Item 5. Market for Registrant’s Common Equity
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Until the completion of an
Exchange Listing, if any, our outstanding Shares will be offered and sold in private offerings exempt from registration under the Securities Act under Section 4(a)(2) and Regulation D. There is no public market for our Shares currently, nor can
we give any assurance that one will develop.
Because Shares are being acquired by investors in one or more transactions not involving a public
offering, they are restricted securities and may be required to be held indefinitely. Our Shares may not be sold, transferred, assigned, pledged or otherwise disposed of unless (i) our consent is granted, and (ii) the
Shares are registered under applicable securities laws or specifically exempted from registration (in which case the stockholder may, at our option, be required to provide us with a legal opinion, in form and substance satisfactory to us, that
registration is not required). Accordingly, an investor must be willing to bear the economic risk of investment in the Shares until we are liquidated. No sale, transfer, assignment, pledge or other disposition, whether voluntary or involuntary, of
the Shares may be made except by registration of the transfer on our books. Each transferee will be required to execute an instrument agreeing to be bound by these restrictions and the other restrictions imposed on the Shares and to execute such
other instruments or certifications as are reasonably required by us.
Holders
Please see Part IIIItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters for
disclosure regarding the holders. As of December 31, 2020, Kayne Anderson owned limited liability company interests in the Company of $10,000.
Distribution Policy
We intend to make quarterly
distributions to our stockholders. We also intend to elect to be taxed as a RIC under Subchapter M of the Code. To obtain and maintain our RIC tax status, we would have to distribute at least the sum of 90% of our investment company taxable income
(as defined by the Code, which generally includes net ordinary income and net short-term taxable gains), and 90% of our net tax-exempt interest income, if any, to our stockholders in respect of each taxable
year, as well as satisfy other applicable requirements under the Code. In addition, we generally will be subject to a nondeductible U.S. federal excise tax equal to 4% of the amount by which our distributions for a calendar year are less than the
sum of:
98% of our net ordinary income, taking into account certain deferrals and elections, recognized during a calendar
year;
98.2% of our capital gain net income, adjusted for certain ordinary gains and losses, recognized for the one-year period ending on October 31 of such calendar year; and
100% of any undistributed amount by operation of such rule related to a prior calendar year.
For these excise tax purposes, we will be deemed to have distributed any net ordinary taxable income or capital gain net income on
which we have paid U.S. federal income tax. Depending on the level of taxable income earned in a calendar year, we may choose to carry forward taxable income for distribution in the following calendar year, and pay any applicable U.S. federal excise
tax. We cannot assure you that we will achieve results that will permit the payment of any dividends. See Item 1A. Risk Factors Risks Relating to Our Business and Structure .
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We also intend to distribute net capital gains (that is, net long-term capital gains in excess of net
short-term capital losses), if any, at least annually out of the assets legally available for such distributions. However, we may decide in the future to retain such net capital gains for investment and elect to treat such gains as deemed
distributions to you. If this happens, you will be treated for U.S. federal income tax purposes as if you had received an actual distribution of the net capital gains that we retain and you reinvested the
net after-tax proceeds in us. In this situation, you would be eligible to claim a tax credit (or, in certain circumstances, a tax refund) equal to your allocable share of the tax we paid on the
capital gains deemed distributed to you. We cannot assure you that we will achieve results that will permit us to pay any cash distributions and we will be prohibited from making distributions if doing so would cause us to fail to maintain the asset
coverage ratios stipulated by the 1940 Act.
Distribution Reinvestment Plan
We have adopted an opt-out dividend reinvestment plan that provides for the reinvestment of
dividends and other distributions on behalf of our stockholders unless a stockholder elects to receive cash as provided below. As a result, if the Board of Directors authorizes, and we declare, a cash distribution, our stockholders who have not
opted out of our dividend reinvestment plan will have their cash distributions automatically reinvested in our Shares.
