What changed in this filing

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Item 1A. Risk Factors

2022-02-08 compared with 2021-11-08 · 60 added, 5 removed, 65 unchanged (50% of the section changed)

10 unchanged sentences

Additionally, new regulatory initiatives related to ESG could adversely affect our business.

Inflation can adversely impact our cost of capital and the value of our portfolio investments.

Inflation risk is the risk that the value of assets or income from investments will be worth less in the future as inflation decreases the value of money.

Recently, there have been market indicators of a rise in inflation and the Federal Reserve has indicated an intention to raise certain benchmark interest rates in an effort to combat inflation.

As inflation increases, the real value of our common stock and distributions therefore may decline.

In addition, during any periods of rising inflation, the interest rates of debt securities we issue would likely increase, which would tend to further reduce returns to common stockholder;

likewise, as interest rates increase, the value of our debt investments would decrease, though this effect can be less pronounced for floating rate instruments.

This could also lead to decreased asset coverage for our outstanding debt and preferred stock.

Inflation rates may change frequently and significantly as a result of various factors, including unexpected shifts in the domestic or global economy and changes in economic policies, and our investments may not keep pace with inflation, which may result in losses to our stockholders.

This risk is greater for fixed-income instruments with longer maturities.

Changes relating to the LIBOR calculation process, and the discontinuation of LIBOR, may adversely affect the value of the LIBOR-indexed, floating-rate debt securities in our portfolio or issued by us.

In July 2017, the head of the United Kingdom Financial Conduct Authority announced the desire to phase out the use of LIBOR by the end of 2021.

LIBOR can no longer be used to calculate new deals as of December 31, 2021.

Since December 31, 2021, all sterling, euro, Swiss franc and Japanese yen LIBOR settings and the 1-week and 2-month U.S.

dollar LIBOR settings have ceased to be published or are no longer be representative, and after June 30, 2023, the overnight, 1-month, 3-month, 6-month and 12-month U.S.

dollar LIBOR settings will cease to be published or will no longer be representative.

Various financial industry groups have begun planning for the transition away from LIBOR, but there are challenges to converting certain securities and transactions to a new reference rate (e.g., the Secured Overnight Financing Rate, which is intended to replace the U.S.

dollar LIBOR).

Neither the effect of the LIBOR transition process nor its ultimate success can yet be known.

At this time, no consensus exists as to what rate or rates will become accepted alternatives to LIBOR, although the U.S.

Federal Reserve, in connection with the Alternative Reference Rates Committee, a steering committee comprised of large U.S.

institutions, is considering replacing U.S.

dollar LIBOR with the Secured Overnight Financing Rate (“SOFR”).

Given the inherent differences between LIBOR and SOFR, or any other alternative benchmark rate that may be established, there are many uncertainties regarding a transition from LIBOR, including but not limited to the need to amend all contracts with LIBOR as the referenced rate and how this will impact the cost of variable rate debt and certain derivative financial instruments.

In addition, SOFR or other replacement rates may fail to gain market acceptance.

Any failure of SOFR or alternative reference rates to gain market acceptance could adversely affect the return on, value of and market for securities linked to such rates.

The elimination of LIBOR any other changes or reforms to the determination or supervision of LIBOR could have an adverse impact on the market value of and/or transferability of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us or on our overall financial condition or results of operations.

Neither the effect of the LIBOR transition process nor its ultimate success can yet be known.

The transition process might lead to increased volatility and illiquidity in markets for, and reduce the effectiveness of, new hedges placed against, instruments whose terms currently include LIBOR.

While some existing LIBOR-based instruments may contemplate a scenario where LIBOR is no longer available by providing for an alternative rate-setting methodology, there may be significant uncertainty regarding the effectiveness of any such alternative methodologies to replicate LIBOR.

Not all existing LIBOR-based instruments may have alternative rate-setting provisions and there remains uncertainty regarding the willingness and ability of issuers to add alternative rate-setting provisions in certain existing instruments.

Moreover, these alternative rate-setting provisions may not be designed for regular use in an environment where LIBOR ceases to be published, and may be an ineffective fallback following the discontinuation of LIBOR.

Recently, the CLOs we are invested in have included, or have been amended to include, language permitting the CLO investment manager to implement a market replacement rate (like SOFR) upon the occurrence of certain material disruption events.

However, we cannot ensure that all CLOs in which we are invested will have such provisions, nor can we ensure the CLO investment managers will undertake the suggested amendments when able.

We believe that because CLO managers and other CLO market participants have been preparing for an eventual transition away from LIBOR, we do not anticipate such a transition to have a material impact on the liquidity or value of any of our LIBOR-referenced CLO investments.

