SLR Investment Corp. 10-K

Item 8. Financial Statements and Supplementary Data INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Management’s Report on Internal Control Over Financial Reporting 98 Report of Independent Registered Public Accounting Firm 99 Consolidated Statements of Assets and Liabilities as of December 31, 2020 and 2019 102 Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018 103 Consolidated Statements of Changes in Net Assets for the years ended December 31, 2020, 2019 and 2018 104 Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018 105 Consolidated Schedules of Investments as of December 31, 2020 and 2019 106 Notes to Consolidated Financial Statements 118 97 Table of Contents MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management is responsible for establishing and maintaining adequate internal control over financial reporting, and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2020. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the consolidated financial statements. Management performed an assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020 based upon criteria in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on our assessment, management determined that the Company’s internal control over financial reporting was effective as of December 31, 2020 based on the criteria on Internal Control – Integrated Framework (2013) issued by COSO. The effectiveness of the Company’s internal control over financial reporting as of December 31, 2020 has been audited by KPMG LLP, an independent registered public accounting firm, as stated in their report which appears herein. 98 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Solar Capital Ltd.: Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting We have audited the accompanying consolidated statements of assets and liabilities, including the consolidated schedules of investments, of Solar Capital Ltd. (and subsidiaries) (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, changes in net assets, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes (collectively, the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Basis for Opinions The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying management’s report on internal control over financial reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our procedures included confirmation of securities owned as of December 31, 2020 and 2019, by correspondence with the custodian, portfolio companies or agents. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions. 99 Table of Contents Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Fair value of investments and certain financial liabilities As described in Notes 2 and 6 to the consolidated financial statements, the Company measures its investments at fair value and has made an irrevocable election to apply the fair value option of accounting to certain financial liabilities. Investments and certain financial liabilities in all asset classes are valued utilizing a market approach, an income approach, or both approaches, as appropriate. In determining the fair value of investments and financial liabilities that are not publicly traded and whose market quotations are not readily available, the Company makes subjective judgments and estimates using unobservable inputs. As of December 31, 2020, the fair value of such investments and financial liabilities was $1.5 billion and $150 million, respectively. We identified the assessment of fair value of investments and financial liabilities with no readily determinable market value and whose market quotations are not readily available as a critical audit matter. A high degree of auditor judgment was required to assess the Company’s fair value methods and assumptions. Specifically, assessing the market yields used in the income approach analyses and the selection of comparable companies and the financial performance multiples of such comparable companies used in the market approach analyses required subjective auditor judgment. Additionally, the involvement of valuation professionals with specialized skills and knowledge was required to assist in evaluating the Company’s fair value estimates. The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s process to measure fair value of investments and financial liabilities. These included controls related to the development of market yields, credit risk, and financial performance multiples assumptions. For a selection of investments and certain financial liabilities, we compared the inputs and assumptions used by the Company to underlying documentation. We evaluated the Company’s ability to estimate fair value by 100 Table of Contents comparing market transaction prices to the Company’s most recent fair value estimate prior to the market transaction. We involved valuation professionals with specialized skills and knowledge, who assisted in evaluating the Company’s fair value estimate for a selection of investments and financial liabilities by: • developing an independent market yield for investments and financial liabilities fair valued using an income approach, by assessing available market information, such as market yields of comparable companies of similar credit risk • developing an independent liquidation timeline for an investment fair valued using a recovery analysis, by assessing available market information, such as asset type or comparable companies of similar credit risk • developing an independent market multiple for investments fair valued using a market approach, by assessing market information from third-party sources, including financial performance multiples of independently selected comparable companies • developing independent estimates of fair value, for the selected investments and financial liabilities, based upon the independently developed market yields and financial performance multiples and compared the results of our estimates to the Company’s fair value estimates. /s/ KPMG LLP We have served as the Company’s auditor since 2007. New York, New York February 24, 2021 101 Table of Contents SOLAR CAPITAL LTD. CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES (in thousands, except share amounts) December 31, 2020 December 31, 2019 Assets Investments at fair value: Companies less than 5% owned (cost: $832,507 and $989,564, respectively) $ 822,298 $ 970,821 Companies more than 25% owned (cost: $724,428 and $513,119, respectively) 709,653 524,003 Cash 8,779 16,783 Cash equivalents (cost: $379,997 and $419,571, respectively) 379,997 419,571 Dividends receivable 7,927 10,488 Interest receivable 6,478 5,401 Receivable for investments sold 255 2,207 Prepaid expenses and other assets 571 615 Total assets $ 1,935,958 $ 1,949,889 Liabilities Debt ($677,000 and $593,900 face amounts, respectively, reported net of unamortized debt issuance costs of $5,549 and $6,783, respectively. See notes 6 and 7) $ 671,451 $ 587,117 Payable for investments and cash equivalents purchased 380,038 419,662 Distributions payable 17,327 17,327 Management fee payable (see note 3) 6,535 6,747 Performance-based incentive fee payable (see note 3) 792 4,281 Interest payable (see note 7) 3,416 3,678 Administrative services payable (see note 3) 1,946 2,757 Other liabilities and accrued expenses 2,430 2,440 Total liabilities $ 1,083,935 $ 1,044,009 Commitments and contingencies (see note 12) Net Assets Common stock, par value $0.01 per share, 200,000,000 and 200,000,000 common shares authorized, respectively, and 42,260,826 and 42,260,826 shares issued and outstanding, respectively $ 423 $ 423 Paid-in capital in excess of par (see note 2f) 962,481 988,792 Accumulated distributable net loss (see note 2f) (110,881 ) (83,335 ) Total net assets $ 852,023 $ 905,880 Net Asset Value Per Share $ 20.16 $ 21.44 See notes to consolidated financial statements. 102 Table of Contents SOLAR CAPITAL LTD. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share amounts) Year ended December 31, 2020 2019 2018 INVESTMENT INCOME: Interest: Companies less than 5% owned $ 84,143 $ 106,099 $ 98,172 Companies more than 25% owned 8,861 5,429 2,827 Dividends: Companies less than 5% owned 50 56 28 Companies more than 25% owned 26,794 39,382 50,953 Other income: Companies less than 5% owned 1,885 3,727 1,367 Companies more than 25% owned 12 18 179 Total investment income 121,745 154,711 153,526 EXPENSES: Management fees (see note 3) 24,951 26,774 25,789 Performance-based incentive fees (see note 3) 2,272 18,111 18,722 Interest and other credit facility expenses (see note 7) 27,156 28,901 24,728 Administrative services expense (see note 3) 5,215 5,265 5,247 Other general and administrative expenses 2,936 3,215 4,151 Total expenses 62,530 82,266 78,637 Net investment income $ 59,215 $ 72,445 $ 74,889 REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS AND CASH EQUIVALENTS: Net realized gain (loss) on investments and cash equivalents: Companies less than 5% owned $ (26,638 ) $ 754 $ 1,857 Companies 5% to 25% owned — — 246 Companies more than 25% owned — (661 ) (25 ) Net realized gain (loss) on investments and cash equivalents (26,638 ) 93 2,078 Net realized loss on extinguishment of debt: — (1,853 ) — Net realized gain (loss) (26,638 ) (1,760 ) 2,078 Net change in unrealized gain (loss) on investments and cash equivalents: Companies less than 5% owned 8,970 (14,861 ) (2,805 ) Companies more than 25% owned (26,096 ) 192 (7,288 ) Net change in unrealized loss (17,126 ) (14,669 ) (10,093 ) Net realized and unrealized loss on investments and cash equivalents (43,764 ) (16,429 ) (8,015 ) NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 15,451 $ 56,016 $ 66,874 EARNINGS PER SHARE (see note 5) $ 0.37 $ 1.33 $ 1.58 See notes to consolidated financial statements. 103 Table of Contents SOLAR CAPITAL LTD. CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (in thousands, except share amounts) Year ended December 31, 2020 2019 2018 Increase in net assets resulting from operations: Net investment income $ 59,215 $ 72,445 $ 74,889 Net realized gain (loss) (26,638 ) (1,760 ) 2,078 Net change in unrealized loss (17,126 ) (14,669 ) (10,093 ) Net increase in net assets resulting from operations 15,451 56,016 66,874 Distributions to stockholders (see note 8a): From net investment income (48,795 ) (65,715 ) (69,308 ) From return of capital (20,513 ) (3,592 ) — Net distributions to stockholders (69,308 ) (69,307 ) (69,308 ) Capital transactions (see note 14): Net increase in net assets resulting from capital transactions — — — Total decrease in net assets (53,857 ) (13,291 ) (2,434 ) Net assets at beginning of year 905,880 919,171 921,605 Net assets at end of year $ 852,023 $ 905,880 $ 919,171 Capital share activity (see note 14): Net increase from capital share activity — — — See notes to consolidated financial statements. 