No action would be required on the
part of a registered stockholder to have his or her cash distribution reinvested in our Shares. A registered stockholder may elect to receive an entire distribution in cash by notifying the plan administrator and our transfer agent and registrar in
writing so that such notice is received by the plan administrator no later than the record date for distributions to stockholders. The plan administrator will set up an account for each stockholder to acquire Shares
in non-certificated form through the plan if such stockholders have not elected to receive their distributions in cash. Those stockholders who hold Shares through a broker or other financial
intermediary may receive distributions in cash by notifying their broker or other financial intermediary of their election.
We would use primarily newly
issued Shares to implement the dividend reinvestment plan, with such Shares to be issued at NAV. The number of Shares to be issued to a stockholder is determined by dividing the total dollar amount of the distribution payable to such stockholder by
the price per Share on the valuation date for such distribution. The number of shares to be outstanding after giving effect to payment of a distribution cannot be established until the value per share at which additional Shares will be issued has
been determined and the elections of our stockholders have been tabulated.
There will be no brokerage or other charges to stockholders who participate in
the plan. The dividend reinvestment plan administrators fees under the plan will be paid by us. If a participant elects to sell part or all of his, her or its Shares held by the plan administrator and have the proceeds remitted to the
participant, such request must first be submitted to the participants broker, who will coordinate with the plan administrator and is authorized to deduct a per-share brokerage commission from
the sale proceeds.
Stockholders who receive distributions in the form of Shares are generally subject to the same U.S. federal, state and local tax
consequences as are stockholders who elect to receive their distributions in cash. However, since a participating stockholders cash dividends would be reinvested in Shares, such stockholder will not receive cash with which to pay applicable
taxes on reinvested dividends. A stockholders basis for determining gain or loss upon the sale of Shares received in a distribution from us will generally be equal to the cash that would have been received if the stockholder had received the
distribution in cash, unless we issue new Shares at or above NAV, in which case the stockholders basis in the new Shares will generally be equal to its fair market value. Any Shares received in a distribution will have a new holding period for
tax purposes commencing on the day following the day on which such Shares are credited to the U.S. holders account.
The dividend reinvestment plan
will be terminable by us upon notice in writing mailed to each participant at least 30 days prior to any record date for the payment of any distribution by us.
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Sales of Unregistered Securities
In conjunction with our formation, Kayne Anderson purchased limited liability company interests in the Company of $10,000 on December 18, 2018. The
limited liability company interests were sold in reliance upon the available exemptions from registration requirements of Section 4(a)(2) of the Securities Act.
Tender Offers
We are targeting an Exchange Listing in
the next three to five years, and until such time, we do not currently intend to list our Shares on any securities exchange and do not expect a public market for them to develop in the foreseeable future. Therefore, stockholders should not expect to
be able to sell their Shares promptly or at a desired price. To provide our stockholders with limited liquidity, in the future we may, in the sole discretion of our Board of Directors, conduct tender offers from time to time pursuant to a share
repurchase program pursuant to which we will periodically make tender offers to purchase a percentage of our then outstanding Shares. Our tenders for Shares, if any, would be conducted on such terms as may be determined by our Board of Directors and
in accordance with the requirements of applicable law, including Section
23(c) of the 1940 Act and Regulation M under the Exchange Act.
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data should be read in conjunction with the respective financial statements and related notes thereto and
Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations included in this report. Financial information for the year ended December 31, 2020 has been derived
from our audited financial statements, which are included elsewhere in this Annual Report on Form 10-K.
For the year
ended
December 31,
2020
Statement of Operations Data:
Total expenses
$
808,150
Net loss
(808,150
)
Net decrease in net assets resulting from operations
(808,150
)
As of
December 31,
2020
Statement of Assets and Liabilities Data:
Total assets
$
417,609
Total liabilities
1,215,759
Total net assets
(798,150
)
Other data:
Total return (1)
N/M
(1)
N/Mcalculations are not meaningful since we are in the development state and have not yet commenced
investment operations as of December 31, 2020.
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ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
Kayne
Anderson BDC, LLC was formed in May 2018 as a Delaware limited liability company. We were formed to make investments in middle-market companies and commenced operations on February 5, 2021. On this same date, prior to our election to be
regulated as a BDC under the 1940 Act, we completed a conversion from a Delaware limited liability company into a Delaware corporation and Kayne Anderson BDC, Inc. succeeded to the business of Kayne Anderson BDC, LLC. We are an externally managed, closed-end, non-diversified management investment company that elected to be regulated as a BDC under the 1940 Act. In addition, for U.S. federal income tax purposes, we
intend to elect to be treated as a RIC under Subchapter M of the Code.
