SLR Investment Corp. 10-K

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Common Stock Our common stock is traded on the NASDAQ Global Select Market under the symbol “SLRC”. The following table sets forth, for each fiscal quarter during the last two fiscal years, the net asset value (“NAV”) per share of our common stock, the high and low closing sales prices for our common stock, such sales prices as a percentage of NAV per share and quarterly distributions per share. NAV (1) Price Range Premium or (Discount) of High Closing Price to NAV (2) Premium or (Discount) of Low Closing Price to NAV (2) Declared Distributions (3) High Low Fiscal 2020 Fourth Quarter $ 20.16 $ 18.14 $ 15.43 (10.0 )% (23.5 )% $ 0.41 Third Quarter 20.14 17.38 15.36 (13.7 ) (23.7 ) 0.41 Second Quarter 20.11 17.73 11.03 (11.8 ) (45.2 ) 0.41 First Quarter 19.24 21.15 7.55 9.9 (60.8 ) 0.41 Fiscal 2019 Fourth Quarter $ 21.44 $ 21.18 $ 19.98 (1.2 )% (6.8 )% $ 0.41 Third Quarter 21.90 21.07 20.15 (3.8 ) (8.0 ) 0.41 Second Quarter 21.98 21.54 20.18 (2.0 ) (8.2 ) 0.41 First Quarter 21.93 21.75 19.41 (0.8 ) (11.5 ) 0.41 (1) NAV per share is determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices. The net asset values shown are based on outstanding shares at the end of each period. (2) Calculated as of the respective high or low closing price divided by NAV and subtracting 1. (3) Represents the cash distribution for the specified quarter. On February 19, 2021 the last reported sales price of our common stock was $19.01 per share. As of February 19, 2021, we had 18 shareholders of record. Shares of BDCs may trade at a market price that is less than the value of the net assets attributable to those shares. The possibility that our shares of common stock will trade at a discount from net asset value or at premiums that are unsustainable over the long term are separate and distinct from the risk that our net asset value will decrease. Since our IPO on February 9, 2010, our shares of common stock have traded at both a discount and a premium to the net assets attributable to those shares. As of February 19, 2021, our shares of common stock traded at a discount equal to approximately 5.7% of the net assets attributable to those shares based upon our net asset value as of December 31, 2020. It is not possible to predict whether the shares offered hereby will trade at, above, or below net asset value. 70 Table of Contents DISTRIBUTIONS Tax characteristics of all distributions will be reported to stockholders on Form 1099 after the end of the calendar year. Future quarterly distributions, if any, will be determined by our Board. We expect that our distributions to stockholders will generally be from accumulated net investment income, from net realized capital gains or non-taxable return of capital, if any, as applicable. We have elected to be taxed as a RIC under Subchapter M of the Code. To maintain our RIC tax treatment, we must distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. In addition, although we currently intend to distribute realized net capital gains ( i.e. , net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for such distributions, we may in the future decide to retain such capital gains for investment. We maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a distribution, then stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash distributions. We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, due to the asset coverage test applicable to us as a business development company, we may in the future be limited in our ability to make distributions. Also, our revolving credit facility may limit our ability to declare distributions if we default under certain provisions. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of the tax benefits available to us as a regulated investment company. In addition, in accordance with GAAP and tax regulations, we include in income certain amounts that we have not yet received in cash, such as contractual payment-in-kind interest, which represents contractual interest added to the loan balance that becomes due at the end of the loan term, or the accrual of original issue or market discount. Since we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the requirement to distribute at least 90% of our investment company taxable income to obtain tax benefits as a regulated investment company. With respect to the distributions to stockholders, income from origination, structuring, closing and certain other upfront fees associated with investments in portfolio companies are treated as taxable income and accordingly, distributed to stockholders. We cannot assure stockholders that they will receive any distributions at a particular level. All distributions declared in cash payable to stockholders that are participants in our dividend reinvestment plan are generally automatically reinvested in shares of our common stock. As a result, stockholders that do not participate in the dividend reinvestment plan may experience dilution over time. Stockholders who do not elect to receive distributions in shares of common stock may experience accretion to the net asset value of their shares if our shares are trading at a premium and dilution if our shares are trading at a discount. The level of accretion or discount would depend on various factors, including the proportion of our stockholders who participate in the plan, the level of premium or discount at which our shares are trading and the amount of the distribution payable to a stockholder. Recent Sales of Unregistered Securities None. Issuer Purchases of Equity Securities None. 71 Table of Contents STOCK PERFORMANCE GRAPH This graph compares the cumulative total return on our common stock with that of the Standard & Poor’s BDC Index, Standard & Poor’s 500 Stock Index and the Russell 2000 Financial Services Index, for the period from December 31, 2015 through December 31, 2020. The graph assumes that a person invested $10,000 in each of the following: our common stock (SLRC), the S&P BDC Index, the S&P 500 Index, and the Russell 2000 Financial Services Index. The graph measures total stockholder return, which takes into account both changes in stock price and dividends. It assumes that dividends paid are invested in additional shares of the same class of equity securities at the frequency with which dividends are paid of such securities during the applicable fiscal year. The graph and other information furnished under this Part II Item 5 of this Form 10-K shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the 1934 Act. The stock price performance included in the above graph is not necessarily indicative of future stock price performance. 72 Table of Contents FEES AND EXPENSES The following table is intended to assist an investor in understanding the costs and expenses that you will bear directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may vary. Except where the context suggests otherwise, whenever this report contains a reference to fees or expenses paid by “us” or “Solar Capital,” or that “we” will pay fees or expenses, you will indirectly bear such fees or expenses as an investor in Solar Capital Ltd. Stockholder transaction expenses: Sales load (as a percentage of offering price) — % (1) Offering expenses (as a percentage of offering price) — % (2) Dividend reinvestment plan expenses — % (3) Total stockholder transaction expenses (as a percentage of offering price) — % (2) Annual expenses (as a percentage of net assets attributable to common stock) (4) : Base management fee 2.93 % (5) Incentive fees payable under our Investment Advisory and Management Agreement (up to 20%) 0.27 % (6) Interest payments on borrowed funds 3.19 % (7) Acquired fund fees and expenses — % Other expenses (estimated) 0.95 % (8) Total annual expenses 7.34 % (1) In the event that the shares of common stock are sold to or through underwriters, a corresponding prospectus supplement will disclose the applicable sales load and the “Example” will be updated accordingly. (2) The prospectus supplement corresponding to each offering will disclose the applicable offering expenses and total stockholder transaction expenses. (3) The expenses of the dividend reinvestment plan are included in “other expenses.” (4) Annual Expenses are presented in this manner because common shareholders will bear all costs of running the Company. (5) Our 1.75% base management fee under the Investment Advisory and Management Agreement is based on our gross assets, which is defined as all the assets of Solar Capital, excluding temporary assets, including those acquired using borrowings for investment purposes, and assumes our gross assets remain consistent with gross assets for the fiscal year ended December 31, 2020. The base management fee is reduced to 1.00% on gross assets that execeed 200% of total net assets as of the immediately preceding quarter. (6) Assumes that annual incentive fees earned by our investment adviser, Solar Capital Partners, remain consistent with the incentive fees earned by Solar Capital Partners for the fiscal year ended December 31, 2020. The incentive fee consists of two parts: The first part, which is payable quarterly in arrears, equals 20% of the excess, if any, of our “Pre-Incentive Fee Net Investment Income” that exceeds a 1.75% quarterly (7.00% annualized) hurdle rate, which we refer to as the Hurdle, subject to a “catch-up” provision measured at the end of each calendar quarter. The first part of the incentive fee is computed and paid on income that may include interest that is accrued but not yet received in cash. The operation of the first part of the incentive fee for each quarter is as follows: • no incentive fee is payable to our investment adviser in any calendar quarter in which our Pre-Incentive Fee Net Investment Income does not exceed the Hurdle of 1.75%; • 100% of our Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the Hurdle but is less than 2.1875% in any calendar quarter (8.75% annualized) is payable to our investment adviser. We refer to this portion of our Pre-Incentive Fee Net Investment Income (which exceeds the Hurdle but is less than 2.1875%) as the “catch-up.” The “catch-up” is meant to provide our investment adviser with 20% of our Pre-Incentive Fee Net Investment Income, as if a Hurdle did not apply when our Pre-Incentive Fee Net Investment Income exceeds 2.1875% in any calendar quarter; and 73 Table of Contents • 20% of the amount of our Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized) is payable to our investment adviser (once the Hurdle is reached and the catch-up is achieved, 20% of all Pre-Incentive Fee Investment Income thereafter is allocated to our investment adviser). The second part of the incentive fee equals 20% of our “Incentive Fee Capital Gains,” if any, which equals our realized capital gains on a cumulative basis from inception through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees. The second part of the incentive fee is payable, in arrears, at the end of each calendar year (or upon termination of the Investment Advisory and Management Agreement, as of the termination date). (7) We have historically and will in the future borrow funds from time to time to make investments to the extent we determine that the economic situation is conducive to doing so. The costs associated with our outstanding borrowings are indirectly born by our investors. For purposes of this section, we have computed interest expense using the average consolidated balance outstanding for borrowings during the fiscal year ended December 31, 2020. We used the London Interbank Offered Rate (“LIBOR”) rate or similar base rate on December 31, 2020 and the interest rate on the Credit Facility, the NEFPASS Facility, the 2026 Unsecured Notes, the 2024 Unsecured Notes, the 2023 Unsecured Notes, the 2022 Unsecured Notes and the 2022 Tranche C Notes on December 31, 2020. We have also included, as applicable, the estimated amortization of fees incurred in establishing the Credit Facility, the NEFPASS Facility, the 2026 Unsecured Notes, the 2024 Unsecured Notes, the 2023 Unsecured Notes, the 2022 Unsecured Notes and the 2022 Tranche C Notes as of December 31, 2020. Additionally, we included the estimated cost of commitment fees for unused balances on the Credit Facility and the NEFPASS Facility. As of December 31, 2020, we had $201.0 million outstanding under the Credit Facility, $30 million outstanding under our NEFPASS Facility, and $75 million, $125 million, $75 million, $150 million and $21 million outstanding under the 2026 Unsecured Notes, the 2024 Unsecured Notes, the 2023 Unsecured Notes, the 2022 Unsecured Notes and the 2022 Tranche C Notes, respectively. We may also issue preferred stock, subject to our compliance with applicable requirements under the 1940 Act, although we have no immediate intention to do so. (8) “Other expenses” are based on estimated amounts for the current fiscal year, which considers the amounts incurred for the fiscal year ended December 31, 2020 and include our overhead expenses, including payments under our Administration Agreement based on our allocable portion of overhead and other expenses incurred by Solar Capital Management in performing its obligations under the Administration Agreement. Example The following example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in our common stock. In calculating the following expense amounts, we have assumed that our annual operating expenses would remain at the levels set forth in the table above and have excluded performance-based incentive fees. As such, the below example is based on an annual expense ratio of 7.07%. See Note 7 above for additional information regarding certain assumptions regarding our level of leverage. In the event that shares are sold to or through underwriters, a corresponding prospectus supplement will restate this example to reflect the applicable sales load. 1 Year 3 Years 5 Years 10 Years You would pay the following expenses on a $1,000 investment, assuming a 5% annual return $ 71 $ 208 $ 339 $ 645 The example and the expenses in the tables above should not be considered a representation of our future expenses, and actual expenses may be greater or less than those shown. While the example assumes, 74 Table of Contents as required by the SEC, a 5% annual return, our performance will vary and may result in a return greater or less than 5%. The incentive fee under the Investment Advisory and Management Agreement, which, assuming a 5% annual return, would either not be payable or would have an insignificant impact on the expense amounts shown above, is not included in the example. This illustration assumes that we will not realize any capital gains (computed net of all realized capital losses and unrealized capital depreciation) in any of the indicated time periods. If we achieve sufficient returns on our investments, including through the realization of capital gains, to trigger an incentive fee of a material amount, our expenses and returns to our investors would be higher. For example, if we assumed that we received our 5% annual return completely in the form of net realized capital gains on our investments, computed net of all cumulative unrealized depreciation on our investments, the projected dollar amount of total cumulative expenses set forth in the above illustration would be as follows: 1 Year 3 Years 5 Years 10 Years You would pay the following expenses on a $1,000 investment, assuming a 5% annual return $ 81 $ 235 $ 380 $ 704 In addition, the example assumes no sales load. Also, while the example assumes reinvestment of all distributions at net asset value, participants in our dividend reinvestment plan will receive a number of shares of our common stock, determined by dividing the total dollar amount of the distribution payable to a participant by the market price per share of our common stock at the close of trading on the distribution payment date, which may be at, above or below net asset value unless the company makes open market purchases and the shares received will be determined based on the average price paid by our agent, plus commissions. Item 6. Selected Financial Data The selected financial and other data below should be read in conjunction with our “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto. Financial information is presented for the fiscal years ended December 31, 2020, 2019, 2018, 2017 and 2016. Financial information for the periods ending December 31, 2020, 2019, 2018, 2017 and 2016 has been derived from our consolidated financial statements that were audited by KPMG LLP (“KPMG”), an independent registered public accounting firm. ($ in thousands, except per share data) Year ended December 31, 2020 Year ended December 31, 2019 Year ended December 31, 2018 Year ended December 31, 2017 Year ended December 31, 2016 Income statement data: Total investment income $ 121,745 $ 154,711 $ 153,526 $ 143,338 $ 151,839 Total expenses $ 62,530 $ 82,266 $ 78,637 $ 74,975 $ 80,738 Net investment income $ 59,215 $ 72,445 $ 74,889 $ 68,363 $ 71,101 Net realized gain (loss) $ (26,638 ) $ (1,760 ) $ 2,078 $ (12,015 ) $ 776 Net change in unrealized gain (loss). $ (17,126 ) $ (14,669 ) $ (10,093 ) $ 14,082 $ 34,938 Net increase in net assets resulting from operations $ 15,451 $ 56,016 $ 66,874 $ 70,430 $ 106,815 Per share data: Net investment income (1) $ 1.40 $ 1.71 $ 1.77 $ 1.62 $ 1.68 Net realized and unrealized gain (loss)(1) $ (1.04 ) $ (0.38 ) $ (0.19 ) $ 0.05 $ 0.84 Dividends and distributions declared $ 1.64 $ 1.64 $ 1.64 $ 1.60 $ 1.60 75 Table of Contents As of December 31, 2020 As of December 31, 2019 As of December 31, 2018 As of December 31, 2017 As of December 31, 2016 Balance sheet data: Total investment portfolio $ 1,531,951 $ 1,494,824 $ 1,456,080 $ 1,461,170 $ 1,304,778 Cash and cash equivalents $ 388,776 $ 436,354 $ 207,216 $ 150,789 $ 312,046 Total assets $ 1,935,958 $ 1,949,889 $ 1,683,429 $ 1,641,565 $ 1,650,547 Debt $ 677,000 $ 593,900 $ 476,185 $ 541,600 $ 390,200 Net assets $ 852,023 $ 905,880 $ 919,171 $ 921,605 $ 918,507 Per share data: Net asset value per share $ 20.16 $ 21.44 $ 21.75 $ 21.81 $ 21.74 Other data (unaudited): Total return(2) (5.7 %) 16.2 % 2.8 % 4.5 % 37.5 % Number of portfolio companies at period end 105 108 117 93 63 (1) The per-share calculations are based on weighted average shares of 42,260,826, 42,260,826, 42,260,826, 42,257,692 and 42,258,143 for the years ended December 31, 2020, 2019, 2018, 2017 and 2016, respectively. (2) Total return is based on the change in market price per share during the year and takes into account dividends, if any, reinvested in accordance with the dividend reinvestment plan. Total return does not include a sales load. Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The information contained in this section should be read in conjunction with the Selected Financial and Other Data and our Consolidated Financial Statements and notes thereto appearing elsewhere in this report. Some of the statements in this report constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained herein involve risks and uncertainties, including statements as to: • our future operating results, including our ability to achieve objectives as a result of the current COVID-19 pandemic; • our business prospects and the prospects of our portfolio companies; • the impact of investments that we expect to make; • our contractual arrangements and relationships with third parties; • the dependence of our future success on the general economy and its impact on the industries in which we invest and the impact of the COVID-19 pandemic thereon; • the impact of any protracted decline in the liquidity of credit markets on our business and the impact of the COVID-19 pandemic thereon; • the ability of our portfolio companies to achieve their objectives, including as a result of the current COVID-19 pandemic; • the valuation of our investments in portfolio companies, particularly those having no liquid trading market, and the impact of the COVID-19 pandemic thereon; • market conditions and our ability to access alternative debt markets and additional debt and equity capital, and the impact of the COVID-19 pandemic thereon; • our expected financings and investments; 76 Table of Contents • the adequacy of our cash resources and working capital; • the timing of cash flows, if any, from the operations of our portfolio companies and the impact of the COVID-19 pandemic thereon; and • the ability of our investment adviser to locate suitable investments for us and to monitor and administer our investments and the impacts of the COVID-19 pandemic thereon. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation: • an economic downturn, including as a result of the current COVID-19 pandemic, could impair our portfolio companies’ ability to continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies; • a contraction of available credit and/or an inability to access the equity markets, including as a result of the current COVID-19 pandemic, could impair our lending and investment activities; • interest rate volatility could adversely affect our results, particularly because we use leverage as part of our investment strategy; • currency fluctuations could adversely affect the results of our investments in foreign companies, particularly to the extent that we receive payments denominated in foreign currency rather than U.S. dollars; and • the risks, uncertainties and other factors we identify in Item 1A. — Risk Factors contained in this Annual Report on Form 10-K for the year ended December 31, 2020 and in our other filings with the SEC. We generally use words such as “anticipates,” “believes,” “expects,” “intends” and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason, including any factors set forth in “Risk Factors” and elsewhere in this report. We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including any annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Overview Solar Capital LLC, a Maryland limited liability company, was formed in February 2007 and commenced operations on March 13, 2007 with initial capital of $1.2 billion of which 47.04% was funded by affiliated parties. Solar Capital Ltd. (“Solar Capital”, the “Company”, “we” or “our”), a Maryland corporation formed in November 2007, is a closed-end, externally managed, non-diversified management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). Furthermore, as the Company is an investment company, it continues to apply the guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946. In addition, for U.S federal income tax purposes, the Company has elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). 77 Table of Contents On February 9, 2010, we priced our initial public offering, selling 5.68 million shares of our common stock. Concurrent with our initial public offering, Michael S. Gross, our Chairman, Co-Chief Executive Officer and President, and Bruce Spohler, our Co-Chief Executive Officer and Chief Operating Officer, collectively purchased an additional 0.6 million shares of our common stock through a private placement transaction exempt from registration under the Securities Act. We invest primarily in privately held U.S. middle-market companies, where we believe the supply of primary capital is limited and the investment opportunities are most attractive. Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in leveraged middle-market companies in the form of senior secured loans, stretch-senior loans, financing leases and to a lesser extent, unsecured loans and equity securities. From time to time, we may also invest in public companies that are thinly traded. Our business is focused primarily on the direct origination of investments through portfolio companies or their financial sponsors. Our investments generally range between $5 million and $100 million each, although we expect that this investment size will vary proportionately with the size of our capital base and/or with strategic initiatives. Our investment activities are managed by Solar Capital Partners, LLC (the “Investment Adviser”) and supervised by our board of directors, a majority of whom are non-interested, as such term is defined in the 1940 Act. Solar Capital Management, LLC (the “Administrator”) provides the administrative services necessary for us to operate. In addition, we may invest a portion of our portfolio in other types of investments, which we refer to as opportunistic investments, which are not our primary focus but are intended to enhance our overall returns. These investments may include, but are not limited to, direct investments in public companies that are not thinly traded and securities of leveraged companies located in select countries outside of the United States. As of December 31, 2020, the Investment Adviser has directly invested approximately $10.0 billion in more than 400 different portfolio companies since 2006. Over the same period, the Investment Adviser completed transactions with over 200 different financial sponsors. Recent Developments On February 24, 2021, our Board declared a quarterly distribution of $0.41 per share payable on April 2, 2021 to holders of record as of March 18, 2021. The global outbreak of the COVID-19 pandemic, and the related effect on the U.S. and global economies, has continued to have adverse consequences for the business operations of some of the Company’s portfolio companies and, as a result, has had adverse effects on the Company’s operations. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual issuers, including the Company, remain uncertain. The operational and financial performance of the issuers of securities in which the Company invests depends on future developments, including the duration and spread of the outbreak, and such uncertainty may in turn adversely affect the value and liquidity of the Company’s investments and negatively impact the Company’s performance. Investments Our level of investment activity can and does vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle market companies, the level of merger and acquisition activity for such companies, the general economic environment and the competitive environment for the types of investments we make. As a BDC, we must not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” The definition of “eligible portfolio company” includes certain public companies that do not have any securities listed on a national securities exchange and companies whose securities are listed on a national securities exchange but whose market capitalization is less than $250 million. 78 Table of Contents Revenue We generate revenue primarily in the form of interest and dividend income from the securities we hold and capital gains, if any, on investment securities that we may sell. Our debt investments generally have a stated term of three to seven years and typically bear interest at a floating rate usually determined on the basis of a benchmark London interbank offered rate (“LIBOR”), commercial paper rate, or the prime rate. Interest on our debt investments is generally payable monthly or quarterly but may be bi-monthly or semi-annually. In addition, our investments may provide payment-in-kind (“PIK”) interest. Such amounts of accrued PIK interest are added to the cost of the investment on the respective capitalization dates and generally become due at maturity of the investment or upon the investment being called by the issuer. We may also generate revenue in the form of commitment, origination, structuring fees, fees for providing managerial assistance and, if applicable, consulting fees, etc. Expenses All investment professionals of the investment adviser and their respective staffs, when and to the extent engaged in providing investment advisory and management services, and the compensation and routine overhead expenses of such personnel allocable to such services, are provided and paid for by Solar Capital Partners. We bear all other costs and expenses of our operations and transactions, including (without limitation): • the cost of our organization and public offerings; • the cost of calculating our net asset value, including the cost of any third-party valuation services; • the cost of effecting sales and repurchases of our shares and other securities; • interest payable on debt, if any, to finance our investments; • fees payable to third parties relating to, or associated with, making investments, including fees and expenses associated with performing due diligence reviews of prospective investments and advisory fees; • transfer agent and custodial fees; • fees and expenses associated with marketing efforts; • federal and state registration fees, any stock exchange listing fees; • federal, state and local taxes; • independent directors’ fees and expenses; • brokerage commissions; • fidelity bond, directors and officers errors and omissions liability insurance and other insurance premiums; • direct costs and expenses of administration, including printing, mailing, long distance telephone and staff; • fees and expenses associated with independent audits and outside legal costs; • costs associated with our reporting and compliance obligations under the 1940 Act and applicable federal and state securities laws; and • all other expenses incurred by either Solar Capital Management or us in connection with administering our business, including payments under the Administration Agreement that will be based upon our allocable portion of overhead and other expenses incurred by Solar Capital Management in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, and our allocable portion of the costs of compensation and related expenses of our chief compliance officer and our chief financial officer and their respective staffs. 79 Table of Contents We expect our general and administrative operating expenses related to our ongoing operations to increase moderately in dollar terms. During periods of asset growth, we generally expect our general and administrative operating expenses to decline as a percentage of our total assets and increase during periods of asset declines. Incentive fees, interest expense and costs relating to future offerings of securities, among others, may also increase or reduce overall operating expenses based on portfolio performance, interest rate benchmarks, and offerings of our securities relative to comparative periods, among other factors. Portfolio and Investment Activity During the year ended December 31, 2020, we invested approximately $427 million across 40 portfolio companies. This compares to investing approximately $404 million in over 50 portfolio companies for the year ended December 31, 2019. Investments sold, prepaid or repaid during the year ended December 31, 2020 totaled approximately $363 million versus approximately $362 million for the year ended December 31, 2019. At December 31, 2020, our portfolio consisted of 105 portfolio companies and was invested 18.8% in cash flow senior secured loans, 27.0% in asset-based senior secured loans / Crystal Financial LLC (“Crystal”), 14.2% in Kingsbridge Holdings LLC (“KBH”), 18.6% in equipment senior secured financings / NEF Holdings, LLC (“NEF”), and 21.4% in life science senior secured loans, in each case, measured at fair value, versus 108 portfolio companies invested 31.0% in cash flow senior secured loans, 