104 Table of Contents SOLAR CAPITAL LTD. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year ended December 31, 2020 2019 2018 Cash Flows from Operating Activities: Net increase in net assets resulting from operations $ 15,451 $ 56,016 $ 66,874 Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities: Net realized (gain) loss on investments and cash equivalents 26,638 (93 ) (2,078 ) Net realized loss on extinguishment of debt — 1,853 — Net change in unrealized loss on investments and cash equivalents 17,126 14,669 10,093 (Increase) decrease in operating assets: Purchase of investments (426,897 ) (403,693 ) (768,999 ) Proceeds from disposition of investments 357,632 360,014 774,045 Net accretion of discount on investments (7,581 ) (9,242 ) (7,810 ) Capitalization of payment-in-kind interest (5,384 ) (1,071 ) (946 ) Collections of payment-in-kind interest 1,339 672 785 Receivable for investments sold 1,952 (134 ) 4,087 Interest receivable (1,077 ) 2,218 (283 ) Dividends receivable 2,561 (1,423 ) 5,948 Other receivables — 593 (535 ) Prepaid expenses and other assets 44 168 256 Increase (decrease) in operating liabilities: Payable for investments and cash equivalents purchased (39,624 ) 168,271 106,273 Management fee payable (212 ) 243 (869 ) Performance-based incentive fee payable (3,489 ) (332 ) (47 ) Administrative services expense payable (811 ) 41 (40 ) Interest payable (262 ) (1,036 ) 2,229 Other liabilities and accrued expenses (10 ) (1,015 ) 2,047 Net Cash Provided by (Used in) Operating Activities (62,604 ) 186,719 191,030 Cash Flows from Financing Activities: Cash distributions paid (69,308 ) (69,307 ) (68,670 ) Proceeds from issuance of unsecured debt — 197,957 — Deferred financing costs 1,234 969 607 Consolidation of SSLP Facility and SSLP II Facility — — 61,066 Proceeds from secured borrowings 337,000 967,385 558,374 Repayments of secured borrowings (253,900 ) (1,054,585 ) (685,980 ) Net Cash Provided by (Used in) Financing Activities 15,026 42,419 (134,603 ) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (47,578 ) 229,138 56,427 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 436,354 207,216 150,789 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 388,776 $ 436,354 $ 207,216 Supplemental disclosure of cash flow information: Cash paid for interest $ 27,418 $ 29,937 $ 22,499 See notes to consolidated financial statements. 105 Table of Contents SOLAR CAPITAL LTD. CONSOLIDATED SCHEDULE OF INVESTMENTS December 31, 2020 (in thousands, except share/unit amounts) Description Industry Spread Above Index (7) LIBOR Floor Interest Rate (1) Acquisition Date Maturity Date Par Amount Cost Fair Value Senior Secured Loans —93.7% First Lien Bank Debt/Senior Secured Loans Aegis Toxicology Sciences Corporation Health Care Providers & Services L+550 1.00 % 6.50 % 5/7/2018 5/9/2025 $ 16,869 $ 16,666 $ 16,531 Alteon Health, LLC Health Care Providers & Services L+650 1.00 % 7.50 % 9/14/2018 9/1/2023 14,293 14,233 14,007 American Teleconferencing Services, Ltd. (PGI) Communications Equipment L+650 1.00 % 7.50 % 5/5/2016 6/8/2023 29,984 29,520 27,735 Atria Wealth Solutions, Inc. Diversified Financial Services L+600 1.00 % 7.00 % 9/14/2018 11/30/2022 5,841 5,808 5,841 AviatorCap SII, LLC (2) Aerospace & Defense L+700 — 7.23 % 3/19/2019 1/29/2021 2,941 2,941 2,941 Basic Fun, Inc. Specialty Retail L+675 1.00 % 7.75 % 10/30/2020 10/30/2023 3,183 3,138 3,135 Enhanced Permanent Capital, LLC(3) Capital Markets L+700 1.00 % 8.00 % 12/29/2020 12/29/2025 18,288 17,763 17,763 iCIMS, Inc. Software L+650 1.00 % 7.50 % 9/7/2018 9/12/2024 19,341 19,050 18,955 Kingsbridge Holdings, LLC(2) . Multi-Sector Holdings L+700 1.00 % 8.00 % 12/21/2018 12/21/2024 80,000 79,634 80,000 KORE Wireless Group, Inc. Wireless Telecommunication Services L+550 — 5.75 % 12/21/2018 12/21/2024 36,477 35,949 36,477 Legility, LLC Commercial Services & Supplies L+600 1.00 % 7.00 % 2/27/2020 12/17/2025 19,625 19,282 18,644 Logix Holding Company, LLC Communications Equipment L+575 1.00 % 6.75 % 9/14/2018 12/22/2024 7,027 6,983 6,887 One Touch Direct, LLC Commercial Services & Supplies P+100 — 6.50 % 4/3/2020 3/29/2021 2,458 2,458 2,458 Pet Holdings ULC & Pet Supermarket, Inc. (3) Specialty Retail L+550 1.00 % 6.50 % 9/14/2018 7/5/2022 28,745 28,614 28,457 PhyNet Dermatology LLC Health Care Providers & Services L+550 1.00 % 6.50 % 9/5/2018 8/16/2024 17,065 16,973 16,468 Pinnacle Treatment Centers, Inc. Health Care Providers & Services L+625 1.00 % 7.25 % 1/22/2020 12/31/2022 11,773 11,688 11,773 PPT Management Holdings, LLC Health Care Providers & Services L+850 (15) 1.00 % 9.50 % 9/14/2018 12/16/2022 20,816 20,749 18,943 Sentry Data Systems, Inc. Software L+675 1.00 % 7.75 % 9/27/2020 10/6/2025 15,765 15,462 15,450 Smile Doctors LLC Personal Products L+600 1.00 % 7.00 % 12/17/2020 10/6/2022 3,302 3,237 3,236 Soleo Health Holdings, Inc. Health Care Providers & Services L+575 1.00 % 6.75 % 3/31/2020 12/29/2021 7,579 7,579 7,579 The Children’s Place, Inc.(3) Specialty Retail L+800 1.00 % 9.00 % 10/5/2020 5/9/2024 15,765 15,542 15,528 USR Parent, Inc. (Staples) Specialty Retail L+884 1.00 % 9.84 % 6/3/2020 9/12/2022 4,418 4,418 4,440 Total First Lien Bank Debt/Senior Secured Loans $ 377,687 $ 373,248 Second Lien Asset-Based Senior Secured Loans Greystone Select Holdings LLC & Greystone & Co., Inc. Thrifts & Mortgage Finance L+800 1.00 % 9.00 % 3/29/2017 4/17/2024 19,506 $ 19,398 $ 19,506 Varilease Finance, Inc. Multi-Sector Holdings L+750 1.00 % 8.50 % 8/22/2014 11/15/2025 36,438 36,307 36,438 Total Second Lien Asset-Based Senior Secured Loans $ 55,705 $ 55,944 Second Lien Bank Debt/Senior Secured Loans PhyMed Management LLC Health Care Providers & Services L+1100 (17) 1.00 % 12.00 % 12/18/2015 9/30/2022 33,881 $ 33,736 $ 31,340 Rug Doctor LLC (2) Diversified Consumer Services L+975 (11) 1.50 % 11.25 % 12/23/2013 5/16/2023 10,559 10,543 10,559 Total Second Lien Bank Debt/Senior Secured Loans $ 44,279 $ 41,899 First Lien Life Science Senior Secured Loans Alimera Sciences, Inc. Pharmaceuticals L+765 1.78 % 9.43 % 12/31/2019 7/1/2024 $ 20,074 $ 20,287 $ 20,275 Apollo Endosurgery, Inc. Health Care Equipment & Supplies L+750 1.36 % 8.86 % 3/15/2019 9/1/2024 20,492 20,860 20,799 Ardelyx, Inc. (3) Pharmaceuticals L+745 0.25 % 7.70 % 5/10/2018 11/1/2022 24,500 25,275 25,235 Axcella Health Inc. Pharmaceuticals L+850 0.20 % 8.70 % 1/9/2018 1/1/2023 26,000 27,070 26,910 Cardiva Medical, Inc. Health Care Equipment & Supplies L+795 1.76 % 9.71 % 9/24/2018 12/1/2023 27,667 28,596 29,327 Centrexion Therapeutics, Inc. Pharmaceuticals L+725 2.45 % 9.70 % 6/28/2019 1/1/2024 16,400 16,472 16,564 Cerapedics, Inc. Health Care Equipment & Supplies L+695 2.50 % 9.45 % 3/22/2019 3/1/2024 24,175 24,501 24,537 Delphinus Medical Technologies, Inc. Health Care Equipment & Supplies L+850 1.00 % 9.50 % 8/18/2017 6/1/2022 2,177 2,410 2,395 GenMark Diagnostics, Inc. (3) Health Care Providers & Services L+590 2.51 % 8.41 % 2/1/2019 2/1/2023 49,522 50,892 50,884 Kindred Biosciences, Inc. (16) Pharmaceuticals L+675 2.17 % 8.92 % 9/30/2019 9/30/2024 9,197 9,243 9,242 Neuronetics, Inc. Health Care Equipment & Supplies L+765 1.66 % 9.31 % 3/2/2020 2/28/2025 15,613 15,689 15,691 OmniGuide Holdings, Inc. (13). Health Care Equipment & Supplies L+805 1.00 % 9.05 % 7/30/2018 2/1/2021 10,500 11,532 11,287 PQ Bypass, Inc. Health Care Equipment & Supplies L+795 1.00 % 8.95 % 12/20/2018 12/19/2022 10,000 10,190 10,500 Rubius Therapeutics, Inc. (3) Pharmaceuticals L+550 — 5.65 % 12/21/2018 12/21/2023 40,291 40,692 40,747 scPharmaceuticals, Inc. Pharmaceuticals L+795 2.23 % 10.18 % 9/17/2019 9/17/2023 4,684 4,721 4,725 SI-BONE, Inc. (3) Health Care Equipment & Supplies L+940 0.33 % 9.73 % 5/29/2020 6/1/2025 17,843 17,856 17,843 Total First Lien Life Science Senior Secured Loans $ 326,286 $ 326,961 Total Senior Secured Loans $ 803,957 $ 798,052 See notes to consolidated financial statements. 106 Table of Contents SOLAR CAPITAL LTD. CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) December 31, 2020 (in thousands, except share/unit amounts) Description Industry Interest Rate Acquisition Date Maturity Date Par Amount Cost Fair Value Equipment Financing — 33.4% AmeraMex International, Inc. (10) Commercial Services & Supplies 10.00% 3/29/2019 3/28/2022 $ 5,435 $ 5,397 $ 5,489 Blackhawk Mining, LLC (14) Oil, Gas & Consumable Fuels 10.97-11.16% 2/16/2018 3/1/2022-11/1/2022 3,531 3,415 3,443 Boart Longyear Company (14) Metals & Mining 10.44% 5/28/2020 7/1/2024 3,455 3,455 3,455 C&H Paving, Inc. (14) Construction & Engineering 9.94-11.66% 12/26/2018 1/1/2024-11/1/2024 3,416 3,455 3,410 Capital City Jet Center, Inc. (10) Airlines 10.00% 4/4/2018 10/4/2023-6/22/26 3,882 3,882 3,812 Central Freight Lines, Inc. (10) Road & Rail 7.16% 7/31/2017 1/14/2024 1,212 1,212 1,212 Champion Air, LLC (10) Airlines 10.00% 3/19/2018 1/1/2023 2,255 2,255 2,255 Easton Sales and Rentals, LLC (10) Commercial Services & Supplies 10.00% 9/18/2018 10/1/2021 1,235 1,233 1,188 Environmental Protection & Improvement Company, LLC (10) Road & Rail 8.25% 9/30/2020 10/1/2027 6,520 6,567 6,520 Equipment Operating Leases, LLC (2)(12) Multi-Sector Holdings 7.53-8.37% 4/27/2018 8/1/2022-4/27/2025 26,338 26,338 25,540 EquipmentShare.com, Inc. (14) Commercial Services & Supplies 6.60% 1/8/2020 1/8/2025 8,097 7,658 8,097 Family First Freight, LLC (10) Road & Rail 8.00-10.33% 7/31/2017 2/1/2022-5/1/2023 1,022 1,021 1,014 Freightsol LLC (14) Road & Rail 12.51-12.89% 4/9/2019 11/1/2023 1,880 1,910 1,880 Garda CL Technical Services, Inc. (14) Commercial Services & Supplies 8.30-8.77% 3/22/2018 6/5/2023-10/5/2023 1,956 1,957 1,953 Georgia Jet, Inc. (10) Airlines 8.00% 12/4/2017 12/4/2021 973 973 954 Globecomm Systems Inc. (14) Wireless Telecommunication Services 13.18% 5/10/2018 7/1/2021 413 413 413 GMT Corporation (14) Machinery 12.55% 10/23/2018 10/23/2023 5,446 5,409 5,446 Haljoe Coaches USA, LLC (14) Road & Rail 8.03-9.69% 7/31/2017 7/1/2022-7/1/2024 4,883 4,883 4,132 HTI Logistics Corporation (10) Commercial Services & Supplies 9.69-9.94% 11/15/2018 5/1/2024-9/1/2025 527 527 514 Hypro, Inc. (10) Machinery 11.53% 9/30/2019 10/1/2023 1,925 1,940 1,875 Interstate NDT, Inc. (14) Road & Rail 10.91-14.11% 6/11/2018 7/1/2023-10/25/2023 1,795 1,795 1,704 ISR Holdings, LLC (10) Commercial Services & Supplies 9.25% 8/27/2019 8/27/2022 3,124 3,124 3,124 JP Motorsports, Inc. (14) Road & Rail 16.06% 8/17/2018 1/25/2022 118 118 117 Kool Pak, LLC (14) Road & Rail 8.58% 2/5/2018 3/1/2024 484 484 484 Lineal Industries, Inc. (10) Construction & Engineering 8.00% 12/21/2018 12/21/2021 45 45 45 Loyer Capital LLC (2)(12) Multi-Sector Holdings 8.73-11.52% 5/16/2019 5/16/24-9/25/24 14,731 14,731 14,456 Mountain Air Helicopters, Inc. (10) Commercial Services & Supplies 10.00% 7/31/2017 4/30/2022-2/28/2025 1,870 1,865 1,902 NEF Holdings, LLC (2) Multi-Sector Holdings 8.50% 8/14/2020 8/14/2021 850 850 850 Rane Light Metal Castings Inc. (14) Machinery 10.00% 6/1/2020 7/1/2024 338 338 338 Rango, Inc. (10)(14) Commercial Services & Supplies 9.33%-9.79% 9/24/2019 4/1/2023-11/1/2024 5,137 5,207 5,041 Rossco Crane & Rigging, Inc. (14) Commercial Services & Supplies 11.13-11.53% 8/25/2017 4/1/2021-9/1/2022 332 332 330 Royal Coach Lines, Inc.