Quantitative and Qualitative Disclosures about Market Risk
−Removed: The economic effects of the COVID-19 outbreak has introduced significant volatility in the financial markets.
−Removed: Federal Reserve and other central banks have reduced certain interest rates and LIBOR has decreased.
−Removed: In addition, in a prolonged low interest rate environment, including a reduction of LIBOR to zero, our net interest margin will be compressed and adversely affect our operating results.
−Removed: For additional information concerning the COVID-19 outbreak and its potential impact on our business and our operating results, see “ Part I - 1A.
+Added: We are subject to financial market risks, including changes in interest rates and the valuations of our investment portfolio.
+Added: The economic effects of the COVID-19 pandemic has introduced significant volatility in the financial markets, and the effects of this volatility has impacted and could continue to impact our market risks.
+Added: Federal Reserve and other central banks reduced certain interest rates and LIBOR decreased.
+Added: In addition, in a prolonged low interest rate environment, our net interest margin will be compressed and adversely affect our operating results.
+Added: For additional information concerning the COVID-19 pandemic and its potential impact on our business and our operating results, see “Part I - 1A.
Risk Factors ” .
−Removed: We are subject to financial market risks, including changes in interest rates.
+Added: Investment Valuation Risk
+Added: Because there is not a readily available market value for most of the investments in our portfolio, we value a significant portion of our portfolio investments at fair value as determined in good faith by our Board based on independent third-party valuation firms that have been engaged at the direction of our Board to assist in the valuation of each portfolio investment without a readily available market quotation.
+Added: 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.
+Added: Additionally, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that we may ultimately realize.
+Added: Further, some investments may be subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities.
+Added: If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than its current fair value.
+Added: See “Part II - Item 7.
+Added: Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Significant Estimates” as well as Notes 2 and 5 to our consolidated financial statements for the year ended December 31, 2021 for more information relating to our investment valuation.
+Added: Interest Rate Risk
Changes in interest rates affect both our cost of funding and the valuation of our investment portfolio.
As of December 31, 2021, 92% of our debt investments bore interest at floating interest rates and 8% of our debt investments bore fixed interest rates, at fair value.
−Removed: The interest rates on our debt investments bearing floating interest rates are usually based on a floating LIBOR, and the debt investments typically contain interest rate re-set provisions that adjust applicable interest rates to current rates on a periodic basis.
−Removed: A significant portion of our loans that are subject to the floating LIBOR rates are also subject to a minimum base rate, or floor, that we charge on our loans if the current market rates are below the respective floors.
−Removed: As of December 31, 2020, a substantial amount of our floating rate loans were based on a floating LIBOR, subject to a floor.
+Added: The interest rates on our debt investments bearing floating interest rates have been based on a floating LIBOR, but will transition away from LIBOR to any one the various alternative reference rates, and typically contain interest rate re-set provisions that adjust applicable interest rates to current rates on a periodic basis.
+Added: A significant portion of our loans that are subject to the floating rates are also subject to a minimum base rate, or floor, that we charge on our loans if the current market rates are below the respective floors.
+Added: As of December 31, 2021, a substantial amount of our floating rate loans were based on a floating LIBOR rate, subject to a floor.
As of December 31, 2021, our outstanding SBA debentures and Unsecured Notes bore interest at a fixed rate.
Our PWB Credit Facility and BNP Facility had floating interest rate provisions based on the Prime Rate and LIBOR, with effective interest rates of 4.22% and 4.20%, respectively.
+Added: Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates.
Assuming that the consolidated balance sheet as of December 31, 2021, were to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following tables show the annualized impact of hypothetical base rate changes in interest rates (in thousands):
−Removed: Basis point increase Interest income Interest expense Net change
+Added: Basis point increase Interest income Interest expense (1)
25 $ 96 $ (284) $ (188)
5 unchanged sentences
25 $ (76) $ 178 $ 102
−Removed: 50 n/m (2) n/m (2) n/m (2)
−Removed: 75 n/m (2) n/m (2) n/m (2)
−Removed: 100 n/m (2) n/m (2) n/m (2)
−Removed: 125 n/m (2) n/m (2) n/m (2)
−Removed: (1) At December 31, 2020, our PWB Credit Facility contained a 5.25% interest rate floor, and therefore a decline in the Prime Rate would not materially impact interest expense.
+Added: 50 (96) 178 82
+Added: 75 (116) 178 62
+Added: 100 (136) 178 42
+Added: 125 (157) 178 21
+Added: (1) At December 31, 2021, our PWB Credit Facility had no outstanding balance, and therefore a decline in the Prime Rate would not impact interest expense.
The BNP Facility does not contain an interest rate floor.
−Removed: (2) Not meaningful.
−Removed: Although we believe that the foregoing analysis is indicative of our sensitivity to interest rate changes as of December 31, 2020, it does not adjust for potential changes in the credit market, credit quality, size and composition of the assets in our portfolio, and other business developments, including borrowings under our credit facility, that could affect net increase in net assets resulting from operations, or net income.
+Added: Although we believe that the foregoing analysis is indicative of our sensitivity to interest rate changes as of December 31, 2021, it does not adjust for potential changes in the credit market, credit quality, size and composition of the assets in our portfolio, and other business developments, including borrowings under our credit facilities, that could affect net increase in net assets resulting from operations, or net income.
Accordingly, no assurances can be given that actual results would not differ materially from the statement above.
2 unchanged sentences
Our risk management systems and procedures are designed to identify and analyze our risk, to set appropriate policies and limits and to continually monitor these risks and limits by means of reliable administrative and information systems and other policies and programs.
−Removed: Our investment portfolio and investment income may be affected by changes in various interest rates, including LIBOR and the Prime Rate.
+Added: Our investment portfolio and investment income may be affected by changes in various interest rates, including the transition away from LIBOR to any one the various alternative reference rates.
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.