What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-08-05 compared with 2024-02-06 · 129 added, 349 removed, 304 unchanged (61% of the section changed)

4 unchanged sentences

Such factors include:

(1) changes in the economy and the capital markets;

(1) changes in the economy and the capital markets, including stock price volatility, inflation, elevated interest rates and risks of recession;

(2) risks associated with negotiation and consummation of pending and future transactions;

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(5) availability, terms (including the possibility of interest rate volatility) and deployment of capital;

(6) changes in our industry, interest rates, exchange rates, regulation, or the general economy, including inflation;

(6) changes in our industry, interest rates, exchange rates, or the general economy, including inflation;

(7) our business prospects and the prospects of our portfolio companies;

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We were incorporated under the General Corporation Law of the State of Delaware on February 18, 2005.

On June 22, 2005, we completed our initial public offering and commenced operations.

We operate as an externally managed, closed-end, non-diversified management investment company and have elected to be treated as a BDC under the Investment Company Act of 1940, as amended (the “1940 Act”).

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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 December 31, 2023, our investment portfolio was comprised of 76.6% in debt investments and 23.4% in equity investments, at cost.

As of June 30, 2024, our investment portfolio was comprised of 77.0% in debt investments and 23.0% 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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We seek to avoid investing in high-risk, early-stage enterprises.

Our targeted portfolio companies are generally considered too small for the larger capital marketplace.

We invest by ourselves or jointly with other funds and/or management of the portfolio company, depending on the opportunity.

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Our shares of common stock, our 5.00% Notes due 2026 (“5.00% 2026 Notes”), our 4.875% Notes due 2028 ("4.875% 2028 Notes") and our 8.00% Notes due 2028 (“8.00% 2028 Notes”) are traded on the Nasdaq Global Select Market (“Nasdaq”) under the trading symbols “GAIN,” “GAINN,” "GAINZ" and “GAINL,” respectively.

Portfolio Activity

Portfolio and Investment Activity

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 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.

During the three months ended June 30, 2024, we exited one portfolio company.

From our initial public offering in June 2005 through June 30, 2024, 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 December 31, 2023, we had unrecognized, contractual success fees of $61.8 million, or $1.75 per common share.

As a result, as of June 30, 2024, we had unrecognized, contractual success fees of $46.8 million, or $1.28 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 December 31, 2023, we completed sales of 30 portfolio companies that we acquired under our buyout strategy (which excludes investments in syndicated loans).

From inception through June 30, 2024, we exited our investments of 32 portfolio companies that we acquired under our buyout strategy (which excludes investments in syndicated loans).

In the aggregate, these sales have generated $290.2 million in net realized gains and $41.8 million in other income upon exit, for a total increase to our net assets of $332.0 million.

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The 32 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 December 31, 2023, and allowed us to declare and pay 22 supplemental distributions to common stockholders from March 2012 through December 31, 2023.

The successful exits, in part, enabled us to increase the monthly distribution run rate by 100.0% from March 2011 through June 30, 2024, and allowed us to declare and pay 22 supplemental distributions to common stockholders from March 2012 through June 30, 2024.

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 $200.0 million (with a potential total commitment of $300.0 million through additional commitments from new or existing lenders).

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.

During the year ended March 31, 2024, we issued the 8.00% 2028 Notes for gross proceeds of $74.8 million and sold 3,097,162 shares of our common stock under our common stock "at-the-market" program ("2022 Common Stock ATM Program") for gross proceeds of approximately $44.5 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 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 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.

On June 30, 2024, the closing market price of our common stock was $ 13.98 per share, representing a 7.5 % premium to our net asset value (“NAV”) of $ 13.01 per share as of June 30, 2024.

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

As of June 30, 2024, our asset coverage ratio on our senior securities representing indebtedness was 216.3%.

Investment Highlights

Investment Activity

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.

("Home Concepts"), in the form of $12.0 million of secured first lien debt and $3.3 million of preferred equity.

Home Concepts, headquartered in Santa Barbara, California, is a leading home improvement advertising publication focusing on connecting homeowners to high-quality residential repair and remodeling businesses.

• In June 2023, we recapitalized our existing investment in Old World Christmas, Inc.

("Old World") and invested an additional $2.5 million in the form of secured first lien debt.

In connection with this investment, we received proceeds of $2.2 million, of which $1.9 million was recognized as dividend income and $0.3 million was recognized as a realized gain.

• In June 2023, we invested an additional $30.0 million in the form of $25.0 million of secured second lien debt and $5.0 million of common equity in Nth Degree Investment Group, LLC to fund an add-on acquisition.