28.2% in asset-based senior secured loans / Crystal, 21.5% in equipment senior secured financings / NEF, and 19.3% in life science senior secured loans, in each case, measured at fair value, at December 31, 2019. At December 31, 2020, 72.1% or $1.10 billion of our income producing investment portfolio * is floating rate and 27.9% or $425.4 million is fixed rate, measured at fair value. At December 31, 2019, 77.5% or $1.14 billion of our income producing investment portfolio * is floating rate and 22.5% or $331.9 million is fixed rate, measured at fair value. As of December 31, 2020 and 2019, we had zero issuers and one issuer on non-accrual status, respectively. Since inception through December 31, 2020, Solar Capital and its predecessor companies have invested approximately $6.7 billion in more than 295 portfolio companies. Over the same period, Solar Capital has completed transactions with more than 150 different financial sponsors. * We have included Crystal Financial LLC and NEF Holdings LLC within our income producing investment portfolio. Crystal Financial LLC On December 28, 2012, we completed the acquisition of Crystal Capital Financial Holdings LLC (“Crystal Financial”), a commercial finance company focused on providing asset-based and other secured financing solutions (the “Crystal Acquisition”). We invested $275 million in cash to effect the Crystal Acquisition. Crystal Financial owned approximately 98% of the outstanding ownership interest in Crystal Financial LLC. The remaining financial interest was held by various employees of Crystal Financial LLC, through their investment in Crystal Management LP. Crystal Financial LLC had a diversified portfolio of 23 loans having a total par value of approximately $400 million at November 30, 2012 and a $275 million committed revolving credit facility. On July 28, 2016, the Company purchased Crystal Management LP’s approximately 2% equity interest in Crystal Financial LLC for approximately $5.7 million. Upon the closing of this transaction, the Company holds 100% of the equity interest in Crystal Financial LLC. On September 30, 2016, Crystal Capital Financial Holdings LLC was dissolved. On December 20, 2018, the revolving credit facility was expanded to $330 million. As of December 31, 2020, Crystal Financial LLC had 30 funded commitments to 24 different issuers with total funded loans of approximately $404.1 million on total assets of $433.9 million. As of December 31, 2019, Crystal Financial LLC had 35 funded commitments to 28 different issuers with total funded loans of 80 Table of Contents approximately $496.8 million on total assets of $518.0 million. As of December 31, 2020 and December 31, 2019, the largest loan outstanding totaled $45.0 million and $45.0 million, respectively. For the same periods, the average exposure per issuer was $16.8 million and $17.7 million, respectively. Crystal Financial LLC’s credit facility, which is non-recourse to Solar Capital, had approximately $183.9 million and $276.0 million of borrowings outstanding at December 31, 2020 and December 31, 2019, respectively. For the years ended December 31, 2020 and 2019, Crystal Financial LLC had net income of $23.3 million and $8.0 million, respectively, on gross income of $45.3 million and $61.2 million, respectively. Due to timing and non-cash items, there may be material differences between GAAP net income and cash available for distributions. As such, and subject to fluctuations in Crystal Financial LLC’s funded commitments, the timing of originations, and the repayments of financings, the Company cannot guarantee that Crystal Financial LLC will be able to maintain consistent dividend payments to us. Crystal Financial LLC’s consolidated financial statements for the fiscal years ended December 31, 2020 and December 31, 2019 are attached as an exhibit to this annual report on Form 10-K. NEF Holdings, LLC On July 31, 2017, we completed the acquisition of NEF Holdings, LLC (“NEF”), which conducts its business through its wholly-owned subsidiary Nations Equipment Finance, LLC. NEF is an independent equipment finance company that provides senior secured loans and leases primarily to U.S. based companies. We invested $209.9 million in cash to effect the transaction, of which $145.0 million was invested in the equity of NEF through our wholly-owned consolidated taxable subsidiary NEFCORP LLC and our wholly-owned consolidated subsidiary NEFPASS LLC and $64.9 million was used to purchase certain leases and loans held by NEF through NEFPASS LLC. Concurrent with the transaction, NEF refinanced its existing senior secured credit facility into a $150.0 million non-recourse facility with an accordion feature to expand up to $250.0 million. In September 2019, NEF amended the facility, increasing commitments to $214.0 million with an accordion feature to expand up to $314.0 million and extended the maturity date of the facility to July 31, 2023. At July 31, 2017, NEF also had two securitizations outstanding, with an issued note balance of $94.6 million, which were later redeemed in 2018. As of December 31, 2020, NEF had 138 funded equipment-backed leases and loans to 61 different customers with a total net investment in leases and loans of approximately $188.4 million on total assets of $263.4 million. As of December 31, 2019, NEF had 168 funded equipment-backed leases and loans to 78 different customers with a total net investment in leases and loans of approximately $245.0 million on total assets of $304.2 million. As of December 31, 2020 and December 31, 2019, the largest position outstanding totaled $25.1 million and $26.9 million, respectively. For the same periods, the average exposure per customer was $3.1 million and $3.1 million, respectively. NEF’s credit facility, which is non-recourse to Solar Capital, had approximately $100.6 million and $128.2 million of borrowings outstanding at December 31, 2020 and December 31, 2019, respectively. For the years ended December 31, 2020 and 2019, NEF had net income (loss) of ($8.9) million and ($6.0) million, respectively, on gross income of $24.5 million and $31.9 million, respectively. Due to timing and non-cash items, there may be material differences between GAAP net income and cash available for distributions. As such, and subject to fluctuations in NEF’s funded commitments, the timing of originations, and the repayments of financings, the Company cannot guarantee that NEF will be able to maintain consistent dividend payments to us. NEF’s consolidated financial statements for the fiscal years ended December 31, 2020 and December 31, 2019 are attached as an exhibit to this annual report on Form 10-K. Kingsbridge Holdings, LLC On November 3, 2020, the Company acquired 87.5% of Kingsbridge Holdings, LLC (“KBH”) through KBH Topco LLC (“KBHT”), a newly formed Delaware corporation. KBH is a residual focused independent mid-ticket lessor of equipment primarily to U.S. investment grade companies. The Company invested $216.6 million to effect the transaction, of which $136.6 million was invested to acquire 87.5% of KBHT’s equity and $80.0 million in KBH’s debt. The existing management team of KBH committed to continue to lead KBH after the transaction. Post the transaction, the Company owns 87.5% of KBHT equity and the KBH management team owns the remaining 12.5% of KBHT’s equity. 81 Table of Contents As of December 31, 2020, KBHT had total assets of $744.7 million. KBHT also had recourse debt outstanding of $219.0 million as well as non-recourse debt outstanding of $335.9 million. For the period November 3, 2020 through December 31, 2020, KBHT had net income of $2.2 million, on gross income of $43.6 million. Due to timing and non-cash items, there may be material differences between GAAP net income and cash available for distributions. As such, and subject to fluctuations in KBHT’s funded commitments, the timing of originations, and the repayments of financings, the Company cannot guarantee that KBHT will be able to maintain consistent dividend payments to us. KBHT’s consolidated financial statements for the period November 3, 2020 through December 31, 2020 are attached as an exhibit to this annual report on Form 10-K. Critical Accounting Policies The preparation of consolidated financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies. Within the context of these critical accounting policies and disclosed subsequent events herein, we are not currently aware of any other reasonably likely events or circumstances that would result in materially different amounts being reported. Valuation of Portfolio Investments We conduct the valuation of our assets, pursuant to which our net asset value is determined, at all times consistent with GAAP, and the 1940 Act. Our valuation procedures are set forth in more detail below: Under procedures established by our board of directors (the “Board”), we value investments, including certain senior secured debt, subordinated debt and other debt securities with maturities greater than 60 days, for which market quotations are readily available, at such market quotations (unless they are deemed not to represent fair value). We attempt to obtain market quotations from at least two brokers or dealers (if available, otherwise from a principal market maker or a primary market dealer or other independent pricing service). We utilize mid-market pricing as a practical expedient for fair value unless a different point within the range is more representative. If and when market quotations are deemed not to represent fair value, we may utilize independent third-party valuation firms to assist us in determining the fair value of material assets. Accordingly, such investments go through our multi-step valuation process as described below. In each case, independent valuation firms consider observable market inputs together with significant unobservable inputs in arriving at their valuation recommendations. Debt investments with maturities of 60 days or less shall each be valued at cost plus accreted discount, or minus amortized premium, which is expected to approximate fair value, unless such valuation, in the judgment of the Investment Adviser, does not represent fair value, in which case such investments shall be valued at fair value as determined in good faith by or under the direction of our Board. Investments that are not publicly traded or whose market quotations are not readily available are valued at fair value as determined in good faith by or under the direction of our Board. Such determination of fair values involves subjective judgments and estimates. With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, our Board has approved a multi-step valuation process each quarter, as described below: (1) our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of the Investment Adviser responsible for the portfolio investment; (2) preliminary valuation conclusions are then documented and discussed with senior management of the Investment Adviser; 82 Table of Contents (3) independent valuation firms engaged by our Board conduct independent appraisals and review the Investment Adviser’s preliminary valuations and make their own independent assessment for all material assets; (4) the audit committee of the Board reviews the preliminary valuation of the Investment Adviser and that of the independent valuation firm, if any, and responds to the valuation recommendation of the independent valuation firm to reflect any comments; and (5) the Board discusses valuations and determines the fair value of each investment in our portfolio in good faith based on the input of the Investment Adviser, the respective independent valuation firm, if any, and the audit committee. Investments in all asset classes are valued utilizing a market approach, an income approach, or both approaches, as appropriate. However, in accordance with ASC 820-10, certain investments that qualify as investment companies in accordance with ASC 946, may be valued using net asset value as a practical expedient for fair value. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities (including a business). The income approach uses valuation approaches to convert future amounts (for example, cash flows or earnings) to a single present amount (discounted). The measurement is based on the value indicated by current market expectations about those future amounts. In following these approaches, the types of factors that we may take into account in fair value pricing our investments include, as relevant: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, the nature and realizable value of any collateral, the portfolio company’s ability to make payments, its earnings and discounted cash flows, the markets in which the portfolio company does business, comparisons of financial ratios of peer companies that are public, M&A comparables, our principal market (as the reporting entity) and enterprise values, among other factors. When available, broker quotations and/or quotations provided by pricing services are considered as an input in the valuation process. For the fiscal year ended December 31, 2020, there has been no change to the Company’s valuation approaches or techniques and the nature of the related inputs considered in the valuation process. Accounting Standards Codification (“ASC”) Topic 820 classifies the inputs used to measure these fair values into the following hierarchy: Level 1: Quoted prices in active markets for identical assets or liabilities, accessible by the Company at the measurement date. Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices. Level 3: Unobservable inputs for the asset or liability. In all cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls is determined based on the lowest level of input that is significant to the fair value measurement. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to each investment. The exercise of judgment is based in part on our knowledge of the asset class and our prior experience. Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements express the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on our consolidated financial statements. 83 Table of Contents Valuation of 2022 Unsecured Notes The Company has made an election to apply the fair value option of accounting to the 2022 Unsecured Notes, in accordance with ASC 825-10. We believe accounting for the 2022 Unsecured Notes at fair value better aligns the measurement methodologies of assets and liabilities, which may mitigate certain earnings volatility. Revenue Recognition The Company records dividend income and interest, adjusted for amortization of premium and accretion of discount, on an accrual basis. Investments that are expected to pay regularly scheduled interest and/or dividends in cash are generally placed on non- accrual status when principal or interest/dividend cash payments are past due 30 days or more (90 days or more for equipment financing) and/or when it is no longer probable that principal or interest/dividend cash payments will be collected. Such non-accrual investments are restored to accrual status if past due principal and interest or dividends are paid in cash, and in management’s judgment, are likely to continue timely payment of their remaining interest or dividend obligations. Interest or dividend cash payments received on investments may be recognized as income or applied to principal depending upon management’s judgment. Some of our investments may have contractual PIK interest or dividends. PIK interest and dividends computed at the contractual rate are accrued into income and reflected as receivable up to the capitalization date. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, the Company capitalizes the accrued interest or dividends receivable (reflecting such amounts as the basis in the additional securities received). PIK generally becomes due at the maturity of the investment or upon the investment being called by the issuer. At the point the Company believes PIK is not expected to be realized, the PIK investment will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends is reversed from the related receivable through interest or dividend income, respectively. The Company does not reverse previously capitalized PIK interest or dividends. Upon capitalization, PIK is subject to the fair value estimates associated with their related investments. PIK investments on non-accrual status are restored to accrual status if the Company again believes that PIK is expected to be realized. Loan origination fees, original issue discount, and market discounts are capitalized and amortized into income using the effective interest method. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. We record prepayment premiums on loans and other investments as interest income when we receive such amounts. Capital structuring fees are recorded as other income when earned. The typically higher yields and interest rates on PIK securities, to the extent we invested, reflects the payment deferral and increased credit risk associated with such instruments and that such investments may represent a significantly higher credit risk than coupon loans. PIK securities may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of any associated collateral. PIK interest has the effect of generating investment income and increasing the incentive fees payable at a compounding rate. In addition, the deferral of PIK interest also increases the loan-to-value ratio at a compounding rate. PIK securities create the risk that incentive fees will be paid to the Investment Adviser based on non-cash accruals that ultimately may not be realized, but the Investment Adviser will be under no obligation to reimburse the Company for these fees. For the fiscal years ended December 31, 2020 and 2019, capitalized PIK income totaled $5.4 million and $1.1 million, respectively. Net Realized Gain or Loss and Net Change in Unrealized Gain or Loss We generally measure realized gain or loss 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, but considering unamortized origination or commitment fees and prepayment penalties. The net change in unrealized gain or loss reflects the change in portfolio investment values during the reporting 84 Table of Contents period, including the reversal of previously recorded unrealized gain or loss, when gains or losses are realized. Gains or losses on investments are calculated by using the specific identification method. Income Taxes Solar Capital, a U.S. corporation, has elected to be treated, and intends to qualify annually, as a RIC under Subchapter M of the Code. In order to qualify for U.S. federal income taxation as a RIC, the Company is required, among other things, to timely distribute to its stockholders at least 90% of investment company taxable income, as defined by the Code, for each year. Depending on the level of taxable income earned in a given tax year, we may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a nondeductible 4% U.S. federal excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year distributions, the Company accrues an estimated excise tax, if any, on estimated excess taxable income. Recent Accounting Pronouncements In March 2020, the FASB issued Accounting Standards Update No. 2020-04, “Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting.” The guidance provides optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships and other transactions, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued because of the reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020 through December 31, 2022. The Company is evaluating the potential impact that the adoption of this guidance will have on the Company’s financial statements. RESULTS OF OPERATIONS Results comparisons are for the fiscal years ended December 31, 2020 and December 31, 2019. Results for the fiscal year ended December 31, 2018 can be found in Item 7 of the Company’s report on Form 10-K filed on February 20, 2020, which is incorporated by reference herein. Investment Income For the fiscal years ended December 31, 2020 and 2019, gross investment income totaled $121.7 million and $154.7 million, respectively. The decrease in gross investment income for the year over year periods was primarily due to a reduction in portfolio yield, mainly as a result of the approximately 160 basis point decrease in average LIBOR year over year, on a smaller income producing investment portfolio on average. Additionally, the volatility and disruption to the global economy and capital markets from the COVID-19 pandemic reduced the volume of our investment activity during much of the year, particularly in the second and third quarters, thus negatively impacting investment income for the period. Expenses Expenses totaled $62.5 million and $82.3 million, respectively, for the fiscal years ended December 31, 2020 and 2019, of which $27.2 million and $44.9 million, respectively, were base management