(14) Road & Rail 9.56% 11/21/2019 8/1/2025 1,215 1,215 1,085 Royal Express Inc. (14) Road & Rail 9.53% 1/17/2019 2/1/2024 914 927 914 Sidelines Tree Service LLC (14) Diversified Consumer Services 10.25% 7/31/2017 10/1/2022 79 79 76 South Texas Oilfield Solutions, LLC (14) Energy Equipment & Services 12.52-13.76% 3/29/2018 9/1/2022-7/1/2023 2,194 2,194 2,110 ST Coaches, LLC (14) Road & Rail 8.21-8.58% 7/31/2017 10/1/2022-1/25/2025 4,755 4,755 4,318 Stafford Logistics, Inc. (10) Commercial Services & Supplies 12.63-13.12% 9/11/2019 10/1/2024-10/1/2025 6,870 6,870 6,604 Star Coaches Inc. (14) Road & Rail 8.42% 3/9/2018 4/1/2025 3,385 3,385 2,902 Sturgeon Services International Inc. (10) Energy Equipment & Services 18.42% 7/31/2017 2/28/2022 816 816 770 Sun-Tech Leasing of Texas, L.P. (14) Road & Rail 8.68% 7/31/2017 7/25/2021 36 36 36 Superior Transportation, Inc. (14) Road & Rail 9.40-12.26% 7/31/2017 4/1/2022-8/1/2024 5,524 5,511 5,142 Tailwinds, LLC (10) Air Freight & Logistics 8.50%-9.00% 7/26/2019 8/1/2024-10/16/2025 2,633 2,633 2,633 The Smedley Company & Smedley Services, Inc. (10) Commercial Services & Supplies 10.03-14.97% 7/31/2017 10/29/2023-2/10/2024 3,902 3,905 3,634 Thora Capital, LLC (10) Airlines 9.00% 7/3/2019 7/1/2025 5,602 5,602 5,596 Trinity Equipment Rentals, Inc. (14) Commercial Services & Supplies 11.23% 9/13/2018 10/1/2022 538 538 538 Trolleys, Inc. (14) Road & Rail 9.98% 7/18/2018 8/1/2022 1,999 1,999 1,919 Up Trucking Services, LLC (14) Road & Rail 11.21-12.53% 3/23/2018 4/1/2022-8/1/2024 1,638 1,657 1,651 Warrior Crane Services, LLC (10) Commercial Services & Supplies 8.95% 7/11/2019 8/1/2024-8/1/2026 3,087 3,087 3,030 Wind River Environmental, LLC (10) Diversified Consumer Services 8.43%-10.00% 7/31/2019 8/1/2024-10/5/25 1,112 1,118 1,112 Womble Company, Inc. (14) Energy Equipment & Services 9.11% 12/27/2019 1/1/2025 694 694 681 Shares/Units NEF Holdings, LLC Equity Interests (2)(9) Multi-Sector Holdings 7/31/2017 200 145,000 129,102 Total Equipment Financing $ 304,810 $ 284,846 Preferred Equity – 0.8% SOAGG LLC (2)(3)(4) Aerospace & Defense 8.00% 12/14/2010 6/30/2023 446 $ 446 $ 2,300 SOINT, LLC (2)(3)(4) Aerospace & Defense 5.00% (11) 6/8/2012 6/30/2023 53,321 5,332 4,101 Total Preferred Equity $ 5,778 $ 6,401 See notes to consolidated financial statements. 107 Table of Contents SOLAR CAPITAL LTD. CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) December 31, 2020 (in thousands, except share/unit amounts) Description Industry Acquisition Date Shares/ Units Cost Fair Value Common Equity/Equity Interests/Warrants—51.9% aTyr Pharma, Inc. Warrants * Pharmaceuticals 11/18/2016 6,347 $ 106 $ — B Riley Financial Inc. (3)(8) Research & Consulting Services 3/16/2007 38,015 2,684 1,681 CardioFocus, Inc. Warrants * Health Care Equipment & Supplies 3/31/2017 90 51 — Centrexion Therapeutics, Inc. Warrants * Pharmaceuticals 6/28/2019 289,102 136 71 Conventus Orthopaedics, Inc. Warrants * Health Care Equipment & Supplies 6/15/2016 157,500 65 — Crystal Financial LLC (2)(3) Diversified Financial Services 12/28/2012 280,303 280,737 296,766 Delphinus Medical Technologies, Inc. Warrants * Health Care Equipment & Supplies 8/18/2017 444,388 74 82 Essence Group Holdings Corporation (Lumeris) Warrants * Health Care Technology 3/22/2017 208,000 63 258 KBH Topco LLC (Kingsbridge) (2)(5) Multi-Sector Holdings 11/3/2020 73,500,000 136,596 136,596 PQ Bypass, Inc. Warrants * Health Care Equipment & Supplies 12/20/2018 300,000 106 675 RD Holdco Inc. (Rug Doctor) (2)* Diversified Consumer Services 12/23/2013 231,177 15,683 1,226 RD Holdco Inc. (Rug Doctor) Class B (2)* Diversified Consumer Services 12/23/2013 522 5,216 5,216 RD Holdco Inc. (Rug Doctor) Warrants (2)* Diversified Consumer Services 12/23/2013 30,370 381 — Scynexis, Inc. Warrants * Pharmaceuticals 9/30/2016 12,243 105 — Senseonics Holdings, Inc. Warrants * Health Care Equipment & Supplies 7/25/2019 526,901 117 81 Sunesis Pharmaceuticals, Inc. Warrants * Pharmaceuticals 3/31/2016 10,400 118 — Venus Concept Ltd. Warrants* (fka Restoration Robotics) Health Care Equipment & Supplies 5/10/2018 27,352 152 — Total Common Equity/Equity Interests/Warrants $ 442,390 $ 442,652 Total Investments (6) — 179.8% $ 1,556,935 $ 1,531,951 Description Industry Acquisition Date Maturity Date Par Amount Cash Equivalents — 44.6% U.S. Treasury Bill Government 12/31/2020 2/23/2021 $ 380,000 $ 379,997 $ 379,997 Total Investments & Cash Equivalents —224.4% $ 1,936,932 $ 1,911,948 Liabilities in Excess of Other Assets — (124.4%). (1,059,925 ) Net Assets — 100.0% $ 852,023 (1) Floating rate debt investments typically bear interest at a rate determined by reference to the London Interbank Offered Rate (“LIBOR”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current rate of interest, or in the case of leases the current implied yield, in effect as of December 31, 2020. 108 Table of Contents SOLAR CAPITAL LTD. CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) December 31, 2020 (in thousands) (2) Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the Investment Company Act of 1940 (“1940 Act”), due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the year ended December 31, 2020 in these controlled investments are as follows: Name of Issuer Fair Value at December 31, 2019 Gross Additions Gross Reductions Realized Gain (Loss) Change in Unrealized Gain (Loss) Interest/ Dividend /Other Income Fair Value at December 31, 2020 AviatorCap SII, LLC $ 2,896 $ — $ 2,896 $ — $ — $ 198 $ — AviatorCap SII, LLC 2,713 1,105 877 — — 260 2,941 Crystal Financial LLC 296,000 — — — 766 24,000 296,766 Equipment Operating Leases, LLC 29,739 — 3,401 — (798 ) 2,290 25,540 Kingsbridge Holdings, LLC (debt) 33,112 46,888 — — (71 ) 3,481 80,000 Kingsbridge Holdings, LLC (equity) — 136,596 — — — 1,925 136,596 Loyer Capital LLC 14,731 — — — (275 ) 1,488 14,456 NEF Holdings, LLC (equity) 145,000 — — — (15,898 ) 250 129,102 NEF Holdings, LLC (debt) — 850 — — — 28 850 RD Holdco Inc. (Rug Doctor, common equity) 7,706 — — — (6,480 ) — 1,226 RD Holdco Inc. (Rug Doctor, class B).. 5,216 — — — — — 5,216 RD Holdco Inc. (Rug Doctor, warrants).. — — — — — — — Rug Doctor LLC 9,111 1,448 — — (6 ) 1,128 10,559 SOAGG LLC 4,952 — 1,095 — (1,557 ) 111 2,300 SOINT, LLC 5,939 319 380 — (1,777 ) 508 4,101 $ 557,115 $ 187,206 $ 8,649 $ — $ (26,096 ) $ 35,667 $ 709,653 See notes to consolidated financial statements. 109 Table of Contents SOLAR CAPITAL LTD. CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) December 31, 2020 (in thousands) (3) Indicates assets that the Company believes may not represent “qualifying assets” under Section 55(a) of the Investment Company Act of 1940 (“1940 Act”), as amended. If we fail to invest a sufficient portion of our assets in qualifying assets, we could be prevented from making follow-on investments in existing portfolio companies or could be required to dispose of investments at inappropriate times in order to comply with the 1940 Act. As of December 31, 2020, on a fair value basis, non-qualifying assets in the portfolio represented 25.9% of the total assets of the Company. (4) Solar Capital Ltd.’s investments in SOAGG, LLC and SOINT, LLC include a two and one dollar investment in common shares, respectively. (5) Kingsbridge Holdings, LLC is held through KBH Topco LLC, a Delaware corporation. (6) Aggregate net unrealized appreciation for U.S. federal income tax purposes is $4,446; aggregate gross unrealized appreciation and depreciation for U.S. federal tax purposes is $52,349 and $47,903, respectively, based on a tax cost of $1,527,505. Unless otherwise noted, all of the Company’s investments are pledged as collateral against the borrowings outstanding on the senior secured credit facility. The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). These investments are generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act. All investments are Level 3 unless otherwise indicated. (7) Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments are often subject to a LIBOR or PRIME rate floor. (8) Denotes a Level 1 investment. (9) NEF Holdings, LLC is held through NEFCORP LLC, a wholly-owned consolidated taxable subsidiary and NEFPASS LLC, a wholly-owned consolidated subsidiary. (10) Indicates an investment that is wholly held by Solar Capital Ltd. through NEFPASS LLC. (11) Interest is paid in kind (“PIK”). (12) Denotes a subsidiary of NEF Holdings, LLC. (13) OmniGuide Holdings, Inc., Domain Surgical, Inc. and OmniGuide, Inc. are co-borrowers. (14) Indicates an investment that is held by the Company through its wholly-owned consolidated financing subsidiary NEFPASS SPV, LLC (the “NEFPASS SPV”). Such investments are pledged as collateral under the NEFPASS SPV, LLC Revolving Credit Facility (see Note 7 to the consolidated financial statements) and are not generally available to creditors, if any, of the Company. (15) Spread is 6.00% Cash / 2.50% PIK. (16) Kindred Biosciences, Inc., KindredBio Equine, Inc. and Centaur Biopharmaceutical Services, Inc. are co-borrowers. (17) Spread is 2.50% Cash / 8.50% PIK. * Non-income producing security. See notes to consolidated financial statements. 