• In June 2023, we received a $1.5 million escrow settlement in connection with our December 2021 exit of SOG Specialty Knives & Tools, LLC, of which $0.6 million was recognized as a return of cost basis and $0.9 million as a realized gain.

As a result of the escrow release, there are no remaining assets held by Gladstone SOG Investments, Inc.

• In August 2023, we invested an additional $18.7 million in the form of secured first lien debt in Nocturne Villa Rentals, Inc.

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

• In September 2023, we invested $46.0 million in a new portfolio company, The E3 Company, LLC ("E3"), in the form of $34.8 million of secured first lien debt and $11.2 million of preferred equity.

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

• 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.

("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.

During the three months ended June 30, 2024, the following significant transactions occurred:

• In May 2024, our remaining shares in Funko Acquisition Holdings, LLC ("Funko") were sold, representing an exit of our investment in Funko, and resulting in a return of our equity cost basis of $21 thousand and a realized gain of $2 thousand.

Recent Developments

Investment Activity

• In July 2024, we invested an additional $18.5 million through secured first lien debt in Nocturne Luxury Villas, Inc.

to fund an add-on acquisition.

Distributions and Dividends

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

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

Payment Date Distribution per Common Share

January 23, 2024 January 31, 2024 $ 0.08

February 21, 2024 February 29, 2024 0.08

March 21, 2024 March 29, 2024 0.08

July 22, 2024 July 31, 2024 $ 0.08

August 21, 2024 August 30, 2024 0.08

September 20, 2024 September 30, 2024 0.08

Total for the Quarter:

Revolving Line of Credit

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

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.

We experienced minimal impacts on our operations as a result of the transition to SOFR.

Impact of Inflation

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

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.

Notwithstanding the results to date, we expect that the cumulative effect of these inflationary pressures may impact the profit margins or sales of certain portfolio companies and their ability to service their debts.

We continue to monitor the current inflationary environment to anticipate any impact on our portfolio companies, including their availability to pay interest on our loans.

We cannot assure you that our results of operations and financial condition or that of our portfolio companies will not be materially impacted by inflation in the future.

RESULTS OF OPERATIONS

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

For the Three Months Ended December 31,

Comparison of the Three Months Ended June 30, 2024 to the Three Months Ended June 30, 2023

For the Three Months Ended June 30,

2024 2023 $ Change % Change

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Loan servicing fee 2,222 2,172 50 2.3 %

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

Incentive fee (3,788) 2,194 (5,982) NM

Administration fee 506 522 (16) (3.1) %

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REALIZED AND UNREALIZED GAIN (LOSS)

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

Net realized gain 2 1,155 (1,153) (99.8) %

Net unrealized (depreciation) appreciation (18,942) (809) (18,133) NM

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Net investment income $ 0.34 $ 0.25 $ 0.09 36.0 %

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

Net increase in net assets resulting from operations $ (0.18) $ 0.26 $ (0.44) NM

NM - Not meaningful

Investment Income

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 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.

Total investment income increased $1.9 million, or 9.3%, for the three months ended June 30, 2024, 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 $2.2 million, or 12.1%, for the three months ended June 30, 2024, as compared to the prior year period.

Generally, the level of interest income from investments is directly related to the weighted-average 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 June 30, 2024 was $571.0 million, compared to $495.3 million for the prior year period.

This increase was primarily due to the $92.4 million of follow-on debt investments in existing portfolio companies and the origination of $46.8 million of new debt investments after March 31, 2023, partially offset by $31.0 million of pay-offs, restructurings, or write-offs of debt investments and $27.0 million of loans placed on non-accrual status after March 31, 2023, 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 14.5% for the three months ended June 30, 2024, compared to 14.7% 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 December 31, 2023, our loans to Edge Adhesives Holdings, Inc.

("Edge"), J.R.

As of June 30, 2024, certain of our loans to B+T Group Acquisition, Inc., Diligent Delivery Systems, Edge Adhesives Holdings, Inc.

("Edge"), and J.R.

– Atlanta, LLC ("J.R.

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

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.

Hobbs") were on non-accrual status, with an aggregate debt cost basis of $86.1 million.

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

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

As of June 30, 2024, SFEG Holdings, Inc.

("SFEG") represented 10.3% of the total investment portfolio at fair value.

As of March 31, 2024, SFEG represented 10.1% of the total investment portfolio at fair value.

Dividend and success fee income for the three months ended June 30, 2024 decreased $0.4 million, or 18.6%, from the prior year period.

