What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-02-06 compared with 2023-11-01 · 199 added, 187 removed, 454 unchanged (46% of the section changed)

40 unchanged sentences

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, 2023, our investment portfolio was comprised of 78.0% in debt investments and 22.0% in equity investments, at cost.

As of December 31, 2023, our investment portfolio was comprised of 76.6% in debt investments and 23.4% 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 $4 million to $15 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, 2023, we invested in two new portfolio companies.

From our initial public offering in June 2005 through September 30, 2023, we have invested in 58 companies, excluding investments in syndicated loans, for a total of approximately $1.7 billion, before giving effect to principal repayments and divestitures.

During the nine months ended December 31, 2023, we invested in two new portfolio companies and exited one portfolio company.

From our initial public offering in June 2005 through December 31, 2023, we have invested in 58 companies, excluding investments in syndicated loans, for a total of approximately $1.7 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, 2023, we had unrecognized, contractual success fees of $59.8 million, or $1.76 per common share.

As a result, as of December 31, 2023, we had unrecognized, contractual success fees of $61.8 million, or $1.75 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, 2023, we completed sales of 29 portfolio companies that we acquired under our buyout strategy (which excludes investments in syndicated loans).

From inception through December 31, 2023, we completed sales of 30 portfolio companies that we acquired under our buyout strategy (which excludes investments in syndicated loans).

In the aggregate, these sales have generated $304.9 million in net realized gains and $41.8 million in other income upon exit, for a total increase to our net assets of $346.7 million.

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The 30 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 run rate by 100.0% from March 2011 through September 30, 2023, and allowed us to declare and pay 20 supplemental distributions to common stockholders from March 2012 through September 30, 2023.

The successful exits, in part, enabled us to increase the monthly distribution run rate by 100.0% from March 2011 through December 31, 2023, and allowed us to declare and pay 22 supplemental distributions to common stockholders from March 2012 through December 31, 2023.

Capital Raising

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We have successfully extended the Credit Facility’s revolving period multiple times, most recently to October 2026, and currently have a total commitment amount of $135.0 million (with a potential total commitment of $300.0 million through additional commitments from new or existing lenders).

During the six months ended September 30, 2023, we issued our 8.00% 2028 Notes for gross proceeds of $74.8 million and sold 304,170 shares of our common stock under our common stock "at-the-market" program (the "Common Stock ATM Program") for gross proceeds of approximately $4.1 million.

During the nine months ended December 31, 2023, we issued our 8.00% 2028 Notes for gross proceeds of $74.8 million and sold 1,760,449 shares of our common stock under our common stock "at-the-market" program (the "Common Stock ATM Program") for gross proceeds of approximately $25.3 million.

During the year ended March 31, 2023, we sold 386,482 shares of our common stock under our Common Stock ATM program for gross proceeds of approximately $5.5 million.

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Although we have been able to access the capital markets historically, market conditions 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, 2023, the closing market price of our common stock was $12.74 per share, representing a 9.2% discount to our net asset value (“NAV”) of $14.03 per share as of September 30, 2023.

On December 31, 2023, the closing market price of our common stock was $14.15 per share, representing a 8.8% premium to our net asset value (“NAV”) of $13.01 per share as of December 31, 2023.

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.

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

As of September 30, 2023, our asset coverage ratio on our senior securities representing indebtedness was 211.5%.

As of December 31, 2023, our asset coverage ratio on our senior securities representing indebtedness was 206.9%.

Investment Highlights

Investment Activity

During the six months ended September 30, 2023, the following significant transactions occurred:

During the nine months ended December 31, 2023, the following significant transactions occurred:

• In May 2023, we invested $15.3 million in a new portfolio company, Home Concepts Acquisition, Inc.

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E3, headquartered in Kilgore, Texas, is a market leader in advanced pressure management solutions for oil and gas well completions.

Subsequent to September 30, 2023, the following significant transactions occurred:

• In October 2023, we invested an additional $64.7 million in the form of secured second lien debt and common equity in SFEG Holdings, Inc.

to fund an add-on acquisition.

• In October 2023, we invested an additional $64.7 million in the form of $39.0 million of secured second lien debt and $25.7 million of common equity in SFEG Holdings, Inc.

("SFEG") to fund an add-on acquisition.

In connection with the investment, our existing preferred equity with a cost basis of $4.8 million was converted to common equity.

• In October 2023, we exited our investment in Counsel Press, Inc., which resulted in success fee income of $1.4 million, a realized gain of $43.5 million and the repayment of our debt investment of $27.5 million at par.

• In October 2023, we exited our investment in Counsel Press, Inc.

("Counsel Press"), which resulted in success fee income of $1.4 million, a realized gain of $43.5 million and the repayment of our debt investment of $27.5 million at par.

Recent Developments

Distributions and Dividends

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

In January 2024, our Board of Directors declared the following monthly cash distributions to common stockholders:

Payment Date Distribution per Common Share

October 20, 2023 October 31, 2023 $ 0.08

November 7, 2023 November 17, 2023 0.12 (A)

November 20, 2023 November 30, 2023 0.08

December 5, 2023 December 15, 2023 0.88 (A)

December 18, 2023 December 29, 2023 0.08

January 23, 2024 January 31, 2024 $ 0.08

February 21, 2024 February 29, 2024 0.08

March 21, 2024 March 29, 2024 0.08

Total for the Quarter:

(A) Represents a supplemental distribution to common stockholders.

