 10,598 $ (4,801) $ (2,264) $ 3,533

Six Months Ended September 30, 2021

Nine Months Ended December 31, 2021

Portfolio Company Realized Gain (Loss) Unrealized Appreciation (Depreciation) Reversal of Unrealized (Appreciation) Depreciation Net Gain (Loss)

1 unchanged sentence

$ — $ 15,279 $ — $ 15,279

Brunswick Bowling Products, Inc.

— 13,842 — 13,842

Old World Christmas, Inc.

2 unchanged sentences

— 13,453 — 13,453

Horizon Facilities Service, Inc.

— 11,547 — 11,547

Educators Resource, Inc.

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— 7,877 — 7,877

SOG Specialty Knives and Tools, LLC — 7,580 — 7,580

Counsel Press, Inc.

— 7,045 — 7,045

Horizon Facilities Service, Inc.

— 6,417 — 6,417

SOG Specialty Knives & Tools, LLC — 7,575 — 7,575

ImageWorks Display and Marketing Group, Inc.

2 unchanged sentences

— 3,633 — 3,633

Brunswick Bowling Products, Inc.

Counsel Press, Inc.

— 3,366 — 3,366

Galaxy Tool Holding Corporation — 1,404 — 1,404

Mason West, LLC — 1,172 — 1,172

Nocturne Villa Rentals, Inc.

— 1,504 — 1,504

Galaxy Technologies Holdings, Inc.

— 1,404 — 1,404

Head Country, Inc.

3,627 — (2,469) 1,158

The Maids International, LLC — 1,054 — 1,054

Channel Technologies Group, LLC (1,841) — 1,841 —

Pioneer Square Brands, Inc.

— (1,244) — (1,244)

- Atlanta, LLC — (2,511) — (2,511)

Diligent Delivery Systems — (903) — (903)

Mason West, LLC — (2,217) — (2,217)

SBS Industries Holdings, Inc.

— (3,314) — (3,314)

Ginsey Homes Solutions, Inc.

Ginsey Home Solutions, Inc.

— (4,012) — (4,012)

– Atlanta, LLC — (4,085) — (4,085)

Pioneer Square Brands, Inc.

21,939 (1,245) (25,425) (4,731)

Galaxy Technologies Holdings, Inc.

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Net Realized Gain (Loss) on Investments

During the six months ended September 30, 2022, we recorded net realized gains on investments of $6.8 million, primarily due to a $4.7 million realized gain from the exit of Bassett Creek, a $2.2 million realized gain from the recapitalization of Horizon and realized gains related to prior period exits of certain investments.

During the six months ended September 30, 2021, we recorded net realized gains on investments of $2.4 million, primarily related to a $3.6 million realized gain from the exit of Head Country, Inc.

During the nine months ended December 31, 2022, we recorded net realized gains on investments of $10.6 million, primarily due to a $13.4 million realized gain from the recapitalization of Old World, $5.2 million of realized gains from the exit of Bassett Creek, of which $0.5 million was received in the three months ended December 31, 2022, and a $2.2 million realized gain from the recapitalization of Horizon.

These amounts were partially offset by the $10.0 million realized loss recognized in conjunction with the replacement of the existing investment in The Mountain and $0.2 million of net realized losses related to prior period exits of certain investments.

During the nine months ended December 31, 2021, we recorded net realized gains on investments of $24.4 million, primarily related to a $21.9 million realized gain from the exit of Pioneer Square Brands, Inc., a $3.6 million realized gain from the exit of Head Country, Inc.

("Head Country") and $0.7 million of realized gains related to previous exits of certain investments, partially offset by a $1.8 million realized loss from the dissolution of Channel Technologies Group, LLC ("CTG").

Net Realized Gain Loss on Other

During the six months ended September 30, 2021, we recorded a net realized loss on other of $2.0 million related to unamortized deferred issuance costs written off upon the redemption of our Series E Term Preferred Stock in August 2021.

During the six months ended September 30, 2022, there were no realized gains or losses on other.

During the nine months ended December 31, 2021, we recorded a net realized loss on other of $2.0 million related to unamortized deferred issuance costs written off upon the redemption of our Series E Term Preferred Stock in August 2021.

During the nine months ended December 31, 2022, there were no realized gains or losses on other.