During the three months ended June 30, 2024, dividend and success fee income consisted of $1.6 million of success fee income.

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

Total expenses, net of any non-contractual, unconditional, and irrevocable credits from the Adviser, decreased $2.1 million, or 17.7%, during the three months ended June 30, 2024, as compared to the prior year period, primarily due to a decrease in incentive fees, partially offset by an increase in interest expense, other expense and base management fee expense and a decrease in credits from the Adviser.

In accordance with GAAP, during the three months ended June 30, 2024, we recorded a $3.8 million reversal of previously accrued capital gains-based incentive fee compared to a capital gains-based incentive fee of $0.1 million during the three months ended June 30, 2023.

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 $0.2 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 income-based incentive fee decreased by $2.1 million, for the three months ended June 30, 2024, 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 December 31,

Three Months Ended June 30,

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 $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.

Interest expense increased $1.5 million, or 30.3%, during the three months ended June 30, 2024, 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 June 30, 2024 was $64.7 million, compared to $43.6 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 June 30, 2024 was 10.8%, as compared to 11.2% 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 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.

Other expenses increased $1.0 million, or 100.6%, during the three months ended June 30, 2024, as compared to the prior year period, due to an increase in bad debt expense.

Realized and Unrealized Gain (Loss)

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

The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the three months ended June 30, 2024 and 2023 were as follows:

Three Months Ended June 30, 2024

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

Dema/Mai Holdings, Inc.

$ — $ 5,655 $ — $ 5,655

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

Educators Resources, Inc.

— 2,229 — 2,229

Brunswick Bowling Products, Inc.

— 1,319 — 1,319

ImageWorks Display and Marketing Group, Inc.

— 1,205 — 1,205

Counsel Press, Inc.

43,459 — (43,566) (107)

Horizon Facilities Service, Inc.

— (1,204) — (1,204)

Home Concepts Acquisition, Inc.

— (1,565) — (1,565)

Nocturne Villas Rentals, Inc.

— (2,420) — (2,420)

Mason West, LLC — (2,484) — (2,484)

PSI Molded Plastics, Inc.

— (4,401) — (4,401)

B+T Group Acquisition, Inc.

UPB Acquisition, Inc.

$ — $ 3,967 $ — $ 3,967

Other, net (<$1.0 million, net) 2 235 — 237

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

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.

Ginsey Home Solutions, Inc.

— 3,475 — 3,475

Mason West, LLC — 5,281 — 5,281

The E3 Company, LLC — 2,646 — 2,646

Old World Christmas, Inc.

2 unchanged sentences

— 1,073 — 1,073

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

Schylling, Inc.

— 2,977 — 2,977

PSI Molded Plastics, Inc.

— (876) — (876)

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

ImageWorks Display and Marketing Group, Inc.

— (920) — (920)

Educators Resources, Inc.

Edge Adhesives Holdings, Inc.

— (1,443) — (1,443)

- Atlanta, LLC — (2,398) — (2,398)

Galaxy Technologies Holding, Inc.

Phoenix Doors Systems, Inc.

— (1,678) — (1,678)

B+T Group Acquisition, Inc.

Nocturne Luxury Villas, Inc.

— (1,719) — (1,719)

Nocturne Villas Rentals, Inc.

ImageWorks Display and Marketing Group, Inc.

— (2,607) — (2,607)

1 unchanged sentence

— (6,411) — (6,411)

Nth Degree Investment Group, LLC — (7,195) — (7,195)

Mason West, LLC — (9,201) — (9,201)

Other, net (<$1.0 million, net) 2 (508) 4 (502)

Total $ 2 $ (18,946) $ 4 $ (18,940)

Net Realized Gain (Loss)

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 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 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

INVESTMENT INCOME

Interest income $ 60,369 $ 43,045 $ 17,324 40.2 %

Dividend and success fee income 3,289 18,641 (15,352) (82.4) %

Total investment income 63,658 61,686 1,972 3.2 %

Base management fee 12,874 10,965 1,909 17.4 %

Loan servicing fee 6,829 5,754 1,075 18.7 %

Incentive fee 15,401 7,722 7,679 99.4 %

Administration fee 1,306 1,352 (46) (3.4) %

Interest expense 17,598 11,715 5,883 50.2 %

Amortization of deferred financing costs and discounts 1,708 1,350 358 26.5 %

Other 3,434 4,357 (923) (21.2) %

Expenses before credits from Adviser 59,150 43,215 15,935 36.9 %

Credits to fees from Adviser (11,946) (8,885) (3,061) 34.5 %

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

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

REALIZED AND UNREALIZED GAIN (LOSS)