Revolving Line of Credit

On October 30, 2023, we, through our wholly-owned subsidiary, Gladstone Business Investment, LLC ("Business Investment"), entered into Amendment No.

8 to the Credit Facility.

Among other things, the revolving period was extended to October 30, 2026, and if not renewed or extended by such date, all principal and interest will be due and payable in October 30, 2028 (two years after the revolving period end date).

Advances under the Credit Facility generally bear interest at 30-day Term Secured Overinight Financing Rate ("SOFR"), subject to a floor of 0.35%, plus 3.15% per annum until October 30, 2026, with the margin then increasing to 3.40% for the period from October 30, 2026 to October 30, 2027, and increasing further to 3.65% thereafter with a SOFR credit spread adjustment of 10 basis points.

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

The facility size was reduced from $180.0 million to $135.0 million.

On February 5, 2024, we, through our wholly-owned subsidiary Gladstone Business Investment, LLC (“Business Investment”), entered into Amendment No.

9 to the Credit Facility with KeyBank National Association (“KeyBank”), as administrative agent, joint lead arranger and lender, Fifth Third Bank as managing agent, joint lead arranger and lender, the Adviser, as servicer, and certain other lenders party thereto.

The Credit Facility was amended to increase the size from $135.0 million to $200.0 million and update certain existing terms.

The Credit Facility continues to include customary terms, covenants, events of default and constraints on borrowing availability based on collateral tests for a credit facility of its size and nature.

LIBOR Transition

As of June 30, 2023, the 30-day London Interbank Offered Rate ("LIBOR") was no longer readily available and each of our debt investments had transitioned from LIBOR as the applicable reference rate to 30-day SOFR.

The 30-day London Interbank Offered Rate ("LIBOR") is no longer readily available and each of our debt investments has transitioned from LIBOR as the applicable reference rate to 30-day SOFR.

We anticipate originating future variable rate debt instruments using SOFR.

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We believe the effects of inflation on our historical results of operations and financial condition have not been significant.

During the six months ended September 30, 2023, general inflationary pressures and certain commodity price volatility have impacted certain of our portfolio companies to varying degrees;

During the nine months ended December 31, 2023, general inflationary pressures and certain commodity price volatility have impacted certain of 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, 2023 to the Three Months Ended September 30, 2022

For the Three Months Ended September 30,

Comparison of the Three Months Ended December 31, 2023 to the Three Months Ended December 31, 2022

For the Three Months Ended December 31,

2023 2022 $ Change % Change

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Loan servicing fee 2,332 2,080 252 12.1 %

Incentive fee 11,540 768 10,772 NM

Incentive fee 1,667 3,945 (2,278) (57.7) %

Administration fee 450 410 40 9.8 %

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Total expenses, net of credits to fees 13,337 13,025 312 2.4 %

NET INVESTMENT (LOSS) INCOME (1,730) 11,416 (13,146) (115.2) %

NET INVESTMENT INCOME 9,744 8,569 1,175 13.7 %

REALIZED AND UNREALIZED GAIN (LOSS)

Net realized gain 289 2,302 (2,013) (87.4) %

Net unrealized appreciation (depreciation) 48,797 (10,643) 59,440 NM

Net realized and unrealized gain (loss) 49,086 (8,341) 57,427 NM

Net realized gain 43,461 3,844 39,617 NM

Net unrealized (depreciation) appreciation (46,626) 3,366 (49,992) NM

Net realized and unrealized (loss) gain (3,165) 7,210 (10,375) NM

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 6,579 $ 15,779 $ (9,200) NM

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BASIC AND DILUTED PER COMMON SHARE:

Net investment (loss) income $ (0.05) $ 0.34 $ (0.39) NM

Net increase in net assets resulting from operations $ 1.40 $ 0.09 $ 1.31 NM

Net investment income $ 0.28 $ 0.26 $ 0.02 7.7 %

Net increase in net assets resulting from operations $ 0.19 $ 0.47 $ (0.28) (59.6) %

NM - Not meaningful

Investment Income

Total investment income decreased $0.5 million, or 2.5%, for the three months ended September 30, 2023, as compared to the prior year period, due to a decrease in dividend and success fee income, partially offset by an increase in interest income.

Interest income from our investments in debt securities increased $6.0 million, or 42.4%, for the three months ended September 30, 2023, as compared to the prior year period.

Total investment income increased $1.5 million, or 6.9%, for the three months ended December 31, 2023, as compared to the prior year period, primarily due to an increase in interest income, partially offset by a decrease in dividend and success fee income.

Interest income from our investments in debt securities increased $5.6 million, or 35.1%, for the three months ended December 31, 2023, 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, 2023 was $543.8 million, compared to $467.0 million for the prior year period.

This increase was primarily due to the $109.6 million of follow-on debt investments in existing portfolio companies, the origination of $85.8 million of new debt investments, and $14.9 million of loans returned to accrual status, partially offset by $9.4 million of pay-offs, restructurings, or write-offs of debt investments, and $9.2 million of loans placed on non-accrual status, after June 30, 2022, 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 14.6% for the three months ended September 30, 2023, compared to 12.1% for the prior year period.

The weighted-average principal balance of our interest-bearing investment portfolio during the three months ended December 31, 2023 was $594.3 million, compared to $474.1 million for the prior year period.