Our investment objective is to generate current income and, to a lesser extent,
capital appreciation primarily through debt investments in middle-market companies. We define middle-market companies as U.S.-based companies that, in general, generate between $10 million and $150 million of annual earnings
before interest, taxes, depreciation and amortization, or EBITDA. We refer to companies that generate between $10 million and $50 million of annual EBITDA as core middle-market companies and companies that generate between
$50 million and $150 million of annual EBITDA as upper middle-market companies.
We intend to achieve our investment objective by
investing primarily in first lien senior secured, unitranche and split-lien loans to privately held middle-market companies. Depending on market conditions, we expect that between 80% and 90% of our portfolio (including investments purchased with
proceeds from borrowings) will be invested in first lien senior secured, unitranche and split-lien term loans. We expect that most of these investments will be in core middle market companies, with the remainder in upper middle market companies. The
remaining 10% to 20% of our portfolio will be invested in higher-yielding investments, including, but not limited to, second lien loans, last-out or subordinated
loans, non-investment grade broadly syndicated first and second lien loans (commonly referred to as leveraged loans), high-yield bonds, structured products (including CLO liabilities),
real estate related debt securities, equity securities purchased in conjunction with debt investments and other opportunistic investments (collectively Opportunistic Middle Market Investments).
Our Advisor is an affiliate of Kayne Anderson. We intend to implement our investment objective by (1) accessing the established loan sourcing channels
developed by Kayne Anderson, which includes an extensive network of private equity firms, other middle-market lenders, financial advisors and intermediaries, and experienced management teams, (2) selecting investments within our middle-market
company focus, (3) implementing Kayne Andersons middle market private credit teams disciplined underwriting process, which includes reviewing environmental, social and governance (ESG) considerations, and
(4) drawing upon the experience and resources of our Advisors investment team and the broader Kayne Anderson network.
We expect to conduct
private offerings of our Shares to investors in reliance on exemptions from the registration requirements of the Securities Act. At the closing of any private offering, each investor will make a Capital Commitment to purchase Shares pursuant to a
Subscription Agreement entered into with us. Investors will be required to fund drawdowns to purchase Shares up to the amount of their respective Capital Commitments each time we deliver a notice to the investors. Following the Initial Closing and
prior to any Liquidity Event, our Advisor may, in its sole discretion permit one or more additional closings of the private offering. See Part 1Item 1. BusinessThe Private Offering .
As of December 31, 2020, we had not yet commenced operations.
Recent Developments
On January 25, 2021, we entered
into subscription agreements with investors for an aggregate capital commitment of $154.3 million to purchase shares of our Common Stock. On February 5, 2021, we sold 5.7 million shares of our Common Stock to these investors for an
aggregate offering price of $85.0 million.
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On the same date, prior to our election to be regulated as a BDC under the 1940 Act, we used a portion of
the proceeds from the sale of Common Stock together with borrowings under our credit facility to purchase our initial portfolio of investments for $103.0 million from the Warehousing Entity.
The initial portfolio purchased from the Warehouse Entity consisted of 18 loans, with an average outstanding balance of $5.9 million, an average purchase
price of 97.4% of principal value and an average yield on that date of 8.8%. None of these loans in the initial portfolio were in default or non-accrual status. Information about the initial portfolio is not
intended to indicate our expected investment return on the initial portfolio or the investment performance of our shares of common stock. All of the loans are senior secured and the borrowers are middle and upper middle market companies. The
purchase of the initial portfolio was completed before we elected to be treated as a business development company under the 1940 Act. This initial acquisition and all related transactions are referred to as the Formation Transactions.
Portfolio and Investment Activity
As of
December 31, 2020, we have not commenced operations and thus do not have portfolio and investment activities. See Recent Developments .