fees and performance-based incentive fees and $27.2 million and $28.9 million, respectively, were interest and other credit facility expenses. Administrative services and other general and administrative expenses totaled $8.2 million and $8.5 million, respectively, for the fiscal years ended December 31, 2020 and 2019. Expenses generally consist of management and performance-based incentive fees, interest and other credit facility expenses, administrative services fees, insurance expenses, legal fees, directors’ fees, transfer agency fees, printing and proxy expenses, audit and tax services expenses, and other general and administrative expenses. Interest and other credit facility expenses generally consist of interest, unused fees, agency fees and loan origination fees, if any, among others. The decrease in expenses from 2019 to 2020 was primarily due to lower 85 Table of Contents management and incentive fees resulting from a reduction in portfolio yield on a smaller income producing investment portfolio on average as well as lower interest expense due to reductions in LIBOR. Net Investment Income The Company’s net investment income totaled $59.2 million and $72.4 million, or $1.40 and $1.71, per average share, respectively, for the fiscal years ended December 31, 2020 and 2019. Net Realized Loss The Company had investment sales and prepayments totaling approximately $363 million and $362 million, respectively, for the fiscal years ended December 31, 2020 and 2019. Net realized losses over the same periods were $26.6 million and $1.8 million, respectively. Net realized loss for fiscal year 2020 was primarily related to the exit of our investment IHS Intermediate, Inc. Net realized loss for fiscal year 2019 was primarily related to the extinguishment of debt. Net Change in Unrealized Loss For the fiscal years ended December 31, 2020 and 2019, net change in unrealized loss on the Company’s assets and liabilities totaled $17.1 million and $14.7 million, respectively. Net unrealized loss for the fiscal year ended December 31, 2020 is primarily due to depreciation in the value of our investments in NEF Holdings LLC, Rug Doctor, PhyMed Management LLC, SOINT, LLC and SOAGG LLC, among others, partially offset by the reversal of previously recognized unrealized depreciation in the value of our investment in IHS Intermediate, Inc. and unrealized appreciation in the value of our investments in Crystal Financial LLC and B. Riley Financial Inc., among others. The year over year net change in unrealized loss for the fiscal year ended December 31, 2020 was impacted by uncertainty due to the COVID-19 pandemic and its effect on market yields and fundamental portfolio company performance. Net unrealized loss for the fiscal year ended December 31, 2019 is primarily due to unrealized depreciation in the value of our investments in IHS Intermediate, Inc., SOAGG LLC and American Teleconferencing Services, Ltd., among others, partially offset by unrealized appreciation in the value of our investments in Crystal Financial LLC, PPT Management Holdings, LLC and Alteon Health, LLC, among others. Net Increase in Net Assets From Operations For the fiscal years ended December 31, 2020 and 2019, the Company had a net increase in net assets resulting from operations of $15.5 million and $56.0 million, respectively. For the fiscal years ended December 31, 2020 and 2019, earnings per average share were $0.37 and $1.33, respectively. LIQUIDITY AND CAPITAL RESOURCES The Company’s liquidity and capital resources are generated and generally available through its Credit Facility, the 2022 Unsecured Notes, the 2022 Tranche C Notes, the NEFPASS Facility, the 2023 Unsecured Notes, the 2024 Unsecured Notes and the 2026 Unsecured Notes (collectively the “Credit Facilities”), through cash flows from operations, investment sales, prepayments of senior and subordinated loans, income earned on investments and cash equivalents, and periodic follow-on equity and/or debt offerings. As of December 31, 2020, we had a total of $439.0 million of unused borrowing capacity under the Credit Facilities, subject to borrowing base limits. We may from time to time issue equity and/or debt securities in either public or private offerings. The issuance of such securities will depend on future market conditions, funding needs and other factors and there can be no assurance that any such issuance will occur or be successful. The primary uses of existing funds and any funds raised in the future is expected to be for investments in portfolio companies, repayment of indebtedness, cash distributions to our stockholders, or for other general corporate purposes. 86 Table of Contents On February 12, 2020, a new lender to the Company executed a commitment increase to our Credit Facility providing for an additional $75.0 million of revolving credit, bringing our Credit Facility’s total revolving credit capacity to $545.0 million. On December 18, 2019, the Company closed a private offering of $125 million of the 2024 Unsecured Notes with a fixed interest rate of 4.20% and a maturity date of December 15, 2024. Interest on the 2024 Unsecured Notes is due semi-annually on June 15 and December 15. The 2024 Unsecured Notes were issued in a private placement only to qualified institutional buyers. On December 18, 2019, the Company closed a private offering of $75 million of the 2026 Unsecured Notes with a fixed interest rate of 4.375% and a maturity date of December 15, 2026. Interest on the 2026 Unsecured Notes is due semi-annually on June 15 and December 15. The 2026 Unsecured Notes were issued in a private placement only to qualified institutional buyers. On August 28, 2019, the Company repaid its existing senior secured credit agreement due September 2021 and entered into the new senior secured credit agreement (the “Credit Facility”). The Credit Facility was originally composed of $470 million of revolving credit and $75 million of term loans, but was expanded to $545 million of revolving credit and $75 million of term loans in February 2020. Borrowings generally bear interest at a rate per annum equal to the base rate plus a range of 2.00-2.25% or the alternate base rate plus 1.00%-1.25%. The Credit Facility has no LIBOR floor requirement. The Credit Facility matures in August 2024 and includes ratable amortization in the final year. On December 28, 2017, the Company closed a private offering of $21 million of the 2022 Tranche C Notes with a fixed interest rate of 4.50% and a maturity date of December 28, 2022. Interest on the 2022 Tranche C Notes is due semi-annually on June 28 and December 28. The 2022 Tranche C Notes were issued in a private placement only to qualified institutional buyers. On November 22, 2017, we issued $75 million in aggregate principal amount of publicly registered 2023 Unsecured Notes for net proceeds of $73.8 million. Interest on the 2023 Unsecured Notes is paid semi-annually on January 20 and July 20, at a fixed rate of 4.50% per year, commencing on January 20, 2018. The 2023 Unsecured Notes mature on January 20, 2023. On February 15, 2017, the Company closed a private offering of $100 million of the 2022 Unsecured Notes with a fixed interest rate of 4.60% and a maturity date of May 8, 2022. Interest on the 2022 Unsecured Notes is due semi-annually on May 8 and November 8. The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers. On November 8, 2016, the Company closed a private offering of $50 million of the 2022 Unsecured Notes with a fixed interest rate of 4.40% and a maturity date of May 8, 2022. Interest on the 2022 Unsecured Notes is due semi-annually on May 8 and November 8. The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers. On January 11, 2013, the Company closed its most recent follow-on public equity offering of 6.3 million shares of common stock raising approximately $146.9 million in net proceeds. The primary uses of the funds raised were for investments in portfolio companies, reductions in revolving debt outstanding and for other general corporate purposes. Cash Equivalents We deem certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities as cash equivalents. The Company makes purchases that are consistent with its purpose of making investments in securities described in paragraphs 1 through 3 of Section 55(a) of the 1940 Act. From time to 87 Table of Contents time, including at or near the end of each fiscal quarter, we consider using various temporary investment strategies for our business. One strategy includes taking proactive steps by utilizing cash equivalents as temporary assets with the objective of enhancing our investment flexibility pursuant to Section 55 of the 1940 Act. More specifically, from time-to-time we may purchase U.S. Treasury bills or other high-quality, short-term debt securities at or near the end of the quarter and typically close out the position on a net cash basis subsequent to quarter end. We may also utilize repurchase agreements or other balance sheet transactions, including drawing down on our credit facilities, as deemed appropriate. The amount of these transactions or such drawn cash for this purpose is excluded from total assets for purposes of computing the asset base upon which the management fee is determined. We held approximately $380 million in cash equivalents as of December 31, 2020. Debt Unsecured Notes On December 18, 2019, the Company closed a private offering of $125 million of the 2024 Unsecured Notes with a fixed interest rate of 4.20% and a maturity date of December 15, 2024. Interest on the 2024 Unsecured Notes is due semi-annually on June 15 and December 15. The 2024 Unsecured Notes were issued in a private placement only to qualified institutional buyers. On December 18, 2019, the Company closed a private offering of $75 million of the 2026 Unsecured Notes with a fixed interest rate of 4.375% and a maturity date of December 15, 2026. Interest on the 2026 Unsecured Notes is due semi-annually on June 15 and December 15. The 2026 Unsecured Notes were issued in a private placement only to qualified institutional buyers. On December 28, 2017, the Company closed a private offering of $21 million of the 2022 Tranche C Notes with a fixed interest rate of 4.50% and a maturity date of December 28, 2022. Interest on the 2022 Tranche C Notes is due semi-annually on June 28 and December 28. The 2022 Tranche C Notes were issued in a private placement only to qualified institutional buyers. On November 22, 