However, because the future of LIBOR at this time is uncertain and the specific effects of a transition away from LIBOR cannot be determined with certainty as of the date of this filing, a transition away from LIBOR could:

• adversely impact the pricing, liquidity, value of, return on and trading for a broad array of financial products, including any LIBOR-linked CLO investments;

• require extensive changes to documentation that governs or references LIBOR or LIBOR-based products, including, for example, pursuant to time-consuming;

renegotiations of existing documentation to modify the terms of outstanding investments;

• result in inquiries or other actions from regulators in respect of our preparation and readiness for the replacement of LIBOR with one or more alternative reference rates;

• result in disputes, litigation or other actions with CLO investment managers, regarding the interpretation and enforceability of provisions in our LIBOR-based CLO investments, such as fallback language or other related provisions, including, in the case of fallbacks to the alternative reference rates, any economic, legal, operational or other impact resulting from the fundamental differences between LIBOR and the various alternative reference rates;

• require the transition and/or development of appropriate systems and analytics to effectively transition our risk management processes from LIBOR-based products to those based on one or more alternative reference rates, which may prove challenging given the limited history of the proposed alternative reference rates;

• cause us to incur additional costs in relation to any of the above factors.

In addition, the effect of a phase out of LIBOR on U.S.

senior secured loans, the underlying assets of the CLOs in which we invest, is currently unclear.

To the extent that any replacement rate utilized for senior secured loans differs from that utilized for a CLO that holds those loans, the CLO would experience an interest rate mismatch between its assets and liabilities which could have an adverse impact on our net investment income and portfolio returns.

Many underlying corporate borrowers can elect to pay interest based on 1-month LIBOR, 3-month LIBOR and/or other rates in respect of the loans held by CLOs in which we are invested, in each case plus an applicable spread, whereas CLOs generally pay interest to holders of the CLO’s debt tranches based on 3-month LIBOR plus a spread.

This mismatch in the rate at which CLOs earn interest and the rate at which they pay interest on their debt tranches negatively impacts the cash flows on a CLO’s equity tranche, which may in turn adversely affect our cash flows and results of operations.

Unless spreads are adjusted to account for such increases, these negative impacts may worsen.

The senior secured loans underlying the CLOs in which we invest typically have floating interest rates.

A rising interest rate environment may increase loan defaults, resulting in losses for the CLOs in which we invest.

In addition, increasing interest

rates may lead to higher prepayment rates, as corporate borrowers look to avoid escalating interest payments or refinance floating rate loans.

Further, a general rise in interest rates will increase the financing costs of the CLOs.

However, since many of the senior secured loans within CLOs have LIBOR floors, if LIBOR is below the average LIBOR floor, there may not be corresponding increases in investment income resulting in smaller distributions to equity investors in these CLOs.

The actual effects of the establishment of alternative reference rates or any other reforms to LIBOR or other reference rates (including whether LIBOR will continue to be an acceptable market benchmark) cannot be predicted at this time, and the transition away from LIBOR and other current reference rates to alternative reference rates is complex and could have a material adverse effect on our business, financial condition and results of operations.

Factors such as the pace of the transition to replacement or reformed rates, the specific terms and parameters for and market acceptance of any alternative reference rate, prices of and the liquidity of trading markets for products based on alternative reference rates, and our ability to transition and develop appropriate systems and analytics for one or more alternative reference rates could also have a material adverse effect on our business, financial condition and results of operations.

Risks Relating to Our Securities

10 unchanged sentences

With certain limited exceptions, as a BDC, we are only allowed to borrow amounts or otherwise issue senior securities such that our asset coverage, as defined in the 1940 Act, is at least 150% after such borrowing or other issuance.

The amount of leverage that we employ will depend on the Investment Adviser’s and our Board of Directors’ assessment of market conditions and other

factors at the time of any proposed borrowing.

The amount of leverage that we employ will depend on the Investment Adviser’s and our Board of Directors’ assessment of market conditions and other factors at the time of any proposed borrowing.

There is no assurance that a leveraging strategy will be successful.

31 unchanged sentences

(1) Assumes no conversion of 5.50% Preferred Stock to common stock.

(2) Assumes the conversion of $1.25 billion in 5.50% Preferred Stock at a conversion rate based on the 5-day VWAP of our common stock on September 30, 2021, which was $7.88, and a Holder Optional Conversion Fee (as defined in the prospectus supplement relating to the applicable offering) of 9.00% and 9.50% on Series A1 Preferred Stock and Series AA Preferred Stock, respectively, of the maximum public offering price disclosed within the applicable prospectus supplements.

(2) Assumes the conversion of $1.25 billion in 5.50% Preferred Stock at a conversion rate based on the 5-day VWAP of our common stock on December 31, 2021, which was $8.46, and a Holder Optional Conversion Fee (as defined in the prospectus supplement relating to the applicable offering) of 9.00% and 9.50% on Series A1 Preferred Stock and Series AA Preferred Stock, respectively, of the maximum public offering price disclosed within the applicable prospectus supplements.

The actual 5-day VWAP of our common stock on a Holder Conversion Exercise Date may be more or less than $8.46, which may result in more or less shares of common stock issued.

1 unchanged sentence

Actual returns may be greater or less than those appearing in the table.

Pursuant to SEC regulations, this table is calculated as of September 30, 2021.

As a result, it has not been updated to take into account any changes in assets or leverage since September 30, 2021.

Pursuant to SEC regulations, this table is calculated as of December 31, 2021.

As a result, it has not been updated to take into account any changes in assets or leverage since December 31, 2021.

Unregistered Sales of Equity Securities and Use of Proceeds

5 unchanged sentences

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 1A. Risk Factors