Results of Operations for the Year Ended December 31, 2020
Revenue
Investment income for the year ended
December 31, 2020 was zero as we have not yet commenced investment operations as of this date. See Recent Developments .
Operating Expenses
For the year ended
December 31, 2020
Administrative and marketing costs
$
25,724
Organizational costs
782,426
Total Expenses
808,150
For the year ended December 31, 2020, we incurred organizational costs of $782,426 related to our formation and
organization. We anticipate formation costs to decrease in relation to our income as we move further away from the date of inception, February 5, 2021.
Financial Condition, Liquidity and Capital Resources
We
intend to generate cash primarily from the net proceeds of any offering of our Shares and from cash flows from interest and fees earned from our investments and principal repayments and proceeds from sales of our investments. Our primary use of cash
will be investments in portfolio companies, payments of our expenses and payment of cash distributions to our stockholders.
We may issue multiple classes
of indebtedness and one class of stock senior to our Shares if our asset coverage, as defined in the 1940 Act, is at least equal to 150% immediately after each such issuance. As defined in the 1940 Act, asset coverage of 150% means that for every
$100 of net assets we hold, we may raise $200 from borrowing and issuing senior securities. We currently intend to target asset coverage of 200% to 180% (which equates to
a debt-to-equity ratio of 1.0x to 1.25x) but may alter this target based on market conditions.
As of December 31, 2020, we had cash and cash equivalents of $10,000. No cash was used in operating activities for the year ended December 31, 2020
as we had not yet commenced operations.
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On February 5, 2021, Kayne Anderson BDC Financing, LLC (KABDCF), our newly-formed,
wholly-owned, special purposes financing subsidiary, entered into a Loan and Security Agreement (the LSA) with certain lenders party thereto, administrative agent, and our Advisor as collateral manager. The maximum commitment of the LSA
is up to $150 million, and, subject to certain conditions, may be increased by $50 million up to two times not to exceed $250 million. Advances under the facility bear an interest rate of LIBOR plus 4.25% (subject to a 1.00% LIBOR
floor). The facility has a term of three years.
On February 5, 2021, we entered into a credit agreement (the Credit Agreement) with
certain lenders party thereto. The Credit Agreement is comprised of two sub-facilities: (i) a $25.0 million capital call facility (the Subscription Facility) and (ii) a
$50.0 million treasury facility (the Treasury Facility). The interest rate under the Subscription Facility will be equal to LIBOR plus 1.90% (subject to a 0.35% LIBOR floor) and the interest rate under the Treasury Facility will be
equal to LIBOR plus 0.20% (with no LIBOR floor). The Subscription Facility will expire on December 31, 2022, and the Treasury Facility will expire on September 30, 2021.
As of February 19, 2021, we had cash and cash equivalents of $7.4 million and $35.0 million borrowed under the LSA. We had no borrowings under our Treasury
Facility or Subscription Facility under the Credit Agreement.
Critical Accounting Policies
This discussion of our expected operating plans is based upon our expected financial statements, which will be prepared in accordance with GAAP. The
preparation of these financial statements will require our management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any
other parameters used in determining such estimates could cause actual results to differ. In addition to the discussion below, we will describe our critical accounting policies in the notes to our future financial statements.
Investment Valuation
We will conduct the
valuation of our investments consistent with GAAP and the 1940 Act. Our investments will be valued no less frequently than quarterly, in accordance with the terms of Topic 820 of the Financial Accounting Standards Boards Accounting Standards
Codification, Fair Value Measurement and Disclosures (ASC 820).
ASC 820 defines fair value as the price
that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is a market-based measurement, not an entity-specific measurement. For some
assets and liabilities, observable market transactions or market information might be available. For other assets and liabilities, observable market transactions and market information might not be available. However, the objective of a fair value
measurement in both cases is the same to estimate the price when an orderly transaction to sell the asset or transfer the liability would take place between market participants at the measurement date under current market conditions (that is,
an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability).