Net Unrealized Appreciation (Depreciation) of Investments

Net unrealized depreciation of investments of $10.4 million for the six months ended September 30, 2022 was primarily due to the reversal of unrealized appreciation of our investment in Bassett Creek upon its exit, partially offset by net unrealized appreciation across our portfolio.

The net appreciation was driven primarily by increased performance of certain of our portfolio companies, driven partially by the reversal of the impact of COVID-19 on certain of our portfolio companies and the markets in which they operate.

These amounts were partially offset by decreased performance of certain of our other portfolio companies and decreased comparable transaction multiples used to estimate the fair value of certain of our portfolio companies.

operate, including government restrictions on the portfolio companies’ ability to operate under historical conditions, current and future shutdowns and reopening restrictions, operating challenges, including but not limited to, labor shortages, supply chain delays, increased material costs and demand for their products, and general economic outlook, or the reversal of such impact towards pre-COVID-19 levels.

Net unrealized appreciation of investments of $75.0 million for the six months ended September 30, 2021 was primarily due to the increased performance of certain portfolio companies, the reversal of previously recorded unrealized depreciation of our investment in CTG upon its dissolution, and an increase in comparable transaction multiples used to estimate the fair value of certain of our portfolio companies, which were partially offset by the reversal of previously recorded unrealized appreciation of our investment in Head Country and a decline in performance of certain other portfolio companies.

In part, the performance of certain of our portfolio companies was driven by the impact COVID-19, and its variants, has had or is expected to have on our portfolio companies and the markets in which they operate, including government restrictions on the portfolio companies’ ability to operate under historical conditions, current and future shutdowns and reopening restrictions, as well as demand for their products and general economic outlook.

Across our entire investment portfolio, we recorded net unrealized depreciation of $23.3 million on our debt positions and appreciation of $12.9 million on our equity positions, for the six months ended September 30, 2022 .

As of September 30, 2022 , the fair value of our investment portfolio was more than the cost basis by $34.7 million, as compared to March 31, 2022, when the fair value of our investment portfolio was more than the cost basis by $45.1 million, representing net unrealized depreciation of $10.4 million for the six months ended September 30, 2022 .

Our entire portfolio had a fair value of 104.9% of cost as of September 30, 2022 .

Net unrealized depreciation of investments of $7.1 million for the nine months ended December 31, 2022 was primarily due to the net unrealized depreciation across our portfolio as well as the reversal of unrealized appreciation of our investment in Bassett Creek upon its exit and the reversal of unrealized depreciation of our investment in The Mountain upon the replacement of our existing investment.

The net depreciation was driven primarily by decreased performance of certain of our other portfolio companies and decreased comparable transaction multiples used to estimate the fair value of certain of our portfolio companies.

These decreases were partially offset by increased performance of certain of our portfolio companies, driven partially by the reversal of the impact of COVID-19 on certain of our portfolio companies and the markets in which they operate.

Net unrealized appreciation of investments of $54.9 million for the nine months ended December 31, 2021 was primarily due to increased performance of certain of our portfolio companies, driven partially by the reversal of the impact of COVID-19 on certain of our portfolio companies and the markets in which they operate, increased comparable multiples used to estimate the fair value of certain of our portfolio companies and the reversal of previously recorded unrealized depreciation of our investments in CTG upon its dissolution.

These amounts were partially offset by the reversal of previously recorded unrealized appreciation of our investment in Pioneer and Head Country upon exit and the decreased performance of certain of our portfolio companies.

Across our entire investment portfolio, we recorded net unrealized depreciation of $16.1 million on our debt positions and appreciation of $9.1 million on our equity positions, for the nine months ended December 31, 2022 .

As of December 31, 2022 , the fair value of our investment portfolio was more than the cost basis by $38.1 million, as compared to March 31, 2022, when the fair value of our investment portfolio was more than the cost basis by $45.1 million, representing net unrealized depreciation of $7.1 million for the nine months ended December 31, 2022 .

Our entire portfolio had a fair value of 105.3% of cost as of December 31, 2022 .

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Net cash used in operating activities for the six months ended September 30, 2022 was $9.4 million, as compared to net cash used in operating activities of $6.3 million for the six months ended September 30, 2021.