2017, we issued $75 million in aggregate principal amount of publicly registered 2023 Unsecured Notes for net proceeds of $73.8 million. Interest on the 2023 Unsecured Notes is paid semi-annually on January 20 and July 20, at a fixed rate of 4.50% per year, commencing on January 20, 2018. The 2023 Unsecured Notes mature on January 20, 2023. On February 15, 2017, the Company closed a private offering of $100 million of the 2022 Unsecured Notes with a fixed interest rate of 4.60% and a maturity date of May 8, 2022. Interest on the 2022 Unsecured Notes is due semi-annually on May 8 and November 8. The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers. On November 8, 2016, the Company closed a private offering of $50 million of the 2022 Unsecured Notes with a fixed interest rate of 4.40% and a maturity date of May 8, 2022. Interest on the 2022 Unsecured Notes is due semi-annually on May 8 and November 8. The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers. Revolving & Term Loan Facilities On August 28, 2019, the Company repaid its existing senior secured credit agreement due September 2021 and entered into the new Credit Facility. The Credit Facility was originally composed of $470 million of revolving credit and $75 million of term loans. On February 12, 2020, a new lender to the Company executed a commitment increase to our Credit Facility providing for an additional $75.0 million of revolving credit, bringing our Credit Facility’s total revolving credit capacity to $545.0 million. Borrowings generally bear interest at a rate per annum equal to the base rate plus a range of 2.00-2.25% or the alternate base rate plus 1.00%-1.25%. The 88 Table of Contents Credit Facility has no LIBOR floor requirement. The Credit Facility matures in August 2024 and includes ratable amortization in the final year. The Credit Facility may be increased up to $800 million with additional new lenders or an increase in commitments from current lenders. The Credit Facility contains certain customary affirmative and negative covenants and events of default. In addition, the Credit Facility contains certain financial covenants that among other things, requires the Company to maintain a minimum shareholder’s equity and a minimum asset coverage ratio.At December 31, 2020, outstanding USD equivalent borrowings under the Credit Facility totaled $201.0 million, composed of $126.0 million of revolving credit and $75.0 million of term loans. On September 26, 2018, NEFPASS SPV LLC, a newly formed wholly-owned subsidiary of NEFPASS LLC, as borrower entered into the NEFPASS Facility with Keybank acting as administrative agent. The Company acts as servicer under the NEFPASS Facility. The NEFPASS Facility is scheduled to mature on September 26, 2023. The NEFPASS Facility generally bears interest at a rate of LIBOR plus 2.15%. NEFPASS and NEFPASS SPV LLC, as applicable, have made certain customary representations and warranties, and are required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. The NEFPASS Facility also includes usual and customary events of default for credit facilities of this nature.There were $30.0 million of borrowings outstanding as of December 31, 2020. Certain covenants on our issued debt may restrict our business activities, including limitations that could hinder our ability to finance additional loans and investments or to make the distributions required to maintain our status as a RIC under Subchapter M of the Code. At December 31, 2020, the Company was in compliance with all financial and operational covenants required by our Credit Facilities. Contractual Obligations A summary of our significant contractual payment obligations is as follows as of December 31, 2020: Payments Due by Period (in millions) Total Less than 1 Year 1-3 Years 3-5 Years More Than 5 Years Revolving credit facilities(1) $ 156.0 $ — $ 30.0 $ 126.0 $ — Unsecured senior notes 446.0 — 246.0 125.0 75.0 Term Loans 75.0 — — 75.0 — (1) As of December 31, 2020, we had a total of $439.0 million of unused borrowing capacity under our revolving credit facilities, subject to borrowing base limits. Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue senior securities in amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 150% of gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy the asset coverage test. If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when such sales may be disadvantageous. Also, any amounts that we use to service our indebtedness would not be available for distributions to our common stockholders. Furthermore, as a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss. 89 Table of Contents Senior Securities Information about our senior securities is shown in the following table (in thousands) as of each year ended December 31 for the past ten years, unless otherwise noted. The “—” indicates information which the SEC expressly does not require to be disclosed for certain types of senior securities. Class and Year Total Amount Outstanding(1) Asset Coverage Per Unit(2) Involuntary Liquidating Preference Per Unit(3) Average Market Value Per Unit(4) Revolving Credit Facility Fiscal 2020 $ 126,000 $ 421 — N/A Fiscal 2019 42,900 182 — N/A Fiscal 2018 96,400 593 — N/A Fiscal 2017 245,600 1,225 — N/A Fiscal 2016 115,200 990 — N/A Fiscal 2015 207,900 1,459 — N/A Fiscal 2014 — — — N/A Fiscal 2013 — — — N/A Fiscal 2012 264,452 1,510 — N/A Fiscal 2011 201,355 3,757 — N/A 2022 Unsecured Notes Fiscal 2020 150,000 501 — N/A Fiscal 2019 150,000 638 — N/A Fiscal 2018 150,000 923 — N/A Fiscal 2017 150,000 748 — N/A Fiscal 2016 50,000 430 — N/A 2022 Tranche C Notes Fiscal 2020 21,000 70 — N/A Fiscal 2019 21,000 89 — N/A Fiscal 2018 21,000 129 — N/A Fiscal 2017 21,000 105 — N/A 2023 Unsecured Notes Fiscal 2020 75,000 250 — N/A Fiscal 2019 75,000 319 — N/A Fiscal 2018 75,000 461 — N/A Fiscal 2017 75,000 374 — N/A 2024 Unsecured Notes Fiscal 2020 125,000 417 — N/A Fiscal 2019 125,000 531 — N/A 2026 Unsecured Notes Fiscal 2020 75,000 250 — N/A Fiscal 2019 75,000 319 — N/A 2042 Unsecured Notes Fiscal 2017 — — — N/A Fiscal 2016 100,000 859 — $ 1,002 Fiscal 2015 100,000 702 — 982 Fiscal 2014 100,000 2,294 — 943 Fiscal 2013 100,000 2,411 — 934 Fiscal 2012 100,000 571 — 923 Senior Secured Notes Fiscal 2017 — — — N/A Fiscal 2016 75,000 645 — N/A 90 Table of Contents Class and Year Total Amount Outstanding(1) Asset Coverage Per Unit(2) Involuntary Liquidating Preference Per Unit(3) Average Market Value Per Unit(4) Fiscal 2015 75,000 527 — N/A Fiscal 2014 75,000 1,721 — N/A Fiscal 2013 75,000 1,808 — N/A Fiscal 2012 75,000 428 — N/A Term Loans Fiscal 2020 75,000 250 — N/A Fiscal 2019 75,000 319 — N/A Fiscal 2018 50,000 308 — N/A Fiscal 2017 50,000 250 — N/A Fiscal 2016 50,000 430 — N/A Fiscal 2015 50,000 351 — N/A Fiscal 2014 50,000 1,147 — N/A Fiscal 2013 50,000 1,206 — N/A Fiscal 2012 50,000 285 — N/A Fiscal 2011 35,000 653 — N/A NEFPASS Facility Fiscal 2020 30,000 100 — N/A Fiscal 2019 30,000 128 — N/A Fiscal 2018 30,000 185 — N/A SSLP Facility Fiscal 2019 — — — N/A Fiscal 2018 53,785 331 — N/A Total Senior Securities Fiscal 2020 $ 677,000 $ 2,259 — N/A Fiscal 2019 593,900 2,525 — N/A Fiscal 2018 476,185 2,930 — N/A Fiscal 2017 541,600 2,702 — N/A Fiscal 2016 390,200 3,354 — N/A Fiscal 2015 432,900 3,039 — N/A Fiscal 2014 225,000 5,162 — N/A Fiscal 2013 225,000 5,425 — N/A Fiscal 2012 489,452 2,794 — N/A Fiscal 2011 236,355 4,410 — N/A (1) Total amount of each class of senior securities outstanding (in thousands) at the end of the period presented. (2) The asset coverage ratio for a class of senior securities representing indebtedness is calculated as our consolidated total assets, less all liabilities and indebtedness not represented by senior securities, divided by all senior securities representing indebtedness. This asset coverage ratio is multiplied by one thousand to determine the Asset Coverage Per Unit. In order to determine the specific Asset Coverage Per Unit for each class of debt, the total Asset Coverage Per Unit is allocated based on the amount outstanding in each class of debt at the end of the period. As of December 31, 2020, asset coverage was 225.9%. (3) The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it. (4) Not applicable except for the 2042 Unsecured Notes which were publicly traded. The Average Market Value Per Unit is calculated by taking the daily average closing price during the period and dividing it by twenty-five dollars per share and multiplying the result by one thousand to determine a unit price per thousand consistent with Asset Coverage Per Unit. The average market value for the fiscal 2016, 2015, 2014, 2013 and 2012 periods was $100,175, $98,196, $94,301, $93,392, and $92,302, respectively. 91 Table of Contents We have also entered into two contracts under which we have future commitments: the Advisory Agreement, pursuant to which Solar Capital Partners, LLC has agreed to serve as our investment adviser, and the Administration Agreement, pursuant to which the Administrator has agreed to furnish us with the facilities and administrative services necessary to conduct our day-to-day operations and provide on our behalf managerial assistance to those portfolio companies to which we are required to provide such assistance. Payments under the Advisory Agreement are equal to (1) a percentage of the value of our average gross assets and (2) a two-part incentive fee. Payments under the Administration Agreement are equal to an amount based upon our allocable portion of the Administrator’s overhead in performing its obligations under the Administration Agreement, including rent, technology systems, insurance and our allocable portion of the costs of our chief financial officer and chief compliance officer and their respective staffs. Either party may terminate each of the Advisory Agreement and administration agreement without penalty upon 60 days’ written notice to the other. See note 3 to our Consolidated Financial Statements. On July 31, 2017, the Company, NEFPASS LLC and NEFCORP LLC entered into a servicing agreement. NEFCORP LLC was engaged to provide NEFPASS LLC with administrative services related to the loans and capital leases held by NEFPASS LLC. NEFPASS LLC may terminate this agreement upon 30 days’ written notice to NEFCORP LLC. 92 Table of Contents Off-Balance Sheet Arrangements From time-to-time and in the normal course of business, the Company may make unfunded capital commitments to current or prospective portfolio