Net realized gain 44,905 10,598 34,307 323.7 %

Net unrealized appreciation (depreciation) 1,362 (7,065) 8,427 NM

Net realized and unrealized gain (loss) 46,267 3,533 42,734 NM

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 62,721 $ 30,889 $ 31,832 103.1 %

WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING

Basic and diluted 33,921,300 33,246,811 674,489 2.03 %

BASIC AND DILUTED PER COMMON SHARE:

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 %

NM = Not Meaningful

Investment Income

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 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 14.5% for the nine months ended December 31, 2023, compared to 12.5% for the prior year period.

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 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 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 $0.9 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.

Nine Months Ended December 31,

Average total assets subject to base management fee (A)

$ 858,267 $ 731,000

Multiplied by prorated annual base management fee of 2.0% 1.5 % 1.5 %

Base management fee (B)

$ 12,874 $ 10,965

Credits to fees from Adviser - other (B)

(5,117) (3,131)

Net base management fee $ 7,757 $ 7,834

Loan servicing fee (B)

$ 6,829 $ 5,754

Credits to base management fee - loan servicing fee (B)

(6,829) (5,754)

Net loan servicing fee $ — $ —

Incentive fee – income-based $ 6,142 $ 7,016

Incentive fee – capital gains-based (C)

Total incentive fee (B)

$ 15,401 $ 7,722

Credits to fees from Adviser - other (B)

Net total incentive fee $ 15,401 $ 7,722

(A) Average total assets subject to the base management fee is defined in the Advisory Agreement as total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued at the end of the applicable quarters within the respective periods and adjusted appropriately for any share issuances or repurchases during the periods.

(B) Reflected as a line item on our Consolidated Statements of Operations .

(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 $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 $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 nine months ended December 31, 2023 and 2022 were as follows:

Nine Months Ended December 31, 2023

Three Months Ended June 30, 2023

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

Counsel Press, Inc.

$ 43,459 $ 22,676 $ (43,566) $ 22,569

Nth Degree Investment Group, LLC $ — $ 7,051 $ — $ 7,051

Educators Resource, Inc.

— 12,792 — 12,792

Brunswick Bowling Products, Inc.

Galaxy Technologies Holdings, Inc.

— 3,481 — 3,481

Mason West, LLC — 9,206 — 9,206

SFEG Holdings, Inc.

— 2,986 — 2,986

Dema/Mai Holdings, Inc.

Mason West, LLC — 2,945 — 2,945

Brunswick Bowling Products, Inc.

— 2,598 — 2,598

Galaxy Technologies Holdings, Inc.

Nocturne Luxury Villas, Inc.

— 2,472 — 2,472

The Maids International, LLC — 1,946 — 1,946

Utah Pacific Bridge & Steel, Ltd.

— 1,833 — 1,833

Ginsey Home Solutions, Inc.

Educators Resources, Inc.

— 1,021 — 1,021

Gladstone SOG Investments, Inc 882 — (93) 789

- Atlanta, LLC — (741) — (741)

Nocturne Luxury Villas, Inc.

Counsel Press Inc.

— 1,009 — 1,009

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273 (2,169) — (1,896)

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.

— (6,963) — (6,963)

Schylling, Inc.

— (8,546) — (8,546)

ImageWorks Display and Marketing Group, Inc.

— (9,071) — (9,071)

B+T Group Acquisition, Inc.

— (2,187) — (2,187)

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

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

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.

2,218 5,461 — 7,679

Nocturne Villa Rentals, Inc.

— 4,635 — 4,635

Dema/Mai Holdings, Inc.

— 3,877 — 3,877

SFEG Holdings, Inc.

— 3,505 — 3,505

Mason West, LLC — 3,343 — 3,343

Counsel Press, Inc.

Horizon Facilities Services, Inc.

— (5,915) — (5,915)

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— (6,954) — (6,954)

Utah Pacific Bridge & Steel, Ltd.

— (1,206) — (1,206)

Educators Resources, Inc.

— (1,614) — (1,614)

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

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

Ginsey Home Solutions, Inc.

— (3,263) — (3,263)

ImageWorks Display and Marketing Group, Inc.

— (8,884) — (8,884)

Galaxy Technologies Holdings, Inc.

— (4,804) — (4,804)

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

Bassett Creek Services, Inc.