110 Table of Contents SOLAR CAPITAL LTD. CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) December 31, 2020 (in thousands) Industry Classification Percentage of Total Investments (at fair value) as of December 31, 2020 Multi-Sector Holdings (includes Kingsbridge Holdings, LLC, NEF Holdings, LLC, Equipment Operating Leases, LLC and Loyer Capital LLC) 27.6 % Diversified Financial Services (includes Crystal Financial LLC) 19.8 % Health Care Providers & Services 10.9 % Pharmaceuticals 9.4 % Health Care Equipment & Supplies 8.7 % Commercial Services & Supplies 4.1 % Specialty Retail 3.4 % Wireless Telecommunication Services 2.4 % Road & Rail 2.3 % Communications Equipment 2.3 % Software 2.2 % Thrifts & Mortgage Finance 1.3 % Diversified Consumer Services 1.2 % Capital Markets 1.2 % Airlines 0.8 % Aerospace & Defense 0.6 % Machinery 0.5 % Energy Equipment & Services. 0.2 % Metals & Mining 0.2 % Construction & Engineering 0.2 % Oil, Gas & Consumable Fuels 0.2 % Personal Products 0.2 % Air Freight & Logistics 0.2 % Research & Consulting Services 0.1 % Health Care Technology. 0.0 % Total Investments 100.0 % See notes to consolidated financial statements. 111 Table of Contents SOLAR CAPITAL LTD. CONSOLIDATED SCHEDULE OF INVESTMENTS December 31, 2019 (in thousands, except share/unit amounts) Description Industry Spread Above Index (7) LIBOR Floor Interest Rate (1) Acquisition Date Maturity Date Par Amount Cost Fair Value Senior Secured Loans — 94.1% Bank Debt/Senior Secured Loans Aegis Toxicology Sciences Corporation Health Care Providers & Services L+550 1.00 % 7.40 % 5/7/2018 5/9/2025 $ 17,043 $ 16,800 $ 16,191 Alteon Health, LLC Health Care Providers & Services L+650 1.00 % 8.30 % 9/14/2018 9/1/2022 15,094 15,011 15,094 Altern Marketing, LLC Household & Personal Products L+600 2.00 % 8.00 % 10/25/2019 10/7/2024 27,899 27,626 27,620 American Teleconferencing Services, Ltd. (PGI) Communications Equipment L+650 1.00 % 8.32 % 5/5/2016 6/8/2023 30,038 29,386 28,236 Atria Wealth Solutions, Inc Diversified Financial Services L+600 1.00 % 7.80 % 9/14/2018 11/30/2022 4,404 4,371 4,360 AviatorCap SII, LLC (2) Aerospace & Defense L+700 — 8.90 % 12/27/2018 10/30/2020 2,896 2,896 2,896 AviatorCap SII, LLC (2) Aerospace & Defense L+700 — 8.90 % 3/19/2019 1/29/2021 2,713 2,713 2,713 Bishop Lifting Products, Inc. (5) Trading Companies & Distributors L+800 1.00 % 9.80 % 3/24/2014 3/27/2022 24,985 24,906 24,985 Enhanced Capital Group, LLC Capital Markets L+550 1.00 % 7.20 % 6/28/2019 6/28/2024 20,311 20,032 20,311 Falmouth Group Holdings Corp. (AMPAC) Chemicals L+675 1.00 % 8.55 % 12/7/2015 12/14/2021 37,195 37,058 37,195 Greystone Select Holdings LLC & Greystone & Co., Inc. Thrifts & Mortgage Finance L+800 1.00 % 9.93 % 3/29/2017 4/17/2024 19,702 19,567 19,702 iCIMS, Inc. Software L+650 1.00 % 8.29 % 9/7/2018 9/12/2024 15,003 14,751 15,003 IHS Intermediate, Inc.** Health Care Providers & Services L+825 1.00 % — 6/19/2015 7/20/2022 25,000 24,728 7,500 Kingsbridge Holdings, LLC Multi-Sector Holdings L+700 1.00 % 9.09 % 12/21/2018 12/21/2024 33,112 32,675 33,112 KORE Wireless Group, Inc. Wireless Telecommunication Services L+550 — 7.44 % 12/21/2018 12/21/2024 36,850 36,208 36,573 Logix Holding Company, LLC Communications Equipment L+575 1.00 % 7.55 % 9/14/2018 12/22/2024 7,103 7,048 7,103 MRI Software LLC Software L+575 1.00 % 7.55 % 7/23/2019 6/30/2023 31,610 31,316 31,610 On Location Events, LLC & PrimeSport Holdings Inc. Media L+500 1.00 % 6.94 % 12/7/2017 9/29/2021 27,547 27,409 27,547 Pet Holdings ULC & Pet Supermarket, Inc. (3) Specialty Retail L+550 1.00 % 7.60 % 9/14/2018 7/5/2022 29,045 28,833 28,972 PhyMed Management LLC Health Care Providers & Services L+875 1.00 % 10.55 % 12/18/2015 5/18/2021 32,321 31,919 32,321 PhyNet Dermatology LLC Health Care Providers & Services L+550 1.00 % 7.29 % 9/5/2018 8/16/2024 17,239 17,125 17,239 PPT Management Holdings, LLC Health Care Providers & Services L+675 (15) 1.00 % 8.44 % 9/14/2018 12/16/2022 20,656 20,557 19,003 PSKW, LLC & PDR, LLC Health Care Providers & Services L+425 1.00 % 6.19 % 9/14/2018 11/25/2021 1,771 1,765 1,771 PSKW, LLC & PDR, LLC Health Care Providers & Services L+768 1.00 % 9.63 % 10/24/2017 11/25/2021 27,929 27,690 27,929 RS Energy Group U.S., Inc. Software L+475 — 6.69 % 10/26/2018 10/6/2023 15,096 14,855 15,096 Rug Doctor LLC (2) Diversified Consumer Services L+975 1.50 % 11.54 % 12/23/2013 5/16/2023 9,111 9,089 9,111 Solara Medical Supplies, Inc. Health Care Providers & Services L+600 1.00 % 7.94 % 5/31/2018 2/27/2024 7,507 7,385 7,507 The Octave Music Group, Inc. (fka TouchTunes) Media L+825 1.00 % 9.95 % 5/28/2015 5/27/2022 12,194 12,116 12,194 Varilease Finance, Inc. Multi-Sector Holdings L+750 1.00 % 9.59 % 8/22/2014 11/15/2025 36,438 36,286 36,438 Total Bank Debt/Senior Secured Loans $ 582,121 $ 565,332 Life Science Senior Secured Loans Alimera Sciences, Inc. Pharmaceuticals L+765 1.78 % 9.43 % 12/31/2019 7/1/2024 $ 18,959 $ 18,959 $ 18,959 Apollo Endosurgery, Inc. Health Care Equipment & Supplies L+750 — 9.19 % 3/15/2019 9/1/2023 20,492 20,539 20,492 Ardelyx, Inc. (3) Pharmaceuticals L+745 — 9.14 % 5/10/2018 11/1/2022 24,500 24,741 24,745 aTyr Pharma, Inc. Pharmaceuticals P+410 — 8.85 % 11/18/2016 11/18/2020 3,667 4,302 4,327 Axcella Health Inc. Pharmaceuticals L+850 — 10.20 % 1/9/2018 1/1/2023 26,000 26,514 26,546 Cardiva Medical, Inc. Health Care Equipment & Supplies L+795 1.76 % 9.71 % 9/24/2018 12/1/2023 24,000 24,383 24,480 Centrexion Therapeutics, Inc. Pharmaceuticals L+725 2.45 % 9.70 % 6/28/2019 1/1/2024 12,615 12,533 12,504 Cerapedics, Inc. Health Care Equipment & Supplies L+695 2.50 % 9.45 % 3/22/2019 3/1/2024 18,803 18,893 18,897 Delphinus Medical Technologies, Inc. Health Care Equipment & Supplies L+850 — 10.19 % 8/18/2017 9/1/2021 3,810 3,919 3,906 GenMark Diagnostics, Inc. (3) Health Care Providers & Services L+590 2.51 % 8.41 % 2/1/2019 2/1/2023 49,522 49,823 50,017 Kindred Biosciences, Inc. (3)(16) Pharmaceuticals L+675 2.17 % 8.92 % 9/30/2019 9/30/2024 9,197 9,169 9,173 OmniGuide Holdings, Inc. (13). Health Care Equipment & Supplies L+805 — 9.74 % 7/30/2018 7/29/2023 10,500 10,639 10,552 PQ Bypass, Inc. Health Care Equipment & Supplies L+795 1.00 % 9.65 % 12/20/2018 12/19/2022 10,000 9,974 10,140 Rubius Therapeutics, Inc. (3) Pharmaceuticals L+550 — 7.19 % 12/21/2018 12/21/2023 26,861 26,974 26,995 scPharmaceuticals, Inc. Pharmaceuticals L+795 2.23 % 10.18 % 9/17/2019 9/17/2023 4,684 4,692 4,693 Senseonics Holdings, Inc Health Care Equipment & Supplies L+650 2.48 % 8.98 % 7/25/2019 7/1/2024 21,076 20,989 21,076 Total Life Science Senior Secured Loans $ 287,043 $ 287,502 Total Senior Secured Loans $ 869,164 $ 852,834 See notes to consolidated financial statements. 112 Table of Contents SOLAR CAPITAL LTD. CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) December 31, 2019 (in thousands, except share/unit amounts) Description Industry Interest Rate (1) Acquisition Date Maturity Date Par Amount Cost Fair Value Equipment Financing — 35.4% Althoff Crane Service, Inc. (14) Commercial Services & Supplies 10.55% 7/31/2017 6/8/2022 $ 1,180 $ 1,180 $ 1,200 AmeraMex International, Inc. (10) Commercial Services & Supplies 10.00% 3/29/2019 3/28/2022 6,314 6,206 6,400 Blackhawk Mining, LLC (14) Oil, Gas & Consumable Fuels 10.99-11.17% 2/16/2018 3/1/2022-11/1/2022 4,701 4,474 4,764 C&H Paving, Inc. (14) Construction & Engineering 9.94-11.66% 12/26/2018 1/1/2024-11/1/2024 4,136 4,187 4,158 Capital City Jet Center, Inc. (10) Airlines 10.00% 4/4/2018 10/4/2023 1,806 1,806 1,808 Central Freight Lines, Inc. (10) Road & Rail 7.16% 7/31/2017 1/14/2024 1,421 1,421 1,421 Champion Air, LLC (10) Airlines 10.00% 3/19/2018 1/1/2023 2,770 2,770 2,748 Easton Sales and Rentals, LLC (10) Commercial Services & Supplies 10.00% 9/18/2018 10/1/2021 1,882 1,866 1,845 Equipment Operating Leases, LLC (2)(12) Multi-Sector Holdings 7.53-8.37% 4/27/2018 8/1/2022-4/27/2025 29,739 29,739 29,739 Family First Freight, LLC (10) Road & Rail 9.43-10.10% 7/31/2017 7/1/2020-1/22/2022 557 556 554 Freightsol LLC (14) Road & Rail 12.62-12.99% 4/9/2019 11/1/2023 2,225 2,266 2,225 Garda CL Technical Services, Inc. (14) Commercial Services & Supplies 8.31-8.77% 3/22/2018 7/13/2023-10/5/2023 2,317 2,317 2,280 Georgia Jet, Inc. (10) Airlines 8.00% 12/4/2017 12/4/2021 1,833 1,833 1,805 Globecomm Systems Inc. (14) Wireless Telecommunication Services 13.18% 5/10/2018 7/1/2021 1,051 1,051 1,072 GMT Corporation (14) Machinery 12.46% 10/23/2018 10/23/2023 6,363 6,309 6,363 Haljoe Coaches USA, LLC (14) Road & Rail 8.15-9.90% 7/31/2017 7/1/2022-7/1/2024 5,626 5,626 5,527 Hawkeye Contracting Company, LLC (10)(11) Oil, Gas & Consumable Fuels 10.00% 11/15/2017 11/15/2020 1,823 1,823 1,827 HTI Logistics Corporation (10) Commercial Services & Supplies 9.69-9.80% 11/15/2018 12/1/2023-4/1/2024 289 289 286 Hypro, Inc. (10) Machinery 11.53% 9/30/2019 10/1/2023 3,460 3,493 3,460 Interstate NDT, Inc. (14) Road & Rail 11.32-13.94% 6/11/2018 7/1/2023-10/25/2023 2,019 2,019 2,055 ISR Holdings, LLC (10) Commercial Services & Supplies 9.25% 8/27/2019 8/27/2022 4,781 4,781 4,781 JP Motorsports, Inc. (14) Road & Rail 16.35% 8/17/2018 1/25/2022 192 191 194 Kool Pak, LLC (14) Road & Rail 8.58% 2/5/2018 3/1/2024 612 612 612 Lineal Industries, Inc. (10) Construction & Engineering 8.00% 12/21/2018 12/21/2021 76 76 76 Loyer Capital LLC (2)(12) Multi-Sector Holdings 8.73-11.52% 5/16/2019 5/16/24-9/25/24 14,731 14,731 14,731 Meridian Consulting I Corp, Inc. (10) Hotels, Restaurants & Leisure 10.72% 7/31/2017 12/4/2021 1,926 1,926 1,972 Mountain Air Helicopters, Inc. (10) Commercial Services & Supplies 10.00% 7/31/2017 4/30/2022 1,509 1,509 1,528 Rango, Inc. (10)(14) Commercial Services & Supplies 9.42%-9.92% 9/24/2019 4/1/2023-11/1/2024 6,055 6,150 6,055 Rossco Crane & Rigging, Inc. (14) Commercial Services & Supplies 11.13-11.53% 8/25/2017 4/1/2021-9/1/2022 577 577 584 Royal Coach Lines, Inc. Road & Rail 9.56% 11/21/2019 8/1/2025 1,240 1,240 1,240 Royal Express Inc. (14) Road & Rail 9.64% 1/17/2019 2/1/2024 1,056 1,075 1,042 Sidelines Tree Service LLC (14) Diversified Consumer Services 10.31-10.52% 7/31/2017 8/1/2022-10/1/2022 329 329 331 South Texas Oilfield Solutions, LLC (14) Energy Equipment & Services 12.52-13.76% 3/29/2018 9/1/2022-7/1/2023 2,753 2,753 2,754 Southern Nevada Oral & Maxillofacial Surgery, LLC (10) Health Care Providers & Services 12.00% 7/31/2017 3/1/2024 1,273 1,273 1,286 Southwest Traders, Inc. (14) Road & Rail 9.13% 11/21/2017 11/1/2020 70 70 69 Spartan Education, LLC (10) Diversified Consumer Services 10.26-12.00% 3/28/2019 7/31/2020-12/27/2023 6,758 6,867 6,766 ST Coaches, LLC (14) Road & Rail 8.21-8.59% 7/31/2017 10/1/2022-1/25/2025 4,585 4,585 4,501 Stafford Logistics, Inc. (10) Commercial Services & Supplies 12.63-13.12% 9/11/2019 10/1/2024-10/1/2025 7,930 7,930 7,930 Star Coaches Inc. (14) Road & Rail 8.42% 3/9/2018 4/1/2025 3,305 3,305 3,288 Sturgeon Services International Inc. (10) Energy Equipment & Services 19.10% 7/31/2017 2/28/2022 1,271 1,271 1,249 Sun-Tech Leasing of Texas, L.P. (14) Road & Rail 8.68-16.95% 7/31/2017 6/25/2020-7/25/2021 238 238 236 Superior Transportation, Inc. (14) Road & Rail 9.38-12.26% 7/31/2017 4/1/2022-8/1/2024 6,492 6,471 6,471 Tailwinds, LLC (10) Air Freight & Logistics 9.00% 7/26/2019 8/1/2024 1,153 1,153 1,153 The Smedley Company & Smedley Services, Inc. (10) Commercial Services & Supplies 9.92-14.75% 7/31/2017 10/29/2023-2/10/2024 5,011 5,030 5,070 Thora Capital, LLC (10) Airlines 9.00% 7/3/2019 7/1/2025 6,209 6,209 6,209 Tornado Bus Company (14) Road & Rail 10.78% 7/31/2017 9/1/2021 1,509 1,509 1,518 Trinity Equipment Rentals, Inc. (14) Commercial Services & Supplies 11.24% 9/13/2018 10/1/2022 719 719 726 Trolleys, Inc. (14) Road & Rail 9.81% 7/18/2018 8/1/2022 2,295 2,295 2,292 Up Trucking Services, LLC (14) Road & Rail 11.21-12.10% 3/23/2018 4/1/2022-8/1/2024 2,512 2,549 2,540 Warrior Crane Services, LLC (10) Commercial Services & Supplies 8.95% 7/11/2019 7/11/2024-8/1/2026 3,316 3,316 3,316 Wind River Environmental, LLC (10) Diversified Consumer Services 10.00% 7/31/2019 8/1/2024 918 926 918 Womble Company, Inc. (10) Energy Equipment & Services 9.11% 12/27/2019 1/1/2025 814 814 814 W.P.M., Inc., WPM-Southern, LLC, WPM Construction Services, Inc.