companies. Typically, the Company may agree to provide delayed-draw term loans or, to a lesser extent, revolving loan or equity commitments. These unfunded capital commitments always take into account the Company’s liquidity and cash available for investment, portfolio and issuer diversification, and other considerations. Accordingly, the Company had the following unfunded capital commitments at December 31, 2020 and December 31, 2019, respectively: December 31, 2020 December 31, 2019 (in millions) Crystal Financial LLC* $ 44.3 $ 44.3 Smile Doctors LLC 26.7 — Soleo Health Holdings, Inc. 7.4 — Cardiva Medical, Inc. 7.3 11.0 Kindred Biosciences, Inc. 6.9 13.8 Neuronetics, Inc. 6.7 — One Touch Direct, LLC 5.0 — PQ Bypass, Inc. 5.0 5.0 NEF Holdings, Inc. 4.2 — Centrexion Therapeutics, Inc. 3.8 7.6 Atria Wealth Solutions, Inc. 3.5 0.4 Sentry Data Systems, Inc. 1.6 — Pinnacle Treatment Centers, Inc. 1.4 — Delphinus Medical Technologies, Inc. 1.3 — Basic Fun, Inc. 1.1 — Rubius Therapeutics, Inc. — 13.4 Cerapedics, Inc. — 5.4 Phynet Dermatology LLC — 4.7 Altern Marketing, LLC — 4.2 Varilease Finance, Inc. — 3.4 MRI Software LLC — 3.3 Enhanced Capital Group, LLC — 2.5 Solara Medical Supplies, Inc. — 1.9 RS Energy Group U.S., Inc. — 1.7 Alimera Sciences, Inc. — 1.1 iCIMS, Inc. — 0.8 Total Commitments $ 126.2 $ 124.5 * The Company controls the funding of the Crystal Financial LLC commitment and may cancel it at its discretion. The credit agreements of the above loan commitments contain customary lending provisions and/or are subject to the portfolio company’s achievement of certain milestones that allow relief to the Company from funding obligations for previously made commitments in instances where the underlying company experiences materially adverse events that affect the financial condition or business outlook for the company. Since these commitments may expire without being drawn upon, unfunded commitments do not necessarily represent future cash requirements or future earning assets for the Company. As of December 31, 2020 and December 31, 2019, the Company had sufficient cash available and/or liquid securities available to fund its commitments. In the normal course of its business, we invest or trade in various financial instruments and may enter into various investment activities with off-balance sheet risk, which may include forward foreign currency contracts. 93 Table of Contents Generally, these financial instruments represent future commitments to purchase or sell other financial instruments at specific terms at future dates. These financial instruments contain varying degrees of off-balance sheet risk whereby changes in the market value or our satisfaction of the obligations may exceed the amount recognized in our Consolidated Statements of Assets and Liabilities. Distributions The following table reflects the cash distributions per share on our common stock for the two most recent fiscal years and the current fiscal year to date: Date Declared Record Date Payment Date Amount Fiscal 2021 February 24, 2021 March 18, 2021 April 2, 2021 $ 0.41 Fiscal 2020 November 5, 2020 December 17, 2020 January 5, 2021 $ 0.41 August 4, 2020 September 17, 2020 October 2, 2020 0.41 May 7, 2020 June 18, 2020 July 2, 2020 0.41 February 20, 2020 March 19, 2020 April 3, 2020 0.41 Total 2020 $ 1.64 Fiscal 2019 November 4, 2019 December 19, 2019 January 3, 2020 $ 0.41 August 5, 2019 September 19, 2019 October 2, 2019 0.41 May 6, 2019 June 20, 2019 July 2, 2019 0.41 February 21, 2019 March 21, 2019 April 3, 2019 0.41 Total 2019 $ 1.64 Tax characteristics of all distributions will be reported to stockholders on Form 1099 after the end of the calendar year. Future quarterly distributions, if any, will be determined by our Board. We expect that our distributions to stockholders will generally be from accumulated net investment income, from net realized capital gains or non-taxable return of capital, if any, as applicable. We have elected to be taxed as a RIC under Subchapter M of the Code. To maintain our RIC tax treatment, we must distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. In addition, although we currently intend to distribute realized net capital gains ( i.e. , net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for such distributions, we may in the future decide to retain such capital gains for investment. We maintain an “opt out” dividend reinvestment plan for our common stockholders. As a result, if we declare a distribution, then stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash distributions. We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, due to the asset coverage test applicable to us as a business development company, we may in the future be limited in our ability to make distributions. Also, our revolving credit facility may limit our ability to declare distributions if we default under certain provisions. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of the tax benefits available to us as a regulated investment company. In addition, in accordance with GAAP and tax regulations, we include in income certain amounts that we have not 94 Table of Contents yet received in cash, such as contractual payment-in-kind interest, which represents contractual interest added to the loan balance that becomes due at the end of the loan term, or the accrual of original issue or market discount. Since we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the requirement to distribute at least 90% of our investment company taxable income to obtain tax benefits as a regulated investment company. With respect to the distributions to stockholders, income from origination, structuring, closing and certain other upfront fees associated with investments in portfolio companies are treated as taxable income and accordingly, distributed to stockholders. Related Parties We have entered into a number of business relationships with affiliated or related parties, including the following: • We have entered into the Advisory Agreement with Solar Capital Partners. Mr. Gross, our Chairman, Co-Chief Executive Officer and President and Mr. Spohler, our Co-Chief Executive Officer, Chief Operating Officer and board member, are managing members and senior investment professionals of, and have financial and controlling interests in, the Investment Adviser. In addition, Mr. Peteka, our Chief Financial Officer, Treasurer and Secretary serves as the Chief Financial Officer for Solar Capital Partners. • The Administrator provides us with the office facilities and administrative services necessary to conduct day-to-day operations pursuant to our Administration Agreement. We reimburse the Administrator for the allocable portion of overhead and other expenses incurred by it in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions, and the compensation of our chief compliance officer, our chief financial officer and their respective staffs. • We have entered into a license agreement with the Investment Adviser, pursuant to which the Investment Adviser has granted us a non-exclusive, royalty-free license to use the name “Solar Capital.” The Investment Adviser may also manage other funds in the future that may have investment mandates that are similar, in whole and in part, with ours. For example, the Investment Adviser presently serves as investment adviser to Solar Senior Capital Ltd., a publicly traded BDC, which focuses on investing in senior secured loans, including first lien and second lien debt instruments, as well as SCP Private Credit Income BDC LLC, an unlisted BDC that focuses on investing primarily in senior secured loans, including non-traditional asset-based loans and first lien loans and SLR HC BDC LLC, an unlisted BDC whose principal focus is to invest directly and indirectly in senior secured loans and other debt instruments typically to middle market companies within the healthcare industry. In addition, Michael S. Gross, our Chairman, Co-Chief Executive Officer and President, Bruce Spohler, our Co-Chief Executive Officer and Chief Operating Officer, and Richard L. Peteka, our Chief Financial Officer, serve in similar capacities for Solar Senior Capital Ltd., SCP Private Credit Income BDC LLC and SLR HC BDC LLC. The Investment Adviser and certain investment advisory affiliates may determine that an investment is appropriate for us and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, the Investment Adviser or its affiliates may determine that we should invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the SEC and its staff, and consistent with the Investment Adviser’s allocation procedures. On June 13, 2017, the Adviser received an exemptive order that permits the Company to participate in negotiated co-investment transactions with certain affiliates, in a manner consistent with the Company’s investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, and pursuant to various conditions (the “Order”). If the Company is unable to rely on the Order for a particular opportunity, such opportunity will be allocated first to the entity whose investment strategy is the most consistent with the opportunity being allocated, and second, if the terms of the opportunity are consistent with more than one entity’s investment strategy, on an alternating 95 Table of Contents basis. Although the Adviser’s investment professionals will endeavor to allocate investment opportunities in a fair and equitable manner, the Company and its stockholders could be adversely affected to the extent investment opportunities are allocated among us and other investment vehicles managed or sponsored by, or affiliated with, our executive officers, directors and members of the Adviser. Related party transactions may occur among Solar Capital Ltd., Crystal Financial LLC, Equipment Operating Leases LLC, Kingsbridge Holdings, LLC, Loyer Capital LLC, North Mill Holdco LLC, Gemino Healthcare Finance, LLC and NEF Holdings LLC. These transactions may occur in the normal course of business. No administrative or other fees are paid to Solar Capital Partners by Crystal Financial LLC, Equipment Operating Leases LLC, Kingsbridge Holdings, LLC, Loyer Capital LLC, North Mill Holdco LLC, Gemino Healthcare Finance, LLC or NEF Holdings LLC. In addition, we have adopted a formal code of ethics that governs the conduct of our officers and directors. Our officers and directors also remain subject to the duties imposed by both the 1940 Act and the Maryland General Corporation Law.