ASC 820 establishes a
hierarchal disclosure framework which ranks the observability of inputs used in measuring financial instruments at fair value. The observability of inputs is impacted by a number of factors, including the type of financial instruments and their
specific characteristics. Financial instruments with readily available quoted prices, or for which fair value can be measured from quoted prices in active markets, generally will have a higher degree of market price observability and a lesser degree
of judgment applied in determining fair value. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into the following three broad categories.
Level 1Valuations based on quoted unadjusted prices for identical instruments in active markets traded on a national exchange to which the
Company has access at the date of measurement.
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Level 2Valuations based on quoted prices for similar instruments in active markets; quoted
prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in markets for
which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers.
Level 3 Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are
those inputs that reflect the Companys own assumptions that market participants would use to price the asset or liability based on the best available information.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which
category within the fair value hierarchy is appropriate for any given financial instrument is based on the lowest level of input that is significant to the fair value measurement. Assessment of the significance of a particular input to the fair
value measurement in its entirety requires judgment and considers factors specific to the financial instrument.
Traded Investments (Level 1 or
Level 2)
Investments for which market quotations are readily available will typically be valued at those market quotations. Traded
investments such as corporate bonds, preferred stock, bank notes, loans or loan participations are valued by using the bid price provided by an independent pricing service, by an independent broker, the agent bank, syndicate bank or principal market
maker. When price quotes for investments are not available, or such prices are stale or do not represent fair value in the judgment of our Advisor, fair market value will be determined using our valuation process for investments that are privately
issued or otherwise restricted as to resale.
We may also invest, to a lesser extent, in equity securities purchased in conjunction with debt investments.
While we anticipate these equity securities to be issued by privately held companies, we may hold equity securities that are publicly traded. Equity securities listed on any exchange other than the NASDAQ Stock Market, Inc. (NASDAQ) are
valued, except as indicated below, at the last sale price on the business day as of which such value is being determined. If there has been no sale on such day, the securities are valued at the mean of the most recent bid and ask prices on such day.
Securities admitted to trade on the NASDAQ are valued at the NASDAQ official closing price. Equity securities traded on more than one securities exchange are valued at the last sale price on the business day as of which such value is being
determined at the close of the exchange representing the principal market for such securities. Equity securities traded in the over-the-counter market, but excluding
securities admitted to trading on the NASDAQ, are valued at the closing bid prices.
Non-Traded Investments
(Level 3)
Investments that are privately issued or otherwise restricted as to resale, as well as any security for which (a) reliable market
quotations are not available in the judgment of our Advisor, or (b) the independent pricing service or independent broker does not provide prices or provides a price that in the judgment of our Advisor is stale or does not represent fair value,
shall each be valued in a manner that most fairly reflects fair value of the security on the valuation date. We expect that a significant majority of our investment will be Level 3 investments. Unless otherwise determined by the Board, the
following valuation process is used for our Level 3 investments:
Investment Team Valuation . The applicable investments are valued by senior professionals of Kayne Anderson
who are responsible for the portfolio investments. The value of each portfolio company or investment will be initially reviewed by the investment professionals responsible for such portfolio company or investment and, for non-traded investments (i.e., illiquid securities/instruments), a standardized template designed to approximate fair market value based on observable market inputs, updated credit statistics and unobservable inputs
will be used to determine a preliminary value. The investments will be valued no less frequently than quarterly, with new investments valued at the time such investment was made.
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Investment Team Valuation Documentation . Preliminary valuation conclusions will be determined by our
executive officers. Such valuation and supporting documentation is submitted to the Audit Committee (a committee of our Board) and our Board on a quarterly basis.
Audit Committee . The Audit Committee meets to consider the valuations submitted by our executive officers
at the end of each quarter. Between meetings of the Audit Committee, our executive officers are authorized to make valuation determinations. All valuation determinations of the Audit Committee are subject to ratification by our Board at its next
regular meeting.
Valuation Firm . Quarterly, a third-party valuation firm engaged by our Board reviews the valuation
methodologies and calculations employed for each of our investments that we have placed on the watch list and approximately 25% of our remaining investments. The third-party valuation firm will review all of the Level 3 investments
at least once per year, on a rolling twelve-month basis. We expect the quarterly report issued by the third-party valuation firm will assist the Board in determining the fair values of the investments reviewed.