(10) Construction & Engineering 7.50% 7/31/2017 10/1/2022 1,841 1,841 1,841 Shares/ Units NEF Holdings, LLC Equity Interests (2)(9) Multi-Sector Holdings 7/31/2017 200 145,000 145,000 Total Equipment Financing $ 320,552 $ 320,630 Preferred Equity – 1.2% SOAGG LLC (2)(3)(4) Aerospace & Defense 8.00% 12/14/2010 6/30/2023 1,541 $ 1,541 $ 4,952 SOINT, LLC (2)(3)(4) Aerospace & Defense 15.00% 6/8/2012 6/30/2023 53,932 5,393 5,939 Total Preferred Equity $ 6,934 $ 10,891 See notes to consolidated financial statements. 113 Table of Contents SOLAR CAPITAL LTD. CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) December 31, 2019 (in thousands, except share/unit amounts) Description Industry Acquisition Date Shares/ Units Cost Fair Value Common Equity/Equity Interests/Warrants—34.3% aTyr Pharma, Inc. Warrants * Pharmaceuticals 11/18/2016 6,347 $ 106 $ — B Riley Financial Inc. (3)(8) Research & Consulting Services 3/16/2007 38,015 2,684 957 CardioFocus, Inc. Warrants * Health Care Equipment & Supplies 3/31/2017 440,816 51 34 Centrexion Therapeutics, Inc. Warrants * Pharmaceuticals 6/28/2019 210,256 106 77 Conventus Orthopaedics, Inc. Warrants * Health Care Equipment & Supplies 6/15/2016 157,500 65 10 Crystal Financial LLC (2)(3) Diversified Financial Services 12/28/2012 280,303 280,737 296,000 Delphinus Medical Technologies, Inc. Warrants * Health Care Equipment & Supplies 8/18/2017 380,904 74 50 Essence Group Holdings Corporation (Lumeris) Warrants * Health Care Technology 3/22/2017 208,000 63 267 PQ Bypass, Inc. Warrants * Health Care Equipment & Supplies 12/20/2018 300,000 106 75 RD Holdco Inc. (Rug Doctor) (2)* Diversified Consumer Services 12/23/2013 231,177 15,683 7,706 RD Holdco Inc. (Rug Doctor) Class B (2)* Diversified Consumer Services 12/23/2013 522 5,216 5,216 RD Holdco Inc. (Rug Doctor) Warrants (2)* Diversified Consumer Services 12/23/2013 30,370 381 — Scynexis, Inc. Warrants * Pharmaceuticals 9/30/2016 122,435 105 — Senseonics Holdings, Inc. Warrants * Health Care Equipment & Supplies 7/25/2019 526,901 117 70 Sunesis Pharmaceuticals, Inc. Warrants * Pharmaceuticals 3/31/2016 104,001 118 — Tetraphase Pharmaceuticals, Inc. Warrants (3)* Pharmaceuticals 10/30/2018 14,227 269 — Venus Concept Ltd. Warrants* (fka Restoration Robotics) Health Care Equipment & Supplies 5/10/2018 27,352 152 7 Total Common Equity/Equity Interests/Warrants $ 306,033 $ 310,469 Total Investments (6) — 165.0% $ 1,502,683 $ 1,494,824 Description Industry Acquisition Date Maturity Date Par Amount Cash Equivalents — 46.3% U.S. Treasury Bill Government 12/31/2019 1/28/2020 $ 420,000 $ 419,571 $ 419,571 Total Investments & Cash Equivalents —211.3% $ 1,922,254 $ 1,914,395 Liabilities in Excess of Other Assets — (111.3%) (1,008,515 ) Net Assets — 100.0% $ 905,880 (1) Floating rate debt investments typically bear interest at a rate determined by reference to the London Interbank Offered Rate (“LIBOR”), and which typically reset monthly, quarterly or semi-annually. For each debt investment we have provided the current rate of interest, or in the case of leases the current implied yield, in effect as of December 31, 2019. 114 Table of Contents SOLAR CAPITAL LTD. CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) December 31, 2019 (in thousands) (2) Denotes investments in which we are deemed to exercise a controlling influence over the management or policies of a company, as defined in the Investment Company Act of 1940 (“1940 Act”), due to beneficially owning, either directly or through one or more controlled companies, more than 25% of the outstanding voting securities of the investment. Transactions during the year ended December 31, 2019 in these controlled investments are as follows: Name of Issuer Fair Value at December 31, 2018 Gross Additions Gross Reductions Realized Gain (Loss) Change in Unrealized Gain (Loss) Interest/ Dividend /Other Income Fair Value at December 31, 2019 Ark Real Estate Partners LP $ 39 $ — $ — $ (526 ) $ 487 $ — $ — Ark Real Estate Partners II LP 1 — — (135 ) 11 — — AviatorCap SII, LLC 2,975 — 79 — — 274 2,896 AviatorCap SII, LLC — 2,975 262 — — 208 2,713 Crystal Financial LLC 293,000 — — — 3,000 30,000 296,000 Equipment Operating Leases, LLC 32,882 — 3,143 — — 2,550 29,739 Loyer Capital LLC — 21,634 6,903 — — 1,085 14,731 NEF Holdings, LLC 145,000 — — — — 3,300 145,000 RD Holdco Inc. (Rug Doctor, common equity) 7,732 — — — (26 ) — 7,706 RD Holdco Inc. (Rug Doctor, class B) 5,216 — — — — — 5,216 RD Holdco Inc. (Rug Doctor, warrants) — — — — — — — Rug Doctor LLC 9,111 — — — (39 ) 1,182 9,111 SOAGG LLC 9,113 — 951 — (3,210 ) 5,256 4,952 SOINT, LLC — 2,144 2,188 — — 148 — SOINT, LLC (preferred equity) 6,414 — 444 — (31 ) 826 5,939 $ 511,483 $ 26,753 $ 13,970 $ (661 ) $ 192 $ 44,829 $ 524,003 See notes to consolidated financial statements. 115 Table of Contents SOLAR CAPITAL LTD. CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) December 31, 2019 (in thousands) (3) Indicates assets that the Company believes may not represent “qualifying assets” under Section 55(a) of the Investment Company Act of 1940 (“1940 Act”), as amended. If we fail to invest a sufficient portion of our assets in qualifying assets, we could be prevented from making follow-on investments in existing portfolio companies or could be required to dispose of investments at inappropriate times in order to comply with the 1940 Act. As of December 31, 2019, on a fair value basis, non-qualifying assets in the portfolio represented 22.9% of the total assets of the Company. (4) Solar Capital Ltd.’s investments in SOAGG, LLC and SOINT, LLC include a two and one dollar investment in common shares, respectively. (5) Bishop Lifting Products, Inc., SEI Holding I Corporation, Singer Equities, Inc. & Hampton Rubber Company are co-borrowers. (6) Aggregate net unrealized appreciation for U.S. federal income tax purposes is $8,172; aggregate gross unrealized appreciation and depreciation for U.S. federal tax purposes is $45,038 and $36,866, respectively, based on a tax cost of $1,486,652. Unless otherwise noted, all of the Company’s investments are pledged as collateral against the borrowings outstanding on the senior secured credit facility. The Company generally acquires its investments in private transactions exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”). These investments are generally subject to certain limitations on resale, and may be deemed to be “restricted securities” under the Securities Act. All investments are Level 3 unless otherwise indicated. (7) Floating rate instruments accrue interest at a predetermined spread relative to an index, typically the LIBOR or PRIME rate. These instruments are often subject to a LIBOR or PRIME rate floor. (8) Denotes a Level 1 investment. (9) NEF Holdings, LLC is held through NEFCORP LLC, a wholly-owned consolidated taxable subsidiary and NEFPASS LLC, a wholly-owned consolidated subsidiary. (10) Indicates an investment that is wholly held by Solar Capital Ltd. through NEFPASS LLC. (11) Hawkeye Contracting Company, LLC, Eagle Creek Mining, LLC & Falcon Ridge Leasing, LLC are co-borrowers. (12) Denotes a subsidiary of NEF Holdings, LLC. (13) OmniGuide Holdings, Inc., Domain Surgical, Inc. and OmniGuide, Inc. are co-borrowers. (14) Indicates an investment that is held by the Company through its wholly-owned consolidated financing subsidiary NEFPASS SPV, LLC (the “NEFPASS SPV”). Such investments are pledged as collateral under the NEFPASS SPV, LLC Revolving Credit Facility (see Note 7 to the consolidated financial statements) and are not generally available to creditors, if any, of the Company. (15) Spread is 6.00% Cash / 0.75% PIK. (16) Kindred Biosciences, Inc., KindredBio Equine, Inc. and Centaur Biopharmaceutical Services, Inc. are co-borrowers. * Non-income producing security. ** Investment is on non-accrual status. See notes to consolidated financial statements. 116 Table of Contents SOLAR CAPITAL LTD. CONSOLIDATED SCHEDULE OF INVESTMENTS (continued) December 31, 2019 (in thousands) Industry Classification Percentage of Total Investments (at fair value) as of December 31, 2019 Diversified Financial Services (includes Crystal Financial LLC) 20.1 % Multi-Sector Holdings (includes NEF Holdings, LLC, Equipment Operating Leases, LLC and Loyer Capital LLC) 17.3 % Health Care Providers & Services 13.1 % Pharmaceuticals 8.6 % Health Care Equipment & Supplies 7.3 % Software 4.1 % Commercial Services & Supplies 2.8 % Media 2.7 % Wireless Telecommunication Services 2.5 % Chemicals 2.5 % Road & Rail 2.4 % Communications Equipment 2.4 % Diversified Consumer Services 2.0 % Specialty Retail 1.9 % Household & Personal Products 1.9 % Trading Companies & Distributors 1.7 % Capital Markets 1.4 % Thrifts & Mortgage Finance 1.3 % Aerospace & Defense 1.1 % Airlines 0.8 % Machinery 0.7 % Oil, Gas & Consumable Fuels 0.4 % Construction & Engineering 0.4 % Energy Equipment & Services. 0.3 % Hotels, Restaurants & Leisure. 