This increase was primarily due to the $117.9 million of follow-on debt investments in existing portfolio companies and the origination of $46.8 million of new debt investments, partially offset by $31.8 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, 2022, 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 14.4% for the three months ended December 31, 2023, compared to 13.4% 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.

As of September 30, 2023, our loans to Edge Adhesives Holdings, Inc.

As of December 31, 2023, our loans to Edge Adhesives Holdings, Inc.

("Edge"), J.R.

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Hobbs") and The Mountain Corporation ("The Mountain") were on non-accrual status, with an aggregate debt cost basis of $66.9 million.

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

Hobbs and The Mountain were also on non-accrual status, with an aggregate debt cost basis of $63.4 million.

Dividend and success fee income for the three months ended September 30, 2023 decreased $6.6 million, or 100.0%, from the prior year period, as there was no dividend or success fee income during the three months ended September 30, 2023.

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.

As of September 30, 2023 and March 31, 2023, 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 $12.6 million, or 134.6%, during the three months ended September 30, 2023, as compared to the prior year period, primarily due to an increase in incentive fees, interest expense and base management fee, partially offset by an increase in credits from the Adviser and a decrease in other expenses.

In accordance with GAAP, during the three months ended September 30, 2023, we recorded a $9.8 million capital gains-based incentive fee compared to a $1.7 million reversal of previously accrued capital gains-based incentive fee during the three months ended September 30, 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.

Dividend and success fee income for the three months ended December 31, 2023 decreased $4.1 million, or 75.0%, from the prior year period.

During the three months ended December 31, 2023, dividend and success fee income consisted of $1.4 million of success fee income.

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.

As of December 31, 2023, SFEG represented 10.2% of the total investment portfolio at fair value.

As of March 31, 2023, 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 $0.3 million, or 2.4%, during the three months ended December 31, 2023, as compared to the prior year period, primarily due to an increase in interest expense and base management fee, partially offset by a decrease in incentive fees and an increase in credits from the Adviser.

In accordance with GAAP, during the three months ended December 31, 2023, we recorded a $0.6 million reversal of previously accrued capital gains-based incentive fee compared to a capital gains-based incentive fee of $1.4 million during the three months ended December 31, 2022.

The capital gains-based incentive fee is 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 decreased by $0.7 million, for the three months ended September 30, 2023, as compared to the prior year period, primarily due to a decrease in pre-incentive fee net investment income, partially offset by a decrease in net assets, which drives the hurdle rate.

The income-based incentive fee decreased by $0.2 million, for the three months ended December 31, 2023, as compared to the prior year period, primarily due to a decrease in pre-incentive fee net investment income and 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)

9,807 (1,669)

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 expense increased $2.2 million, or 58.3%, during the three months ended September 30, 2023, as compared to the prior year period, primarily due to interest expense related to the 8.00% 2028 Notes issued in May 2023, not present in the prior year period, and increased interest rate and borrowings on the Credit Facility.

The weighted-average balance outstanding under the Credit Facility during the three months ended September 30, 2023 was $50.4 million, compared to $11.7 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, 2023 was 10.9%, as compared to 20.1% in the prior year period.

Interest expense increased $2.4 million, or 60.0%, during the three months ended December 31, 2023, as compared to the prior year period, primarily due to interest expense related to the 8.00% 2028 Notes issued in May 2023 and increased borrowings on the Credit Facility, partially offset by a decrease in the effective interest rate.

The weighted-average balance outstanding under the Credit Facility during the three months ended December 31, 2023 was $77.4 million, compared to $26.1 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, 2023 was 9.2%, as compared to 12.8% in the prior year period.

The decrease in the effective interest rate on the Credit Facility was primarily a result of the decrease in the unused fee associated with the undrawn portion of the Credit Facility, partially offset by an increase in interest rates.

Other expenses decreased $0.6 million, or 33.7%, during the three months ended September 30, 2023, as compared to the prior year period, due to a decrease in professional fees and bad debt expense, partially offset by an increase in tax expense.

Other expenses increased $0.2 million, or 17.2%, during the three months ended December 31, 2023, as compared to the prior year period, due to an increase in bad debt expense and and professional fees.

Realized and Unrealized Gain (Loss)

The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the three months ended September 30, 2023 and 2022 were as follows:

Three Months Ended September 30, 2023

The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the three months ended December 31, 2023 and 2022 were as follows:

Three Months Ended December 31, 2023

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

Counsel Press, Inc.

Dema/Mai Holdings, Inc.

$ — $ 5,655 $ — $ 5,655

Nth Degree Investment Group, LLC — 3,274 — 3,274

Educators Resources, Inc.

— 2,229 — 2,229

Mason West, LLC — 8,745 — 8,745

Brunswick Bowling Products, Inc.

— 1,319 — 1,319

Nth Degree Investment Group, LLC — 5,626 — 5,626

SFEG Holdings, Inc.

ImageWorks Display and Marketing Group, Inc.

— 1,205 — 1,205

The Maids International, LLC — 1,801 — 1,801

Utah Pacific Bridge & Steel, Ltd.

Counsel Press, Inc.

43,459 — (43,566) (107)

Dema/Mai Holdings, Inc.

Horizon Facilities Service, Inc.

— (1,204) — (1,204)

ImageWorks Display and Marketing Group, Inc.

Home Concepts Acquisition, Inc.

— (1,565) — (1,565)

Schylling, Inc.

Nocturne Villas Rentals, Inc.