This change was primarily due to an increase in purchase of investments, partially offset by an increase in principal repayments of investments and net proceeds from the sale of investments.

Purchases of investments were $102.0 million during the six months ended September 30, 2022, compared to $47.6 million during the six months ended September 30, 2021.

Principal repayments and net proceeds from the sale of investments totaled $69.7 million during the six months ended September 30, 2022, compared to $22.2 million during the six months ended September 30, 2021.

As of September 30, 2022, we had equity investments in and/or loans to 26 portfolio companies with an aggregate cost basis of $703.2 million.

As of September 30, 2021, we had equity investments in and/or loans to 27 portfolio companies with an aggregate cost basis of $691.2 million.

The following table summarizes our total portfolio investment activity during the six months ended September 30, 2022 and 2021:

Six Months Ended September 30,

Net cash used in operating activities for the nine months ended December 31, 2022 was $13.4 million, compared to net cash provided by operating activities of $39.3 million for the nine months ended December 31, 2021.

This change was primarily due to an increase in purchase of investments and a decrease in the aggregate of principal repayments of investments and net proceeds from the sale of investments.

Purchases of investments were $133.5 million during the nine months ended December 31, 2022, compared to $84.6 million during the nine months ended December 31, 2021.

Principal repayments and net proceeds from the sale of investments totaled $85.8 million during the nine months ended December 31, 2022, compared to $96.9 million during the nine months ended December 31, 2021.

As of December 31, 2022, we had equity investments in and/or loans to 25 portfolio companies with an aggregate cost basis of $722.4 million.

As of December 31, 2021, we had equity investments in and/or loans to 26 portfolio companies with an aggregate cost basis of $675.6 million.

The following table summarizes our total portfolio investment activity during the nine months ended December 31, 2022 and 2021:

Nine Months Ended December 31,

Beginning investment portfolio, at fair value $ 714,396 $ 633,829

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Ending investment portfolio, at fair value $ 760,463 $ 700,738

(A) The six months ended September 30, 2022 includes $5.1 million of non-cash principal repayments related to the August 2022 refinancing at Ginsey.

The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments, as of September 30, 2022:

For the remaining six months ending March 31, 2023

(A) The nine months ended December 31, 2022 includes $5.1 million of non-cash principal repayments related to the August 2022 refinancing at Ginsey.

The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments, as of December 31, 2022:

For the remaining three months ending March 31, 2023

For the fiscal years ending March 31:

1 unchanged sentence

Total contractual repayments $ 557,347

Adjustments to cost basis of debt investments (3)

Investments in equity securities 165,033

Total cost basis of investments held as of September 30, 2022:

Total cost basis of investments held as of December 31, 2022:

Financing Activities

Net cash used in financing activities for the six months ended September 30, 2022 was $2.1 million, which consisted primarily of $18.9 million in distributions to common stockholders, partially offset by $16.6 million of net borrowings under the Credit Facility.

Net cash provided by financing activities for the six months ended September 30, 2021 was $6.3 million, which consisted primarily of $134.6 million in gross proceeds from the issuance of our 2028 Notes, partially offset by the redemption of our Series E Term Preferred Stock of $94.4 million, $16.9 million in distributions to common stockholders, $13.5 million of net repayments under the Credit Facility, and $3.4 million of deferred financing and offering costs.

Net cash provided by financing activities for the nine months ended December 31, 2022 was $1.8 million, which consisted primarily of $29.6 million of net borrowings under the Credit Facility and $3.4 million of proceeds from issuance of common stock, net of expenses and shelf offering registration costs, partially offset by $30.9 million in distributions to common stockholders.

Net cash used in financing activities for the nine months ended December 31, 2021 was $13.0 million, which consisted primarily of the redemption of our Series E Term Preferred Stock of $94.4 million, $27.4 million in distributions to common stockholders, $22.4 million of net repayments under the Credit Facility and $3.4 million of deferred financing and offering costs, partially offset by $134.6 million in gross proceeds from the issuance of our 2028 Notes.

Distributions and Dividends to Stockholders

2 unchanged sentences

Additionally, the Credit Facility generally restricts the amount of distributions to stockholders that we can pay out to be no greater than the sum of certain amounts, including our net investment income, plus net capital gains, plus amounts elected by the Company to be considered as having been paid during the prior fiscal year in accordance with Section 855(a) of the Code.