Board Determination . Our Board meets quarterly to consider the valuations provided by our executive
officers and the Audit Committee and ratify valuations for the applicable investments. Our Board considers the report provided by the third-party valuation firm in reviewing and determining in good faith the fair value of the applicable portfolio
investments.
Valuation Techniques
Non-traded debt investments are typically valued using an enterprise value analysis and/or a market interest rate yield
analysis. The enterprise value analysis is performed to determine if a debt investment is credit impaired. If the debt investment is credit impaired, we will use the enterprise value analysis or a liquidation basis analysis to determine fair value.
For debt investments that are not determined to be credit impaired, we use a market interest rate yield analysis to determine fair value.
We utilize the
following valuation methodologies to determine the estimated enterprise value of the company: (i) analysis of valuations of publicly traded companies in a similar line of business (public company analysis), (ii) analysis of
valuations of M&A transaction valuations for companies in a similar line of business (precedent transaction analysis), (iii) discounted cash flows (DCF analysis) and (iv) other valuation methodologies.
To determine the estimated market interest rate yield for our debt investments, we analyze changes in the risk/reward (measured by yields and leverage) of
middle market indices as compared to changes in risk/reward for the underlying investment. In this context, the fair market value of the investment is impacted by the structure and pricing of the security relative to current capital market
conditions for similar investments in similar businesses. In doing this, we consider data sources including, but not limited to: (i) industry publications, such as S&P Globals High-End Middle
Market Lending Review; Thomson Reuters Refinitiv Middle Market Monthly Stats; CapitalIQ; Pitchbook News; The Lead Left, and other data sources; (ii) comparable investments reviewed or completed by affiliates of the Advisor, and
(iii) information obtained and provided by the Advisors independent valuation managers.
In determining the
non-traded debt investment valuations, the following factors are considered, where relevant: the nature and realizable value of any collateral; the companys ability to make interest payments,
amortization payments (if any) and other fixed charges; call features, put features and other relevant terms of the debt security; the companys historical and projected financial results; the markets in which the company does business; changes
in the interest rate environment and the credit markets generally that may affect the price at which similar investments may be valued; and other relevant factors.
Equity investments in private companies are typically valued using one of or a combination of the following valuation techniques: (i) public company
analysis, (ii) precedent transaction analysis and (iii) DCF analysis.
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Under all of these valuation techniques, we estimate operating results of the companies in which we invest,
including earnings before interest expense, income tax expense, depreciation and amortization (EBITDA) and free cash flow. These estimates utilize unobservable inputs such as historical operating results, which may be unaudited, and
projected operating results, which will be based on operating assumptions for such company. Investment performance data utilized will be the most recently available as of the measurement date which in many cases may reflect up to a one quarter lag
in information. These estimates will be sensitive to changes in assumptions specific to such company as well as general assumptions for the industry. Other unobservable inputs utilized in the valuation techniques outlined above include: discounts
for lack of marketability, selection of publicly traded companies, selection of similar precedent transactions, selected ranges for valuation multiples and expected required rates of return (discount rates).
Revenue Recognition
We record interest income on
an accrual basis to the extent that we expect to collect such amounts. For loans and debt securities with contractual PIK interest, which represents contractual interest accrued and added to the principal balance, we generally will not accrue PIK
interest for accounting purposes if the portfolio company valuation indicates that such PIK interest is not collectible. We do not accrue as a receivable interest on loans and debt securities for accounting purposes if we have reason to doubt our
ability to collect such interest. OIDs, market discounts or premiums are accreted or amortized using the effective interest method as interest income. We record prepayment premiums on loans and debt securities as interest income.
Net Realized Gains or Losses and Net Change in Unrealized Appreciation or Depreciation
We will measure net realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the
investment, without regard to unrealized appreciation or depreciation previously recognized. Net change in unrealized appreciation or depreciation will reflect the change in portfolio investment values during the reporting period, including any
reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.
Other Income
Other income may include income such as consent, waiver, amendment, unused, syndication and prepayment fees associated with our investment activities as well
as any fees for managerial assistance services rendered by us to the portfolio companies. Such fees are recognized as income when earned or the services are rendered. We may receive fees for guaranteeing the outstanding debt of a portfolio company.