— (2,420) — (2,420)

Mason West, LLC — (2,484) — (2,484)

PSI Molded Plastics, Inc.

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Total $ 43,461 $ (2,968) $ (43,566) $ (3,073)

Three Months Ended September 30, 2022

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)

Galaxy Technologies Holdings, Inc.

— (1,549) — (1,549)

Counsel Press, Inc.

Educators Resources, Inc.

— (1,299) — (1,299)

PSI Molded Plastics, Inc.

- Atlanta, LLC — (2,398) — (2,398)

Galaxy Technologies Holding, Inc.

— (3,255) — (3,255)

B+T Group Acquisition, Inc.

Edge Adhesives Holdings, Inc.

— (3,747) — (3,747)

- Atlanta, LLC — (6,410) — (6,410)

Nocturne Villas Rentals, Inc.

— (4,182) — (4,182)

Horizon Facilities Service, Inc.

— (8,267) — (8,267)

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

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Net Realized Gain (Loss)

During the three months ended September 30, 2023, we recorded net realized gains on investments of $0.3 million related to a prior period exit.

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 Facilities Services, Inc.and realized gains related to prior period exits of certain investments.

During the three months ended December 31, 2023, we recorded net realized gains on investments of $43.5 million, primarily due to a $43.5 million realized gain from the exit of Counsel Press.

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.

Net Unrealized Appreciation (Depreciation)

Net unrealized appreciation of investments of $48.7 million for the three months ended September 30, 2023 was primarily due to increased performance of certain of our portfolio companies and an increase in transaction multiples used to estimate the fair value of certain of our portfolio companies, in addition to increased fair value as a result of expected payoff amounts for certain investments.

These increases were partially offset by decreased performance of certain of our other portfolio companies.

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 depreciation of investments of $46.5 million for the three months ended December 31, 2023 was primarily due to the reversal of unrealized appreciation of Counsel Press upon exit, a decrease in transaction multiples used to estimate the fair value of certain of our portfolio companies and a decrease in performance of certain of our portfolio companies.

These decreases were partially offset by increased performance of certain of our other 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 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 $49.9 million on our equity positions and net unrealized depreciation of $1.2 million on our debt positions , for the three months ended September 30, 2023 .

As of September 30, 2023 , the fair value of our investment portfolio was more than the cost basis by $80.8 million, as compared to June 30, 2023, when the fair value of our investment portfolio was more than the cost basis by $32.1 million, representing net unrealized appreciation of $48.7 million for the three months ended September 30, 2023 .

Our entire portfolio had a fair value of 109.7% of cost as of September 30, 2023 .

Comparison of the Six Months Ended September 30, 2023 to the Six Months Ended September 30, 2022

For the Six Months Ended September 30,

Across our entire investment portfolio, we recorded net unrealized depreciation of $33.9 million on our equity positions and net unrealized depreciation of $12.6 million on our debt positions for the three months ended December 31, 2023 .

As of December 31, 2023 , the fair value of our investment portfolio was more than the cost basis by $34.3 million, as compared to September 30, 2023, when the fair value of our investment portfolio was more than the cost basis by $80.8 million, representing net unrealized depreciation of $46.5 million for the three months ended December 31, 2023 .

Our entire portfolio had a fair value of 103.9% of cost as of December 31, 2023 .

Comparison of the Nine Months Ended December 31, 2023 to the Nine Months Ended December 31, 2022

For the Nine Months Ended December 31,

2023 2022 $ Change % Change

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Total expenses, net of credits to fees 47,204 34,330 12,874 37.5 %

NET INVESTMENT (LOSS) INCOME 6,710 18,787 (12,077) (64.3) %

NET INVESTMENT INCOME 16,454 27,356 (10,902) (39.9) %

REALIZED AND UNREALIZED GAIN (LOSS)

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BASIC AND DILUTED PER COMMON SHARE:

Net investment (loss) income $ 0.20 $ 0.57 $ (0.37) (64.9) %

Net investment income $ 0.49 $ 0.82 $ (0.33) (40.2) %

Net increase in net assets resulting from operations $ 1.85 $ 0.93 $ 0.92 98.9 %

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Investment Income

Total investment income increased $0.5 million, or 1.2%, for the six months ended September 30, 2023, as compared to the prior year period, due to an increase in interest income, partially offset by a decrease in dividend and success fee income.

Interest income from our investments in debt securities increased $11.7 million, or 43.3%, for the six months ended September 30, 2023, as compared to the prior year period.

Total investment income increased $2.0 million, or 3.2%, for the nine months ended December 31, 2023, as compared to the prior year period, primarily due to an increase in interest income, partially offset by a decrease in dividend and success fee income.

Interest income from our investments in debt securities increased $17.3 million, or 40.2%, for the nine months ended December 31, 2023, as compared to the prior year period.

The weighted-average principal balance of our interest-bearing investment portfolio during the six months ended September 30, 2023 was $519.7 million, compared to $449.1 million for the prior year period.

The weighted-average principal balance of our interest-bearing investment portfolio during the nine months ended December 31, 2023 was $544.6 million, compared to $457.9 million for the prior year period.

This increase was primarily due to $119.8 million of follow-on debt investments in existing portfolio companies, the origination of $85.8 million of new debt investments, and $14.9 million of loans returned to accrual status, partially offset by $84.9 million of pay-offs, restructurings, or write-offs of debt investments and $9.2 million of loans placed on non-accrual status after March 31, 2022, 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 14.6% for the six months ended September 30, 2023, compared to 12.0% for the prior year period.