In accordance with these requirements, our Board of Directors declared, and we paid, monthly cash distributions of $0.075 per common share for each of the six months from April through September 2022, and a supplemental distribution of $0.12 per common share in June 2022.

See also “ Recent Developments - Distributions and Dividends ” for a discussion of cash distributions to common stockholders declared by our Board of Directors in October 2022.

accordance with these requirements, our Board of Directors declared, and we paid, monthly cash distributions of $0.075 per common share for each of the six months from April through September 2022, monthly cash distributions of $0.08 per common share for each of the three months from October through December 2022, and supplemental distributions of $0.12 per common share in June and December 2022.

See also “ Recent Developments - Distributions and Dividends ” for a discussion of cash distributions to common stockholders declared by our Board of Directors in January 2023.

For the fiscal year ended March 31, 2022, Investment Company Taxable Income exceeded distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $13.9 million of the first distributions paid subsequent to fiscal year-end as having been paid in the prior year.

In addition, for the fiscal year ended March 31, 2022, net capital gains exceeded distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $15.7 million of the first distributions paid subsequent to fiscal year-end as having been paid in the prior year.

For the year ended March 31, 2022, we recorded $2.8 million of net adjustments for estimated permanent book-tax differences to reflect tax character, which decreased Capital in excess of par value and Underdistributed net investment income and increased Accumulated net realized gain in excess of distributions.

For the six months ended September 30, 2022, we recorded $1.3 million of net adjustments for estimated permanent book-tax differences to reflect tax cha racter, which decreased Capital in excess of par value and increased Overdistributed net investment income and Accumulated net realized gain in excess of distributions.

For the year ended March 31, 2022, we recorded $2.8 million of net adjustments for estimated permanent book-tax differences to reflect tax character, which decreased Capital in excess of par value and Overdistributed net investment income and increased Accumulated net realized gain in excess of distributions.

For the nine months ended December 31, 2022, we recorded $1.6 million of net adjustments for estimated permanent book-tax differences to reflect tax cha racter, which decreased Capital in excess of par value and increased Underdistributed net investment income and Accumulated net realized gain in excess of distributions.

Preferred Stock Dividends

17 unchanged sentences

As of the date of this report, we have the ability to issue up to $296.5 million of the securities registered under the registration statement.

In December 2019, we entered into equity distribution agreements with Wedbush Securities, Inc., Cantor Fitzgerald & Co., and Ladenburg Thalmann & Co., Inc., under which we have the ability to issue and sell shares of our common stock, from time to time, through such sales agents, up to an aggregate offering price of $35.0 million.

In December 2019, we entered into equity distribution agreements with Wedbush Securities, Inc., Cantor Fitzgerald & Co., and Ladenburg Thalmann & Co., Inc., under which we had the ability to issue and sell shares of our common stock, from time to time, through such sales agents, up to an aggregate offering price of $35.0 million.

On August 11, 2021, we terminated the equity distribution agreements with each of such sales agents.

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and Virtu Americas LLC (each a “Sales Agent”), under which we have the ability to issue and sell shares of our common stock, from time to time, through the Sales Agents, up to an aggregate offering price of $50.0 million in what is commonly referred to as an “at-the-market” program (“Common Stock ATM Program”).

As of September 30, 2022, we had remaining capacity to sell up to an additional $49.5 million of common stock under the Common Stock ATM program.

During the three and six months ended September 30, 2022, we sold 29,640 shares of our common stock under the Common Stock ATM Program at a weighted-average gross price of $15.75 per share and raised approximately $0.5 million of gross proceeds.

As of December 31, 2022, we had remaining capacity to sell up to an additional $46.5 million of common stock under the Common Stock ATM program.

During the three months ended December 31, 2022, we sold 212,338 shares of our common stock under the Common Stock ATM Program at a weighted-average gross price of $14.11 per share, raising approximately $3.0 million of gross proceeds.

The weighted-average net price per share, after deducting commissions and offering costs borne by us, was $13.91 and resulted in total net proceeds of approximately $3.0 million.

These sales were above our then current estimated NAV per share.