Such fees are amortized into other income over the life of the guarantee.
PIK Interest
We may have investments in our portfolio that contain a PIK interest provision. Any PIK interest will be added to the principal balance of such investments and
is recorded as income, if the portfolio company valuation indicates that such PIK interest is collectible. In order to maintain our status as a RIC, substantially all of this income must be included in the amounts paid out by us to stockholders in
the form of dividends, even if we have not collected any cash.
Organization and Offering Expenses
In general, we may not deduct organizational expenses, and an election may be made by us to amortize organizational expenses over at least a 180-month period for tax purposes. For GAAP purposes, offering costs are amortized over a twelve-month period beginning with the commencement of operations.
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U.S. Federal Income Taxes
We intend to elect to be taxed as a RIC under Subchapter M of the Code. As a RIC, we generally will not have to pay corporate-level federal income taxes on any
net ordinary income or net capital gains that we distribute to our stockholders from our tax earnings and profits. To obtain and maintain our RIC tax treatment, we must meet certain
source-of-income and asset diversification requirements as well as distribute at least the sum of 90% of our investment company taxable income in respect of each taxable
year, and 90% of our net tax-exempt interest income, if any, to the holders of our Shares. See Item 1. BusinessMaterial U.S. Federal Income Tax Considerations .
Contractual Obligations
As of December 31, 2020, we
were not a party to any contractual obligations as we had not yet begun operations. See Recent Developments for discussion of our LSA and Credit Agreement that we entered into subsequent to December 31, 2020.
Related Party Transactions
The following were entered
into following our Formation Transactions.
Investment Advisory Agreement . On February 5, 2021, we entered into the Investment Advisory
Agreement with our Advisor. Our Advisor will agree to serve as our investment advisor in accordance with the terms of our Investment Advisory Agreement. Payments under our Investment Advisory Agreement in each reporting period will consist of the
base management fee equal to a percentage of the fair market value of investments, including, in each case, assets purchased with borrowed funds or other forms of leverage, but excluding cash, U.S. government securities and commercial paper
instruments maturing within one year of purchase as well as an incentive fee based on our performance.
For services rendered under the Investment
Advisory Agreement, we will pay a base management fee quarterly in arrears to our Advisor based on the of the fair market value of our investments including, in each case, assets purchased with borrowed funds or other forms of leverage, but
excluding cash, U.S. government securities and commercial paper instruments maturing within one year of purchase. We will also pay an incentive fee on income and an incentive fee on capital gains to our Advisor.
Prior to an Exchange Listing, any incentive fees earned by the Advisor shall accrue as earned but only become payable in cash to the Advisor upon consummation
of an Exchange Listing. To the extent the Company does not complete an Exchange Listing, the incentive fees will be payable to the Advisor (a) upon consummation of a sale of the Company or (b) once substantially all proceeds from a Company
Liquidation payable to the Companys common stockholders have been distributed to such stockholders.
Administration Agreement . On
February 5, 2021, we entered into an Administration Agreement with the Administrator pursuant to which the Administrator will furnish us with administrative services necessary to conduct our day-to-day operations. The Administrator will be reimbursed for administrative expenses it incurs on our behalf in performing its obligations. Such reimbursement will be made for our allocable portion
(subject to the review and approval of our independent directors) of office facilities, overhead, and compensation paid to or compensatory distributions received by our officers (including our Chief Compliance Officer and Chief Financial Officer)
and their respective staff who provide services to us. As we reimburse the Administrator for its expenses, we will indirectly bear such cost. The Administrator intends to engage U.S. Bank Global Fund Services under a
sub-administration agreement to assist the Administrator in performing certain of its administrative duties. The Administrator may enter into additional
sub-administration agreements with third-parties to perform other administrative and professional services on behalf of the Administrator.
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On February 5, 2021, we purchased our initial portfolio of investments for $103.0 million from an
affiliate of our Advisor (the Warehousing Entity) with a portion of the proceeds from the sale of common stock together with borrowings under our credit facility.
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Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.