The weighted-average yield on our interest-bearing investments, excluding cash and cash equivalents and receipts recorded as dividend and success fee income, was 14.5% for the nine months ended December 31, 2023, compared to 12.5% for the prior year period.

During the six months ended September 30, 2023 and 2022, we had no collections of past due interest.

As of September 30, 2023, our loans to Edge, J.R.

During the nine months ended December 31, 2023 and 2022, we had no collections of past due interest.

As of December 31, 2023, our loans to Edge, J.R.

Hobbs and The Mountain were on non-accrual status, with an aggregate debt cost basis of $66.9 million.

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

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

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

Dividend and success fee income for the six months ended September 30, 2023 decreased $11.2 million, or 85.5% from the prior year period.

During the six months ended September 30, 2023, dividend and success fee income consisted of $1.9 million of dividend income.

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

As of September 30, 2023, and March 31, 2023, 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 $12.6 million, or 59.0%, during the six months ended September 30, 2023, as compared to the prior year period, primarily due to an increase in incentive fees.

In accordance with GAAP, we recorded a $9.9 million capital gains-based incentive fee during the six months ended September 30, 2023, compared to a $0.7 million reversal of previously accrued capital gains-based incentive fee during the six months ended September 30, 2022.

Dividend and success fee income for the nine months ended December 31, 2023 decreased $15.4 million, or 82.4% from the prior year period.

During the nine months ended December 31, 2023, dividend and success fee income consisted of $1.9 million of dividend income and $1.4 million of success fee income.

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.

As of December 31, 2023, SFEG represented 10.2% of the total investment portfolio at fair value.

As of March 31, 2023, 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 $12.9 million, or 37.5%, during the nine months ended December 31, 2023, as compared to the prior year period, primarily due to an increase in incentive fees, interest expense and base management fee, partially offset by an increase in credits from the Adviser.

In accordance with GAAP, we recorded a $9.3 million capital gains-based incentive fee during the nine months ended December 31, 2023, compared to a $0.7 million capital gains-based incentive fee recorded during the nine months ended December 31, 2022.

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 decreased by $0.7 million for the six months ended September 30, 2023, as compared to the prior year period, primarily due to a decrease in pre-incentive fee net investment income, partially offset by a decrease in net assets, which drives the hurdle rate.

The income-based incentive fee decreased by $0.9 million for the nine months ended December 31, 2023, as compared to the prior year period, primarily due to a decrease in pre-incentive fee net investment income and 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 expense increased $3.4 million, or 45.0%, during the six months ended September 30, 2023, as compared to the prior year period, primarily due to interest expense related to the 8.00% 2028 Notes issued in May 2023, not present in the prior year period, and increased interest rate and borrowings on the Credit Facility.

The weighted-average balance outstanding on the Credit Facility during the six months ended September 30, 2023 was $47.0 million as compared to $5.9 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, 2023 was 11.0%, as compared to 35.5% in the prior year period.

Interest expense increased $5.9 million, or 50.2%, during the nine months ended December 31, 2023, as compared to the prior year period, primarily due to interest expense related to the 8.00% 2028 Notes issued in May 2023 and increased borrowings on the Credit Facility, partially offset by a decrease in the effective interest rate.

The weighted-average balance outstanding on the Credit Facility during the nine months ended December 31, 2023 was $57.1 million as compared to $12.6 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, 2023 was 10.2%, as compared to 19.8% in the prior year period.

The decrease in the effective interest rate on the Credit Facility was primarily a result of a decrease in unused commitment fees on the undrawn portion of the Credit Facility, partially offset by an increase in interest rates on the drawn portion of the Credit Facility.

Other expenses decreased $1.1 million, or 34.3%, during the six months ended September 30, 2023, as compared to the prior year period, due to a decrease in professional fees, bad debt expense and tax expense.

Other expenses decreased $0.9 million, or 21.2%, during the nine months ended December 31, 2023, as compared to the prior year period, due to a decrease in professional fees, bad debt expense and tax expense.

Realized and Unrealized Gain (Loss)

The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the six months ended September 30, 2023 and 2022 were as follows:

Six Months Ended September 30, 2023

The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the nine months ended December 31, 2023 and 2022 were as follows:

Nine Months Ended December 31, 2023

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

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Nth Degree Investment Group, LLC — 15,951 — 15,951

Mason West, LLC — 11,690 — 11,690

Educators Resource, Inc.

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— 9,630 — 9,630

Mason West, LLC — 9,206 — 9,206

SFEG Holdings, Inc.

— 7,325 — 7,325

The Maids International, LLC — 3,747 — 3,747

Galaxy Technologies Holdings, Inc.

Dema/Mai Holdings, Inc.

— 3,780 — 3,780

Nocturne Luxury Villas, Inc.

Galaxy Technologies Holdings, Inc.

— 3,539 — 3,539

The Maids International, LLC — 3,190 — 3,190

Utah Pacific Bridge & Steel, Ltd.

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Gladstone SOG Investments, Inc 882 — (93) 789

PSI Molded Plastics, Inc.

— (1,234) — (1,234)

Dema/Mai Holdings, Inc.

- Atlanta, LLC — (741) — (741)

Nocturne Luxury Villas, Inc.

