Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Uncertainty with respect to the economic effects of the COVID-19 pandemic and political tensions in the United States and around the world (including the current conflict in Ukraine) have
introduced significant volatility in the financial markets, and the effect of the volatility could materially impact our market risks, including those listed below. We are subject to financial market risks, including valuation risk, interest rate
risk and credit risk.
Valuation Risk
Our investments may not have readily available market quotations (as such term is defined in Rule 2a-5 under the 1940 Act), and those investments which do not have readily available market
quotations are valued at fair value as determined in good faith in accordance with our valuation policy. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to
the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. Due to the inherent uncertainty of determining the fair value of investments that do
not have a readily available market value, the fair value of our investments may fluctuate from period to period, including as a result of the impact of the COVID‑19 pandemic on the economy and financial and capital markets. Because of the inherent
uncertainty of valuation, these estimated values may differ significantly from the values that would have been used had a ready market for the investments existed, and it is possible that the difference could be material.
Interest Rate Risk
Interest rate sensitivity and risk refer to the change in earnings that may result from changes in the level of interest rates. To the extent that we borrow money to make investments, including under any credit
facility, our net investment income will be affected by the difference between the rate at which we borrow funds and the rate at which we invest these funds. In periods of rising interest rates, our cost of
borrowing funds would increase, which may reduce our net investment income. 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.
As of December 31, 2022, 79.6% of our debt investments based on outstanding principal balance represented floating-rate investments based on PRIME and approximately 20.4% of our debt
investments based on outstanding principal balance represented fixed rate investments. As of December 31, 2023, 84.1% of our debt investments based on outstanding principal balance represented floating-rate
investments based on PRIME and approximately 15.9% of our debt investments based on outstanding principal balance represented fixed rate investments.
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Based on our Statements of Operations for the year ended December 31, 2023, the following table shows the annualized impact on net income of hypothetical base rate changes in the PRIME rate on our
debt investments (considering interest rate floors for floating rate instruments):
Change in Interest Rates
Interest Income
Interest expense
Net Income/(Loss)
Up 300 basis points
$
1,390
$
-
$
1,390
Up 200 basis points
926
-
926
Up 100 basis points
463
-
463
Down 100 basis points
(463
)
-
(463
)
Down 200 basis points
(883
)
-
(883
)
Down 300 basis points
(1,146
)
-
(1,146
)
Based on our Statements of Operations for the nine months ended December 31, 2022, the following table shows the annualized impact on net income of hypothetical base rate changes in the PRIME rate
on our debt investments (considering interest rate floors for floating rate instruments):
Change in Interest Rates
Interest Income
Interest expense
Net Income/(Loss)
Up 300 basis points
$
1,260
$
-
$
1,260
Up 200 basis points
840
-
840
Up 100 basis points
420
-
420
Down 100 basis points
(420
)
-
(420
)
Down 200 basis points
(683
)
-
(683
)
Down 300 basis points
(893
)
-
(893
)