5,188 — (12,250) (7,062)

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

– Atlanta, LLC — (13,966) — (13,966)

Other, net (<$1.0 million, net) 882 (127) (93) 662

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Net Realized Gain (Loss)

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.

During the three months ended June 30, 2024, we recorded net realized gains on investments of $2 thousand, primarily due to the realized gain from the exit of Funko.

During the three months ended June 30, 2023, we recorded net realized gains on investments of $1.2 million, primarily due to $0.9 million of realized gains related to a prior period exit and a $0.3 million realized gain from the recapitalization of Old World Christmas, Inc.

Net Unrealized Appreciation (Depreciation)

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 $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 .

Net unrealized depreciation of investments of $18.9 million for the three months ended June 30, 2024 was primarily due to 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 depreciation of investments of $0.8 million for the three months ended June 30, 2023 was primarily due to decreased performance of certain of our portfolio companies.

These amounts were partially offset by increased performance of certain of our other portfolio companies and an increase in transaction multiples used to estimate the fair value of certain of our portfolio companies.

Across our entire investment portfolio, we recorded net unrealized depreciation of $10.1 million on our debt positions and net unrealized depreciation of $8.8 million on our equity positions for the three months ended June 30, 2024 .

As of June 30, 2024 , the fair value of our investment portfolio was more than the cost basis by $47.3 million, as compared to March 31, 2024, when the fair value of our investment portfolio was more than the cost basis by $66.2 million, representing net unrealized depreciation of $18.9 million for the three months ended June 30, 2024 .

Our entire portfolio had a fair value of 105.5% of cost as of June 30, 2024 .

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

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,

Net cash provided by operating activities for the three months ended June 30, 2024 was $12.3 million compared to net cash used in operating activities of $36.4 million for the three months ended June 30, 2023.

This change was primarily due to a decrease in purchases of investments.

Purchases of investments were $0.6 million during the three months ended June 30, 2024, compared to $48.0 million during the three months ended June 30, 2023.

Aggregate net proceeds from the sale and recapitalization of investments totaled $3.0 million during the three months ended June 30, 2024, compared to $1.8 million during the three months ended June 30, 2023.

As of June 30, 2024, we had equity investments in and/or loans to 23 portfolio companies with an aggregate cost basis of $851.9 million.

As of June 30, 2023, we had equity investments in and/or loans to 25 portfolio companies with an aggregate cost basis of $768.0 million.

The following table summarizes our total portfolio investment activity during the three months ended June 30, 2024 and 2023:

Three Months Ended June 30,

Beginning investment portfolio, at fair value $ 920,504 $ 753,543

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Disbursements to existing portfolio companies 598 32,700

Unscheduled principal repayments (A)

(27,500) (55,398)

Unscheduled principal repayments (3,000) —

Net proceeds from sale and recapitalization of investments (24) (1,775)

Net realized gain on investments 2 1,155

Net unrealized appreciation (depreciation) of investments 45,050 (4,801)

Reversal of net unrealized appreciation of investments (43,659) (2,264)

Amortization of premiums, discounts, and acquisition costs, net — 12

Net unrealized depreciation of investments (18,946) (727)

Reversal of net unrealized depreciation (appreciation) of investments 4 (93)

Ending investment portfolio, at fair value $ 899,138 $ 800,078

(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

The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments, as of June 30, 2024:

For the remaining nine months ending March 31, 2025

For the fiscal years ending March 31:

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Investments in equity securities 195,886

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

Total cost basis of investments held as of June 30, 2024:

Financing Activities

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.

Net cash used in financing activities for the three months ended June 30, 2024 was $12.4 million, which consisted primarily of $8.8 million in distributions to common stockholders, $3.3 million of net repayments under the Credit Facility and $0.2 million of deferred financing and offering costs.

Net cash provided by financing activities for the three months ended June 30, 2023 was $71.0 million, which consisted primarily of $74.8 million of gross proceeds from the issuance of our 8.00% 2028 Notes and $11.0 million of net borrowings under the Credit Facility, partially offset by $12.1 million in distributions to common stockholders and $2.7 million of deferred financing and offering costs.

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 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.

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 three months from April through June 2024.

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

For the fiscal year ended March 31, 2024, Investment Company Taxable Income exceeded distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $18.7 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, 2024, net capital gains exceeded distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $1.4 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, 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 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 .

For the year ended March 31, 2024, we recorded $0.8 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.

For the three months ended June 30, 2024, we recorded $0.2 million of net adjustments for estimated permanent book-tax differences to reflect tax character, which increased Overdistributed net investment income and decreased Capital in excess of par value .