— (806) — (806)

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273 (1,394) — (1,121)

B+T Group Acquisition, Inc.

Diligent Delivery Systems — (1,207) — (1,207)

Home Concepts Acquisition, Inc.

— (1,565) — (1,565)

PSI Molded Plastics, Inc.

— (5,635) — (5,635)

Horizon Facilities Services, Inc.

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— (9,071) — (9,071)

B+T Group Acquisition, Inc.

— (10,107) — (10,107)

Other, net (<$1.0 million, net) 291 (313) — (22)

Total $ 44,905 $ 45,050 $ (43,659) $ 46,296

Six Months Ended September 30, 2022

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.

— 6,495 — 6,495

Old World Christmas, Inc.

Dema/Mai Holdings, Inc.

— 3,877 — 3,877

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— 3,505 — 3,505

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 Gorup, Inc.

Educators Resources, Inc.

— (1,614) — (1,614)

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

PSI Molded Plastics, Inc.

— (2,976) — (2,976)

Ginsey Home Solutions, Inc.

— (3,263) — (3,263)

Edge Adhesives Holdings, Inc.

ImageWorks Display and Marketing Group, Inc.

— (3,273) — (3,273)

Galaxy Technologies Holdings, Inc.

— (4,804) — (4,804)

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

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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Net Realized Gain (Loss)

During the six months ended September 30, 2023, we recorded net realized gains on investments of $1.4 million, primarily due to $1.2 million of realized gains related to certain prior period exits and $0.3 million of realized gain from the recapitalization of Old World.

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 nine months ended December 31, 2023, we recorded net realized gains on investments of $44.9 million, primarily due to a $43.5 million realized gain from the exit of Counsel Press, $1.2 million of realized gains related to certain prior period exits and $0.3 million of realized gain from the recapitalization of Old World.

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.

Net Unrealized Appreciation (Depreciation)

Net unrealized appreciation of investments of $47.9 million for the six months ended September 30, 2023 was primarily due to increased performance of certain of our portfolio companies and an increase in transaction multiples used to estimate the fair value of certain of our portfolio companies, in addition to increased fair value as a result of expected payoff amounts for certain investments.

These increases were partially offset by decreased performance of certain of our other portfolio companies.

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.

Net unrealized appreciation of investments of $1.4 million for the nine months ended December 31, 2023 was primarily due to increased performance of certain of our portfolio companies and an increase in transaction multiples used to estimate the fair value of certain of our portfolio companies.

These increases were partially offset by a reversal of unrealized appreciation of Counsel Press upon exit and decreased performance of certain of our other portfolio companies.

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.

Across our entire investment portfolio, we recorded net unrealized appreciation of $45.0 million on our equity positions and appreciation of $2.9 million on our debt positions , for the six months ended September 30, 2023 .

As of September 30, 2023 , the fair value of our investment portfolio was more than the cost basis by $80.8 million , as compared to March 31, 2023, when the fair value of our investment portfolio was more than the cost basis by $32.9 million, representing net unrealized appreciation of $48.0 million for the six months ended September 30, 2023 .

Our entire portfolio had a fair value of 109.7% of cost as of September 30, 2023 .

Across our entire investment portfolio, we recorded net unrealized appreciation of $11.1 million on our equity positions and depreciation of $9.7 million on our debt positions , for the nine months ended December 31, 2023 .

As of December 31, 2023 , the fair value of our investment portfolio was more than the cost basis by $34.3 million , as compared to March 31, 2023, when the fair value of our investment portfolio was more than the cost basis by $32.9 million, representing net unrealized appreciation of $1.4 million for the nine months ended December 31, 2023 .

Our entire portfolio had a fair value of 103.9% of cost as of December 31, 2023 .

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Net cash used in operating activities for the six months ended September 30, 2023 was $96.6 million, compared to net cash used in operating activities of $9.4 million for the six months ended September 30, 2022.

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

Purchases of investments were $114.8 million during the six months ended September 30, 2023, compared to $102.0 million during the six months ended September 30, 2022.

Net proceeds from the sale and recapitalization of investments totaled $1.8 million during the six months ended September 30, 2023, compared to aggregate net proceeds from the sale and recapitalization of investments and principal repayments of investments of $69.7 million during the six months ended September 30, 2022.

As of September 30, 2023, we had equity investments in and/or loans to 26 portfolio companies with an aggregate cost basis of $834.8 million.

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.

The following table summarizes our total portfolio investment activity during the six months ended September 30, 2023 and 2022:

Six Months Ended September 30,

Net cash used in operating activities for the nine months ended December 31, 2023 was $75.7 million compared to net cash used in operating activities of $13.4 million for the nine months ended December 31, 2022.

This change was primarily due to an increase in purchases of investments.

Purchases of investments were $183.0 million during the nine months ended December 31, 2023, compared to $133.5 million during the nine months ended December 31, 2022.

Aggregate net proceeds from the sale and recapitalization of investments totaled $79.7 million during the nine months ended December 31, 2023, compared to $85.8 million during the nine months ended December 31, 2022.

As of December 31, 2023, we had equity investments in and/or loans to 25 portfolio companies with an aggregate cost basis of $868.5 million.

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.