During the nine months ended December 31, 2022, we sold 241,978 shares of our common stock under the Common Stock ATM Program at a weighted-average gross price of $14.31 per share, raising approximately $3.5 million of gross proceeds.

The weighted-average net price per share, after deducting commissions and offering costs borne by us, was $14.11 and resulted in total net proceeds of approximately $3.4 million.

These sales were above our then current estimated NAV per share.

Subsequent to December 31, 2022 and through February 1, 2023, we sold 8,484 shares of our common stock under our Common Stock ATM Program at a weighted-average gross price of $14.01 per share and raised approximately $0.1 million in net proceeds.

These sales were above our then-current estimated NAV per share.

We anticipate issuing equity securities to obtain additional capital in the future.

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Generally, the 1940 Act provides that we may not issue and sell our common stock at a price below our NAV per common share, other than to our then-existing common stockholders pursuant to a rights offering, without first obtaining approval from our stockholders and our independent directors and meeting other stated requirements.

On September 30, 2022, the closing market price of our common stock was $12.10 per share, representing a 9.1% discount to our NAV per share of $13.31 as of September 30, 2022.

On December 31, 2022, the closing market price of our common stock was $12.91 per share, representing a 3.9% discount to our NAV per share of $13.43 as of December 31, 2022.

Term Preferred Stock

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The revolving period was extended to February 29, 2024, and if not renewed or extended by such date, all principal and interest will be due and payable on February 28, 2026 (two years after the revolving period end date).

As of September 30, 2022, the Credit Facility provided a one-year extension option that may be exercised on or before March 8, 2023, subject to approval by all lenders.

As of December 31, 2022, the Credit Facility provided a one-year extension option that may be exercised on or before March 8, 2023, subject to approval by all lenders.

On August 10, 2020, we, through Business Investment, entered into Amendment No.

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The Credit Facility has an unused commitment fee on the daily unused commitment amount of 0.50% per annum if the average unused commitment amount for the period is less than or equal to 50% of the total commitment amount, 0.75% per annum if the average unused commitment amount for the period is greater than 50% but less than or equal to 65% of the total commitment amount, and 1.00% per annum if the average unused commitment amount for the period is greater than 65% of the total commitment amount.

At September 30, 2022, we had $16.6 million borrowings outstanding on the Credit Facility and as of the date of this report, we had $29.2 million outstanding under the Credit Facility.

At December 31, 2022, we had $29.6 million borrowings outstanding on the Credit Facility and as of the date of this report, we had $31.3 million outstanding under the Credit Facility.

Interest is payable monthly during the term of the Credit Facility.

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The Credit Facility also requires Business Investment to comply with other financial and operational covenants, which obligate Business Investment to, among other things, maintain certain financial ratios, including asset and interest coverage and a minimum number of obligors required in the borrowing base.

Additionally, the Credit Facility contains a performance guaranty that requires the Company to maintain (i) a minimum net worth (defined in the Credit Facility to include our mandatory redeemable term preferred stock) of the greater of $210.0 million or $210.0 million plus 50% of all equity and subordinated debt raised, minus 50% of any equity or subordinated debt redeemed or retired after November 16, 2016, which equated to $286.5 million as of September 30, 2022, (ii) asset coverage with respect to senior securities representing indebtedness of at least 150% (or such percentage as may be set forth in Section 18 of the 1940 Act, as modified by Section 61 of the 1940 Act), and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code.

As of September 30, 2022, and as defined in the performance guaranty of the Credit Facility, we had a net worth of $698.6 million, asset coverage on our senior securities representing indebtedness of 254.1%, calculated in compliance with the requirements of Sections 18 and 61 of the 1940 Act, and an active status as a BDC and RIC.

As of September 30, 2022, we had availability, after adjustments for various constraints based on collateral quality, of $163.4 million under the Credit Facility and were in compliance with all covenants under the Credit Facility.

As of the date of this report, we had $29.2 million outstanding under the Credit Facility.

Additionally, the Credit Facility contains a performance guaranty that requires the Company to maintain (i) a minimum net worth (defined in the Credit Facility to include our mandatory redeemable term preferred stock) of the greater of $210.0 million or $210.0 million plus 50% of all equity and subordinated debt raised, minus 50% of any equity or subordinated debt redeemed or retired after November 16, 2016, which equated to $288.0 million as of December 31, 2022, (ii) asset coverage with respect to senior securities representing indebtedness of at least 150% (or such percentage as may be set forth in Section 18 of the 1940 Act, as modified by Section 61 of the 1940 Act), and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code.