0.1 % Air Freight & Logistics 0.1 % Research & Consulting Services 0.1 % Health Care Technology 0.0 % Total Investments 100.0 % See notes to consolidated financial statements. 117 Table of Contents SOLAR CAPITAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2020 (in thousands, except share amounts) Note 1. Organization Solar Capital LLC, a Maryland limited liability company, was formed in February 2007 and commenced operations on March 13, 2007 with initial capital of $1,200,000 of which 47.04% was funded by affiliated parties. Immediately prior to our initial public offering, through a series of transactions, Solar Capital Ltd. merged with Solar Capital LLC, leaving Solar Capital Ltd. as the surviving entity (the “Merger”). Solar Capital Ltd. issued an aggregate of approximately 26.65 million shares of common stock and $125,000 in senior unsecured notes to the existing Solar Capital LLC unit holders in connection with the Merger. Solar Capital Ltd. had no assets or operations prior to completion of the Merger and as a result, the historical books and records of Solar Capital LLC have become the books and records of the surviving entity. The number of shares used to calculate weighted average shares for use in computations on a per share basis have been decreased retroactively by a factor of approximately 0.4022 for all periods prior to February 9, 2010. This factor represents the effective impact of the reduction in shares resulting from the Merger. Solar Capital Ltd. (“Solar Capital”, the “Company”, “we”, “us” 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 FASB Accounting Standards Codification (“ASC”) Topic 946. In addition, for U.S. federal income tax purposes, the Company has elected to be treated, and intends to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). On February 9, 2010, Solar Capital priced its initial public offering, selling 5.68 million shares of common stock, including the underwriters’ over-allotment, at a price of $18.50 per share. Concurrent with this offering, the Company’s senior management purchased an additional 600,000 shares through a private placement, also at $18.50 per share. The Company’s investment objective is to maximize both current income and capital appreciation through debt and equity investments. The Company directly and indirectly invests 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. Note 2. Significant Accounting Policies The accompanying consolidated financial statements have been prepared on the accrual basis of accounting in conformity with U.S. generally accepted accounting principles (“GAAP”), and include the accounts of the Company and certain wholly-owned subsidiaries. The consolidated financial statements reflect all adjustments and reclassifications which, in the opinion of management, are necessary for the fair presentation of the results of the operations and financial condition for the periods presented. All significant intercompany balances and transactions have been eliminated. Certain prior period amounts may have been reclassified to conform to the current period presentation. The preparation of consolidated financial statements in conformity with GAAP and pursuant to the requirements for reporting on Form 10-K and Regulation S-X, as appropriate, also requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the financial 118 Table of Contents SOLAR CAPITAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2020 (in thousands, except share amounts) statements and the reported amounts of income and expenses during the reported periods. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual results to differ materially. In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair presentation of financial statements have been included. The significant accounting policies consistently followed by the Company are: (a) Investment transactions are accounted for on the trade date; (b) 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 such 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 Solar Capital Partners, LLC (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; (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 and responds to the valuation recommendation of the independent valuation firm, if any, 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. 119 Table of Contents SOLAR CAPITAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2020 (in thousands, except share amounts) 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. 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. (c) Gains or losses on investments are calculated by using the specific identification method. (d) The Company records dividend income and interest, adjusted for amortization of premium and accretion of discount, on an accrual basis. Loan origination fees, original issue discount, and market discounts are capitalized and we amortize such amounts 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 call premiums received on loans repaid as interest income when we receive such amounts. Capital structuring fees, amendment fees, consent fees, and any other non-recurring fee income as well as management fee and other fee income for services rendered, if any, are recorded as other income when earned. (e) The Company intends to comply with the applicable provisions of the Code pertaining to regulated investment companies to make distributions of taxable income sufficient to relieve it of substantially all 120 Table of Contents SOLAR CAPITAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2020 (in thousands, except share amounts) U.S. federal income taxes. The Company, at its discretion, may carry forward taxable income in excess of calendar year distributions and pay a 4% excise tax on this income. The Company will accrue excise tax on such estimated excess taxable income as appropriate. (f) Book and tax basis differences relating to stockholder distributions and other permanent book and tax differences are typically reclassified among the Company’s capital accounts. In addition, the character of income and gains to be distributed is determined in accordance with income tax regulations that may differ from GAAP; accordingly at December 31, 2020, $5,798 was reclassified on our balance sheet between accumulated distributable net loss and paid-in capital in excess of par. Total earnings and net asset value are not affected. (g) Distributions to common stockholders are recorded as of the record date. The amount to be paid out as a distribution is determined by the Board. Net realized capital gains, if any, are generally distributed or deemed distributed at least annually. (h) In accordance with Regulation S-X and ASC Topic 810— Consolidation , the Company consolidates its interest in controlled investment company subsidiaries, financing subsidiaries and certain wholly-owned holding companies that serve to facilitate investment in portfolio companies. In addition, the Company may also consolidate any controlled operating companies substantially all of whose business consists of providing services to the Company. (i) The accounting records of the Company are maintained in U.S. dollars. Any assets and liabilities denominated in foreign currencies are translated into U.S. dollars based on the rate of exchange of such currencies against U.S. dollars on the date of valuation. The Company will not isolate that portion of the results of operations resulting from changes in foreign exchange rates on investments from the fluctuations arising from changes in market prices of securities held. Such fluctuations would be included with the net unrealized gain or loss from investments. The Company’s investments in foreign securities, if any, may involve certain risks, including without limitation: foreign exchange restrictions, expropriation, taxation or other political, social or economic risks, all of which could affect the market and/or credit risk of the investment. In addition, changes in the relationship of foreign currencies to the U.S. dollar can significantly affect the value of these investments in terms of U.S. dollars and therefore the earnings of the Company. (j) The Company has made elections to apply the fair value option of accounting to the unsecured senior notes due 2022 (the “2022 Unsecured Notes”) (see notes 6 and 7), in accordance with ASC 825-10. (k) In accordance with ASC 835-30, the Company reports origination and other expenses related to certain debt issuances as a direct deduction from the carrying amount of the debt liability. Applicable expenses are deferred and amortized using either the effective interest method or the straight-line method over the stated life. The straight-line method may be used on revolving facilities and/or when it approximates the effective yield method. (l) The Company may enter into forward exchange contracts in order to hedge against foreign currency risk. These contracts are marked-to-market by recognizing the difference between the contract exchange rate and the current market rate as unrealized appreciation or depreciation. Realized gains or losses are recognized when contracts are settled. (m) The Company records expenses related to shelf registration statements and applicable equity offering costs as prepaid assets. These expenses are typically charged as a reduction of capital upon utilization or expensed, in accordance with ASC 946-20-25. 121 Table of Contents SOLAR CAPITAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2020 (in thousands, except share amounts) (n) Investments that are expected to pay regularly scheduled interest in cash are generally placed on non-accrual status when principal or interest 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 cash payments will be collected. Such non-accrual investments are restored to accrual status if past due principal and interest are paid in cash, and in management’s judgment, are likely to continue timely payment of their remaining principal and interest obligations. Cash interest payments received on such investments may be recognized as income or applied to principal depending on management’s judgment. (o) The Company defines cash equivalents as securities that are readily convertible into known amounts of cash and so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Generally, only securities with a maturity of three months or less would qualify, with limited exceptions. The Company believes that certain U.S. Treasury bills, repurchase agreements and other high-quality, short-term debt securities would qualify as cash equivalents. 