The following table summarizes our total portfolio investment activity during the nine months ended December 31, 2023 and 2022:

Nine Months Ended December 31,

Beginning investment portfolio, at fair value $ 753,543 $ 714,396

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Unscheduled principal repayments (A)

(27,500) (55,398)

Net proceeds from sale and recapitalization of investments (52,228) (35,533)

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Ending investment portfolio, at fair value $ 902,808 $ 760,463

(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, 2023:

For the remaining six months ending March 31, 2024

(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, 2023:

For the remaining three months ending March 31, 2024

For the fiscal years ending March 31:

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Investments in equity securities 202,807

Total cost basis of investments held as of September 30, 2023:

Total cost basis of investments held as of December 31, 2023:

Financing Activities

Net cash provided by financing activities for the six months ended September 30, 2023 was $95.9 million, which consisted primarily of $74.8 million of gross proceeds from the issuance of our 8.00% 2028 Notes, $44.1 million of net borrowings under the Credit Facility and $4.1 million proceeds from issuance of common stock, net of expenses and shelf offering registration costs, partially offset by $24.3 million in distributions to common stockholders and $2.7 million of deferred financing and offering costs.

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 nine months ended December 31, 2023 was $76.1 million, which consisted primarily of $74.8 million of gross proceeds from the issuance of our 8.00% 2028 Notes, $47.4 million of net borrowings under the Credit Facility and $25.0 million proceeds from issuance of common stock, net of expenses and shelf offering registration costs, partially offset by $67.4 million in distributions to common stockholders and $3.7 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.

Distributions and Dividends to Stockholders

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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 $0.08 per common share for each of the six months from April through September 2023, and supplemental distributions of $0.12 per common share in June and September 2023.

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

In accordance with these requirements, our Board of Directors declared, and we paid, monthly cash distributions of $0.08 per common share for each of the nine months from April through December 2023, and supplemental distributions of $0.12 per common share in June, September, and November 2023 and $0.88 per common share in December 2023.

See also “ Recent Developments - Distributions and Dividends ” for a discussion of cash distributions to common stockholders declared by our Board of Directors in January 2024.

For the fiscal year ended March 31, 2023, Investment Company Taxable Income exceeded distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $21.4 million of the first distributions paid subsequent to fiscal year-end as having been paid in the prior year.

1 unchanged sentence

For the year ended March 31, 2023, we recorded $1.6 million of net adjustments for estimated permanent book-tax differences to reflect tax character, 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 six months ended September 30, 2023, we recorded $0.1 million of net adjustments for estimated permanent book-tax differences to reflect tax character, which increased Capital in excess of par value and Overdistributed net investment income and decreased Accumulated net realized gain in excess of distributions .

For the nine months ended December 31, 2023, we recorded $0.4 million of net adjustments for estimated permanent book-tax differences to reflect tax character, which increased Overdistributed net investment income and decreased Accumulated net realized gain in excess of distributions and Capital in excess of par value .

Dividend Reinvestment Plan

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as a Sales Agent for the Common Stock ATM Program.

As of September 30, 2023, we had remaining capacity to sell up to an additional $40.4 million of common stock under the Common Stock ATM program.

During the three and six months ended September 30, 2023, we sold 304,170 shares of our common stock under the Common Stock ATM Program at a weighted-average gross price of $13.55 per share, raising approximately $4.1 million of gross proceeds.

The weighted-average net price per share, after deducting commissions and offering costs borne by us, was $13.35 and resulted in total net proceeds of approximately $4.1 million.

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

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.

The weighted-average net price per share, after deducting commissions and offering costs borne by us, was $15.59 and resulted in total net proceeds of approximately $0.5 million.

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

As of December 31, 2023, we had remaining capacity to sell up to an additional $19.3 million of common stock under the Common Stock ATM program.

During the three months ended December 31, 2023, we sold 1,456,279 shares of our common stock under the Common Stock ATM Program, with a weighted-average gross price of $14.51 per share and a weighted-average net price of $14.28 per share after deducting commissions and offering costs borne by us, raising approximately $21.1 million and $20.8 million of gross and net proceeds, respectively.

During the nine months ended December 31, 2023, we sold 1,760,449 shares of common stock under the Common Stock ATM Program, with a weighted-average gross price of $14.34 per share and a weighted-average net price of $14.12 per share after deducting commissions and offering costs borne by us, raising approximately $25.3 million and $24.9 million of gross and net proceeds, respectively.

All of these sales were above our then current estimated NAV per share.

During the three months ended December 31, 2022, we sold 212,338 shares of common stock under the Common Stock ATM Program, with a weighted-average gross price of $14.11 per share and a weighted-average net price of $13.91 per share after deducting commissions and offering costs borne by us, raising approximately $3.0 million of gross and net proceeds.

During the nine months ended December 31, 2022, we sold 241,978 shares of common stock under the Common Stock ATM Program, with a weighted-average gross price of $14.31 per share and a weighted-average net price of $14.11 per share after deducting commissions and offering costs borne by us, raising approximately $3.5 million and $3.4 million of gross and net proceeds, respectively.

All of these sales were above our then current estimated NAV per share.

Subsequent to December 31, 2023 and through February 6, 2024, we sold 538,206 shares of our common stock under our Common Stock ATM Program at a weighted-average gross price of $14.53 per share and raised approximately $7.7 million in net proceeds.

All of 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, 2023, the closing market price of our common stock was $ 12.74 per share, representing a 9.2 % discount to our NAV per share of $ 14.03 as of September 30, 2023.

As of December 31, 2023, the closing market price of our common stock was $ 14.15 per share, representing a 8.8 % premium to our NAV per share of $ 13.01 as of December 31, 2023.