Dividend Reinvestment Plan

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Registration Statement

On February 28, 2024, we filed a registration statement on Form N-2 (File No.

333-277452), which the SEC declared effective on April 18, 2024.

The registration statement permits us to issue, through one or more transactions, up to an aggregate of $450.0 million in securities, consisting of common stock, preferred stock, subscription rights, debt securities, and warrants to purchase common stock, preferred stock, or debt securities, including through concurrent, separate offerings of such securities.

As of the date of this report, we have the ability to issue all $450.0 million of the securities registered under the registration statement.

On September 3, 2021, we filed a registration statement on Form N-2 (File No.

333-259302), which the SEC declared effective on October 15, 2021.

The registration statement permits us to issue, through one or more transactions, up to an aggregate of $300.0 million in securities, consisting of common stock, preferred stock, subscription rights, debt securities, and warrants to purchase common stock, preferred stock, or debt securities, including through concurrent, separate offerings of such securities.

As of the date of this report, we have the ability to issue up to $194.5 million of the $300.0 million of securities registered under the registration statement.

The registration statement permitted us to issue, through one or more transactions, up to an aggregate of $300.0 million in securities, consisting of common stock, preferred stock, subscription rights, debt securities, and warrants to purchase common stock, preferred stock, or debt securities, including through concurrent, separate offerings of such securities.

This registration statement was terminated on April 18, 2024.

In May 2024, we entered into equity distribution agreements with Oppenheimer & Co., B.

Riley Securities, Inc.

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 $75.0 million in what is commonly referred to as an "at-the-market" program (the "2024 Common Stock ATM Program").

There were no shares sold under the 2024 Common Stock ATM Program during the three months ended June 30, 2024.

As of June 30, 2024, we had remaining capacity under the 2024 Common Stock ATM Program to sell all $75.0 million.

In August 2022, we entered into equity distribution agreements with Oppenheimer & Co.

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, having an aggregate offering price of up to $50.0 million in our Common Stock ATM Program.

and Virtu Americas LLC (each a “2022 Sales Agent”), under which we had 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 (the "2022 Common Stock ATM Program").

In August 2023, we entered into an equity distribution agreement with B.

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as a 2022 Sales Agent for the 2022 Common Stock ATM Program.

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.

The 2022 Common Stock ATM Program terminated in connection with our entry into the 2024 Common Stock ATM Program.

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.

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.

As of June 30, 2024, the closing market price of our common stock was $ 13.98 per share, representing a 7.5 % premium to our NAV per share of $ 13.01 as of June 30, 2024.

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.

We, through our wholly-owned subsidiary, Business Investment, are party to a 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.

As of June 30, 2024, the Credit Facility provides for maximum borrowings of $200.0 million, with a revolving period end date of October 30, 2026 and a maturity date of October 30, 2028.

As of June 30, 2024, advances under the Credit Facility generally bore 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 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.

Previously, on March 8, 2021, we, through our wholly-owned subsidiary, Business Investment, entered into Amendment No.

6 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 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).

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.

At June 30, 2024, we had $ 63.7 million of borrowings outstanding on the Credit Facility and as of the date of this report, we had $86.3 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 $ 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 ".

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 $ 348.7 million as of June 30, 2024, (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 June 30, 2024, and as defined in the performance guaranty of the Credit Facility, we had a net worth of $ 807.5 million, asset coverage on our senior securities representing indebtedness of 216.3 %, 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 June 30, 2024, we had availability, after adjustments for various constraints based on collateral quality, of $ 136.3 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 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.

As a result, as of June 30, 2024 and March 31, 2024, we had unrecognized, contractual off-balance sheet success fee receivables of $46.8 million and $44.9 million (or approximately $1.28 and $1.23 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.

2 unchanged sentences

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 December 31, 2023 to be insignificant.

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

We estimate the fair value of the combined unused line of credit commitments as of June 30, 2024 to be insignificant.

The following table shows our contractual obligations as of June 30, 2024, 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 December 31, 2023.

The amount of interest payments calculated for purposes of this table was based upon rates and outstanding balances as of June 30, 2024.

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 December 31, 2023 and March 31, 2023:

Rating December 31, 2023 March 31, 2023

The following table reflects risk ratings for all loans in our portfolio as of June 30, 2024 and March 31, 2024:

Rating June 30, 2024 March 31, 2024

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 December 31, 2023 and March 31, 2023.

Our capital loss carryforward balance was $0 as of both June 30, 2024 and March 31, 2024.

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