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. Note 3. Agreements Solar Capital has an investment advisory and management agreement (the “Advisory Agreement”) with the Investment Adviser, under which the Investment Adviser will manage the day-to-day operations of, and provide investment advisory services to, Solar Capital. For providing these services, the Investment Adviser receives a fee from Solar Capital, consisting of two components—a base management fee and a performance-based incentive fee. The base management fee is determined by taking the average value of Solar Capital’s gross assets at the end of the two most recently completed calendar quarters calculated at an annual rate of 1.75% on gross assets up to 200% of the Company’s total net assets as of the immediately preceding quarter end and 1.00% on gross assets that exceed 200% of the Company’s total net assets as of the immediately preceding quarter end. For purposes of computing the base management fee, gross assets exclude temporary assets acquired at the end of each fiscal quarter for purposes of preserving investment flexibility in the next fiscal quarter. Temporary assets include, but are not limited to, U.S. treasury bills, other short-term U.S. government or government agency securities, repurchase agreements or cash borrowings. The performance-based incentive fee has two parts, as follows: one part is calculated and payable quarterly in arrears based on Solar Capital’s pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that we receive from portfolio companies) accrued during the calendar quarter, minus Solar Capital’s operating expenses for the quarter (including the base management fee, any expenses payable under the Administration Agreement, and any interest expense and distributions paid on any issued and outstanding preferred stock, but excluding the 122 Table of Contents SOLAR CAPITAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2020 (in thousands, except share amounts) performance-based incentive fee). Pre-incentive fee net investment income does not include any realized capital gains or losses, or unrealized capital appreciation or depreciation. Pre-incentive fee net investment income, expressed as a rate of return on the value of Solar Capital’s net assets at the end of the immediately preceding calendar quarter, is compared to the hurdle rate of 1.75% per quarter (7% annualized). Solar Capital pays the Investment Adviser a performance-based incentive fee with respect to Solar Capital’s pre-incentive fee net investment income in each calendar quarter as follows: (1) no performance-based incentive fee in any calendar quarter in which Solar Capital’s pre-incentive fee net investment income does not exceed the hurdle rate; (2) 100% of Solar Capital’s 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 rate but is less than 2.1875% in any calendar quarter; and (3) 20% of the amount of Solar Capital’s pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter. These calculations are appropriately pro-rated for any period of less than three months. The second part of the performance-based incentive fee is determined and payable in arrears as of the end of each calendar year (or upon termination of the Advisory Agreement, as of the termination date), and will equal 20% of Solar Capital’s cumulative realized capital gains less cumulative realized capital losses, unrealized capital depreciation (unrealized depreciation on a gross investment-by-investment basis at the end of each calendar year) and all net capital gains upon which prior performance-based capital gains incentive fee payments were previously made to the Investment Adviser. For financial statement purposes, the second part of the performance-based incentive fee is accrued based upon 20% of cumulative net realized gains and net unrealized capital appreciation. No accrual was required for the fiscal years ended December 31, 2020, 2019 and 2018. For the fiscal years ended December 31, 2020, 2019 and 2018, the Company recognized $24,951, $26,774 and $25,789, respectively, in base management fees and $2,272, $18,111 and $18,722, respectively, in performance-based incentive fees. Solar Capital has also entered into an Administration Agreement with Solar Capital Management, LLC (the “Administrator”) under which the Administrator provides administrative services to Solar Capital. For providing these services, facilities and personnel, Solar Capital reimburses the Administrator for Solar Capital’s allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the Administration Agreement, including rent. The Administrator will also provide, on Solar Capital’s behalf, managerial assistance to those portfolio companies to which Solar Capital is required to provide such assistance. The Company typically reimburses the Administrator on a quarterly basis. For the fiscal years ended December 31, 2020, 2019 and 2018, the Company recognized expenses under the Administration Agreement of $5,215, $5,265 and $5,247, respectively. No managerial assistance fees were accrued or collected for the fiscal years ended December 31, 2020, 2019 and 2018. Note 4. Net Asset Value Per Share At December 31, 2020, the Company’s total net assets and net asset value per share were $852,023 and $20.16, respectively. This compares to total net assets and net asset value per share at December 31, 2019 of $905,880 and $21.44, respectively. 123 Table of Contents SOLAR CAPITAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2020 (in thousands, except share amounts) Note 5. Earnings Per Share The following table sets forth the computation of basic and diluted net increase in net assets per share resulting from operations, pursuant to ASC 260-10, for the years ended December 31, 2020, 2019 and 2018: Year ended December 31, 2020 Year ended December 31, 2019 Year ended December 31, 2018 Earnings per share (basic & diluted) Numerator - net increase in net assets resulting from operations: $ 15,451 $ 56,016 $ 66,874 Denominator - weighted average shares: 42,260,826 42,260,826 42,260,826 Earnings per share: $ 0.37 $ 1.33 $ 1.58 Note 6. Fair Value Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP establishes a framework for measuring fair value that includes a hierarchy used to classify the inputs used in measuring fair value. The hierarchy prioritizes the inputs to valuations used to measure fair value into three levels. The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. The levels of the fair value hierarchy are as follows: Level 1. Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Company has the ability to access. Level 2. Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following: a) Quoted prices for similar assets or liabilities in active markets; b) Quoted prices for identical or similar assets or liabilities in non-active markets; c) Pricing models whose inputs are observable for substantially the full term of the asset or liability; and d) Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability. Level 3. Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s and, if applicable, an independent third-party valuation firm’s own assumptions about the assumptions a market participant would use in pricing the asset or liability. When the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). 124 Table of Contents SOLAR CAPITAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2020 (in thousands, except share amounts) Gains and losses for assets and liabilities categorized within the Level 3 table below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3). A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Such reclassifications involving Level 3 assets and liabilities are reported as transfers in/out of Level 3 as of the end of the quarter in which the reclassifications occur. Within the fair value hierarchy tables below, cash and cash equivalents are excluded but could be classified as Level 1. The following tables present the balances of assets and liabilities measured at fair value on a recurring basis, as of December 31, 2019 and 2018: Fair Value Measurements As of December 31, 2020 Level 1 Level 2 Level 3 Total Assets: Senior Secured Loans $ — $ — $ 798,052 $ 798,052 Equipment Financing — — 284,846 284,846 Preferred Equity — — 6,401 6,401 Common Equity/Equity Interests/Warrants 1,681 — 440,971 442,652 Total Investments $ 1,681 $ — $ 1,530,270 $ 1,531,951 Liabilities: 2022 Unsecured Notes $ — $ — $ 150,000 $ 150,000 Fair Value Measurements As of December 31, 2019 Level 1 Level 2 Level 3 Total Assets: Senior Secured Loans $ — $ — $ 852,834 $ 852,834 Equipment Financing — — 320,630 320,630 Preferred Equity — — 10,891 10,891 Common Equity/Equity Interests/Warrants 957 — 309,512 310,469 Total Investments $ 957 $ — $ 1,493,867 $ 1,494,824 Liabilities: 2022 Unsecured Notes $ — $ — $ 150,000 $ 150,000 125 Table of Contents SOLAR CAPITAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2020 (in thousands, except share amounts) The following table provides a summary of the changes in fair value of Level 3 assets for the year ended December 31, 2020, as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to those assets still held at December 31, 2020: Fair Value Measurements Using Level 3 Inputs Senior Secured Loans Equipment Financing Preferred Equity Common Equity/ Equity Interests/ Warrants Total Fair value, December 31, 2019 $ 852,834 $ 320,630 $ 10,891 $ 309,512 $ 1,493,867 Total gains or losses included in earnings: Net realized loss (24,570 ) (123 ) — (269 ) (24,962 ) Net change in unrealized gain (loss) 10,426 (20,043 ) (3,334 ) (4,898 ) (17,849 ) Purchase of investment securities 264,939 37,977 320 136,626 439,862 Proceeds from dispositions of investment securities. (305,577 ) (53,595 ) (1,476 ) — (360,648 ) Transfers in/out of Level 3 — — — — — Fair value, December 31, 2020 $ 798,052 $ 284,846 $ 6,401 $ 440,971 $ 1,530,270 Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period: Net change in unrealized loss $ (5,084 ) $ (20,043 ) $ (3,334 ) $ (4,898 ) $ (33,359 ) The following table shows a reconciliation of the beginning and ending balances for fair valued liabilities measured using significant unobservable inputs (Level 3) for the year ended December 31, 2020: 2022 Unsecured Notes For the year ended December 31, 2020 Beginning fair value $ 150,000 Net realized (gain) loss — Net change in unrealized (gain) loss — Borrowings — Repayments — Transfers in/out of Level 3 — Ending fair value $ 150,000 The Company made elections to apply the fair value option of accounting to the 2022 Unsecured Notes, in accordance with ASC 825-10. On December 31, 2020, there were borrowings of $150,000 on the 2022 Unsecured Notes. 