Revolving Line of Credit

On October 30, 2023, we, through our wholly-owned subsidiary, Business Investment, entered into Amendment No.

8 to the Credit Facility with KeyBank as administrative agent, lead arranger, managing agent and lender, the Adviser, as servicer, and certain other lenders party thereto.

Among other things, the revolving period was extended to October 30, 2026, and if not renewed or extended by such date, all principal and interest will be due and payable by October 30, 2028 ( two years after the revolving period end date).

Advances under the Credit Facility generally bear interest at 30-day Term SOFR, subject to a floor of 0.35 %, plus 3.15 % per annum until October 30, 2026, with the margin then increasing to 3.40 % for the period from October 30, 2026 to October 30, 2027, and increasing further to 3.65 % thereafter with a SOFR credit spread adjustment of 10 basis points.

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

The size of the Credit Facility was reduced from $ 180.0 million to $ 135.0 million.

Previously, on April 10, 2023, we, through our wholly-owned subsidiary, Business Investment, entered into Amendment No.

7 to the Credit Facility with KeyBank National Association (“KeyBank”) as administrative agent, lead arranger, managing agent and lender, the Adviser, as servicer, and certain other lenders party thereto.

7 to the Credit Facility with KeyBank as administrative agent, lead arranger, managing agent and lender, the Adviser, as servicer, and certain other lenders party thereto.

The reference rate was updated from LIBOR to Term SOFR plus an 11 basis point credit spread adjustment.

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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, 2023, advances under the Credit Facility generally bore interest at 30-day SOFR, subject to a floor of 0.35 %, plus 2.85 % per annum until February 29, 2024, with the margin then increasing to 3.10 % for the period from February 29, 2024 to February 28, 2025, and increasing further to 3.35 % thereafter with a SOFR credit spread adjustment of 11 basis points.

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, 2023, we had $ 79.3 million borrowings outstanding on the Credit Facility and as of the date of this report, we had $68.8 million outstanding under the Credit Facility.

At December 31, 2023, we had $ 82.6 million borrowings outstanding on the Credit Facility and as of the date of this report, we had $77.3 million outstanding under the Credit Facility.

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

6 unchanged sentences

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 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 $ 328.5 million as of September 30, 2023, (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, 2023, and as defined in the performance guaranty of the Credit Facility, we had a net worth of $ 805.9 million, asset coverage on our senior securities representing indebtedness of 211.5 %, 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 September 30, 2023, we had availability, after adjustments for various constraints based on collateral quality, of $ 100.7 million under the Credit Facility and were in compliance with all covenants under the Credit Facility.

Additionally, the Credit Facility contains a performance guaranty that requires the Company to maintain (i) a minimum net worth 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 $ 339.0 million as of December 31, 2023, (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, 2023, and as defined in the performance guaranty of the Credit Facility, we had a net worth of $ 789.8 million, asset coverage on our senior securities representing indebtedness of 206.9 %, 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, 2023, we had availability, after adjustments for various constraints based on collateral quality, of $ 52.4 million under the Credit Facility and were in compliance with all covenants under the Credit Facility.

See " Recent Developments - Revolving Line of Credit ".

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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, 2023 and March 31, 2023, we had unrecognized, contractual off-balance sheet success fee receivables of $59.8 million and $53.6 million (or approximately $1.76 and $1.60 per common share), respectively, on our debt investments.

As a result, as of December 31, 2023 and March 31, 2023, we had unrecognized, contractual off-balance sheet success fee receivables of $61.8 million and $53.6 million (or approximately $1.75 and $1.60 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 commitments have expiration dates and we expect many will never be fully drawn, the total line of credit commitment amounts do not necessarily represent future cash requirements.

We estimate the fair value of the combined unused line of credit commitments as of September 30, 2023 to be insignificant.

The following table shows our contractual obligations as of September 30, 2023, at cost:

We estimate the fair value of the combined unused line of credit commitments as of December 31, 2023 to be insignificant.

The following table shows our contractual obligations as of December 31, 2023, at cost:

Payments Due by Period

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(C) Includes interest payments due on the Credit Facility, 5.00% 2026 Notes, 4.875% 2028 Notes and 8.00% 2028 Notes, as applicable.

The amount of interest payments calculated for purposes of this table was based upon rates and outstanding balances as of September 30, 2023.

The amount of interest payments calculated for purposes of this table was based upon rates and outstanding balances as of December 31, 2023.

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, 2023 and March 31, 2023:

Rating September 30, 2023 March 31, 2023

The following table reflects risk ratings for all loans in our portfolio as of December 31, 2023 and March 31, 2023:

Rating December 31, 2023 March 31, 2023

Weighted-average

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Our policy generally is to make distributions to our stockholders in an amount up to 100% of Investment Company Taxable Income.

We may retain some or all of our net long-term capital gains, if any, and designate them as deemed distributions, or distribute such gains to stockholders in cash.

We may retain some or all of our net long-term capital gains, if any, and designate

them as deemed distributions, or distribute such gains to stockholders in cash.

See “ — Liquidity and Capital Resources — Distributions and Dividends to Stockholders .

2 unchanged sentences

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, 2023 and March 31, 2023.

Our capital loss carryforward balance was $0 as of both December 31, 2023 and March 31, 2023.

Recent Accounting Pronouncements

1 unchanged sentence

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