As of December 31, 2022, and as defined in the performance guaranty of the Credit Facility, we had a net worth of $705.7 million, asset coverage on our senior securities representing indebtedness of 250.5%, calculated in compliance with the requirements of Sections 18 and 61 of the 1940 Act, and an active status as a BDC and RIC.

As of December 31, 2022, we had availability, after adjustments for

various constraints based on collateral quality, of $150.4 million under the Credit Facility and were in compliance with all covenants under the Credit Facility.

Notes Payable

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Due to the contingent nature of success fees, there are no guarantees that we will be able to collect any or all of these success fees or know the timing of any such collections.

As a result, as of September 30, 2022 and March 31, 2022, we had unrecognized, contractual off-balance sheet success fee receivables of $50.7 million and $50.5 million (or approximately $1.53 and $1.52 per common share), respectively, on our debt investments.

As a result, as of December 31, 2022 and March 31, 2022, we had unrecognized, contractual off-balance sheet success fee receivables of $53.1 million and $50.5 million (or approximately $1.59 and $1.52 per common share), respectively, on our debt investments.

Consistent with GAAP, we have not recognized success fee receivables and related income in our accompanying Consolidated Financial Statements until earned.

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Since these line of credit and delayed draw term debt commitments have expiration dates and we expect many will never be fully drawn, the total line of credit and delayed draw term debt commitment amounts do not necessarily represent future cash requirements.

We estimate the fair value of the combined unused line of credit and delayed draw term debt commitments as of September 30, 2022 to be immaterial.

As of September 30, 2022, we have extended a guaranty on behalf of one of our portfolio companies, Country Club Enterprises, LLC (“CCE”), whereby we have guaranteed $1.0 million of CCE’s obligations.

As of September 30, 2022, we have not been required to make payments on this or any previous guaranty, and we consider the credit risks to be remote and the fair value of this guaranty to be immaterial.

The following table shows our contractual obligations as of September 30, 2022, at cost:

We estimate the fair value of the combined unused line of credit and delayed draw term debt commitments as of December 31, 2022 to be immaterial.

In conjunction with the term loan repayment by CCE in November 2022, our previously outstanding $1.0 million guaranty was released and terminated.

We were not required to make any payments on this guaranty, or any guaranties that existed in previous periods.

The following table shows our contractual obligations as of December 31, 2022, at cost:

Payments Due by Period

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Total $ 363,376 $ 16,654 $ 33,319 $ 173,387 $ 140,016

(A) Excludes unused line of credit and delayed draw term debt commitments and guaranties to our portfolio companies in the aggregate principal amount of $9.2 million.

(A) Excludes unused line of credit and delayed draw term debt commitments to our portfolio companies.

As of December 31, we had no amounts unused or outstanding.

(B) Principal balance of borrowings outstanding under the Credit Facility, based on the maturity date following the current contractual revolving period end date.

The amount of interest payments calculated for purposes of this table was based upon rates and outstanding balances as of September 30, 2022.

The amount of interest payments calculated for purposes of this table was based upon rates and outstanding balances as of December 31, 2022.

Critical Accounting Estimates

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The Adviser’s risk rating system covers both qualitative and quantitative aspects of the business and the securities we hold.

The following table reflects risk ratings for all loans in our portfolio as of September 30, 2022 and March 31, 2022:

Rating September 30, 2022 March 31, 2022

The following table reflects risk ratings for all loans in our portfolio as of December 31, 2022 and March 31, 2022:

Rating December 31, 2022 March 31, 2022

Weighted-average

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Under the RIC Modernization Act, we are permitted to carryforward any capital losses that we may incur for an unlimited period, and such capital loss carryforwards will retain their character as either short-term or long-term capital losses.

Our capital loss carryforward balance was $0 as of both September 30, 2022 and March 31, 2022.

Our capital loss carryforward balance was $0 as of both December 31, 2022 and March 31, 2022.

Recent Accounting Pronouncements

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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-Q

Item 2. Management’s Discussion and Analysis