Item 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market
changes that affect market sensitive instruments. The prices of securities held by us may decline in response to certain events, including those directly involving the companies whose securities are owned by us; conditions affecting the general
economy, including public health emergencies, such as COVID-19; overall market changes; local, regional or global political, social or economic instability; and interest rate fluctuations.
The primary risk we believe we are exposed to is interest rate risk. Because we borrow money to make investments, our net investment income is dependent upon
the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net
investment income. We use a combination of debt and equity capital to finance our investing activities. We may use interest rate risk management techniques from time to time to limit our exposure to interest rate fluctuations. Such techniques may
include various interest rate hedging activities to the extent permitted by the 1940 Act.
All of our variable-rate debt investments have rates generally
associated with either the current LIBOR or prime rate. As of September 30, 2020, our portfolio of debt investments on a principal basis consisted of the following:
78.1%
Variable rates
21.9
Fixed rates
100.0%
total
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To illustrate the potential impact of changes in market interest rates on our net increase in net assets
resulting from operations, we have performed the following hypothetical analysis, which assumes that our balance sheet and contractual interest rates remain constant as of September 30, 2020 and no further actions are taken to alter our
existing interest rate sensitivity.
Basis Point Change
Increase
(Decrease) in
Interest Income
Increase
(Decrease) in
Interest Expense
Net Increase (Decrease) in
Net Assets Resulting from
Operations
Up 100 basis points
$
366
$
1,280
$
(914
)
Up 50 basis points
35
640
(605
)
Up 25 basis points
320
(320
)
Down 15 basis points
(190
)
190
Although management believes that this analysis is indicative of our existing interest rate sensitivity, it does not adjust
for potential changes in credit quality, size and composition of our loan portfolio on the balance sheet and other business developments, including any replacement of LIBOR, that could affect net increase in net assets resulting from operations or
otherwise impact our results or operations. Accordingly, actual results could differ significantly from those in the hypothetical analysis in the table above.
We may also experience risk associated with investing in securities of companies with foreign operations. Some of our portfolio companies have operations
located outside the U.S. These risks include fluctuations in foreign currency exchange rates, imposition of foreign taxes, changes in exportation regulations and political and social instability.
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