126 Table of Contents SOLAR CAPITAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2020 (in thousands, except share amounts) The following table provides a summary of the changes in fair value of Level 3 assets and liabilities for the year ended December 31, 2019, as well as the portion of gains or losses included in income attributable to unrealized gains or losses related to those assets and liabilities still held at December 31, 2019: Fair Value Measurements Using Level 3 Inputs Senior Secured Loans Equipment Financing Preferred Equity Common Equity/ Equity Interests/ Warrants Total Fair value, December 31, 2018 $ 818,861 $ 314,226 $ 15,527 $ 306,926 $ 1,455,540 Total gains or losses included in earnings: Net realized gain (loss) 391 162 — (108 ) 445 Net change in unrealized gain (loss) (14,296 ) (576 ) (3,242 ) 3,028 (15,086 ) Purchase of investment securities 322,882 90,330 — 426 413,638 Proceeds from dispositions of investment securities. (275,004 ) (83,512 ) (1,394 ) (760 ) (360,670 ) Transfers in/out of Level 3 — — — — — Fair value, December 31, 2019 $ 852,834 $ 320,630 $ 10,891 $ 309,512 $ 1,493,867 Unrealized gains (losses) for the period relating to those Level 3 assets that were still held by the Company at the end of the period: Net change in unrealized gain (loss) $ (14,064 ) $ (576 ) $ (3,242 ) $ 2,519 $ (15,363 ) The following table shows a reconciliation of the beginning and ending balances for fair valued liabilities measured using significant unobservable inputs (Level 3) for the year ended December 31, 2019: Credit Facility, 2022 Unsecured Notes and SSLP Facility For the year ended December 31, 2019 Beginning fair value $ 350,185 Net realized (gain) loss — Net change in unrealized (gain) loss — Borrowings 529,600 Repayments (626,600 ) Transfers into Level 3 — Transfers out of Level 3 (103,185 ) Ending fair value $ 150,000 The Company made elections to apply the fair value option of accounting to the 2022 Unsecured Notes, in accordance with ASC 825-10. On December 31, 2019, there were borrowings of $150,000 on the 2022 Unsecured Notes. 127 Table of Contents SOLAR CAPITAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2020 (in thousands, except share amounts) The Company did not elect to apply the fair value option of accounting to the SSLP Facility, which was refinanced by way of amendment on May 31, 2019. As this refinancing was deemed to be a significant modification of debt, per ASC 825-10-25, a new election was triggered. As such the SSLP Facility is shown as a transfer out of Level 3. Quantitative Information about Level 3 Fair Value Measurements The Company typically determines the fair value of its performing debt investments utilizing a yield analysis. In a yield analysis, a price is ascribed for each investment based upon an assessment of current and expected market yields for similar investments and risk profiles. Additional consideration is given to current contractual interest rates, relative maturities and other key terms and risks associated with an investment. Among other factors, a significant determinant of risk is the amount of leverage used by the portfolio company relative to the total enterprise value of the company, and the rights and remedies of our investment within each portfolio company. Significant unobservable quantitative inputs typically used in the fair value measurement of the Company’s Level 3 assets and liabilities primarily reflect current market yields, including indices, and readily available quotes from brokers, dealers, and pricing services as indicated by comparable assets and liabilities, as well as enterprise values, returns on equity and earnings before income taxes, depreciation and amortization (“EBITDA”) multiples of similar companies, and comparable market transactions for equity securities. Quantitative information about the Company’s Level 3 asset and liability fair value measurements as of December 31, 2020 is summarized in the table below: Asset or Liability Fair Value at December 31, 2020 Principal Valuation Technique/ Methodology Unobservable Input Range (Weighted Average) Senior Secured Loans Asset $ 798,052 Income Approach Market Yield 5.8% – 16.4% (8.9%) Equipment Financing Asset $ 155,744 Income Approach Market Yield 6.6% – 20.3% (10.3%) $ 129,102 Market Approach Return on Equity 10.9% – 10.9% (10.9%) Preferred Equity Asset $ 6,401 Income Approach Market Yield 3.3% – 8.0% (5.0%) Common Equity/Equity Interests/Warrants Asset $ 144,205 Market Multiple (1) Comparable Multiple 5.8x – 6.3x (6.3x) $ 296,766 Market Approach Return on Equity (10.3%) – 13.7% (0.5%) 2022 Unsecured Notes Liability $ 150,000 Income Approach Market Yield 1.5% – 4.6% (4.5%) (1) Includes $675 of investments valued using a weighted valuation approach, $492 of investments valued using a Black-Scholes model, $6,442 of investments valued using an EBITDA multiple and $136,596 of investments which, due to the proximity of the transaction relative to the measurement date, were valued using the cost of the investments. 128 Table of Contents SOLAR CAPITAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2020 (in thousands, except share amounts) Quantitative information about the Company’s Level 3 asset and liability fair value measurements as of December 31, 2019 is summarized in the table below: Asset or Liability Fair Value at December 31, 2019 Principal Valuation Technique/ Methodology Unobservable Input Range (Weighted Average) Senior Secured Loans Asset $ 845,334 Income Approach Market Yield 6.2% – 11.9% (9.3%) $ 7,500 Market Approach EBITDA Multiple 7.8x - 8.0x (7.9x) Equipment Financing Asset $ 175,630 Income Approach Market Yield 7.2% – 19.7% (10.0%) $ 145,000 Market Approach Return on Equity 7.8% – 7.8% (7.8%) Preferred Equity Asset $ 10,891 Income Approach Market Yield 8.0% – 12.9% (10.7%) Common Equity/Equity Interests/Warrants Asset $ 296,000 Market Approach EBITDA Multiple 5.8x – 6.3x (6.0x) $ 13,512 Market Approach Return on Equity 3.9% – 17.0% (17.0%) 2022 Unsecured Notes Liability $ 150,000 Income Approach Market Yield 3.8% – 6.0% (4.5%) Significant increases or decreases in any of the above unobservable inputs in isolation, including unobservable inputs used in deriving bid-ask spreads, if applicable, could result in significantly lower or higher fair value measurements for such assets and liabilities. Generally, an increase in market yields or decrease in EBITDA multiples may result in a decrease in the fair value of certain of the Company’s investments. Note 7. Debt Our debt obligations consisted of the following as of December 31, 2020 and December 31, 2019: December 31, 2020 December 31, 2019 Facility Face Amount Carrying Value Face Amount Carrying Value Credit Facility $ 201,000 $ 198,766 (1) $ 117,900 $ 115,217 (1) NEFPASS Facility 30,000 29,377 (2) 30,000 29,149 (2) 2022 Unsecured Notes 150,000 150,000 150,000 150,000 2022 Tranche C Notes 21,000 20,930 (3) 21,000 20,905 (3) 2023 Unsecured Notes 75,000 74,225 (4) 75,000 73,876 (4) 2024 Unsecured Notes 125,000 123,877 (5) 125,000 123,732 (5) 2026 Unsecured Notes 75,000 74,276 (6) 75,000 74,238 (6) $ 677,000 $ 671,451 $ 593,900 $ 587,117 (1) Carrying Value equals the Face Amount net of unamortized debt issuance costs of $2,234 and $2,683 as of December 31, 2020 and December 31, 2019, respectively. (2) Carrying Value equals the Face Amount net of unamortized debt issuance costs of $623 and $851 as of December 31, 2020 and December 31, 2019, respectively. (3) Carrying Value equals the Face Amount net of unamortized debt issuance costs of $70 and $95 as of December 31, 2020 and December 31, 2019, respectively. (4) Carrying Value equals the Face Amount net of unamortized debt issuance costs of $775 and $1,124 as of December 31, 2020 and December 31, 2019, respectively. (5) Carrying Value equals the Face Amount net of unamortized debt issuance costs of $1,123 and $1,268 as of December 31, 2020 and December 31, 2019, respectively. (6) Carrying Value equals the Face Amount net of unamortized debt issuance costs of $724 and $762 as of December 31, 2020 and December 31, 2019, respectively. 129 Table of Contents SOLAR CAPITAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2020 (in thousands, except share amounts) Unsecured Notes On December 18, 2019, the Company closed a private offering of $125,000 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 $75,000 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 $21,000 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 $75,000 in aggregate principal amount of publicly registered 2023 Unsecured Notes for net proceeds of $73,846. 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 $100,000 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 $50,000 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 and Term Loan Facilities 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 $470,000 of revolving credit and $75,000 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 $75,000 of revolving credit, bringing our Credit Facility’s total revolving credit capacity to $545,000. 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. The Credit Facility may be increased up to $800,000 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 $201,000, composed of $126,000 of revolving credit and $75,000 of term loans. 130 Table of Contents SOLAR CAPITAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2020 (in thousands, except share amounts) On September 26, 2018, NEFPASS SPV LLC, a newly formed wholly-owned subsidiary of NEFPASS LLC, as borrower entered into a $50,000 senior secured revolving credit facility (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 $30,000 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. 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 this facility at fair value better aligns the measurement methodologies of assets and liabilities, which may mitigate certain earnings volatility. ASC 825-10 requires entities to display the fair value of the selected assets and liabilities on the face of the Consolidated Statement of Assets and Liabilities and changes in fair value of the above facility are reported in the Consolidated Statement of Operations. The average annualized interest cost for all borrowings for the year ended December 31, 2020 and the year ended December 31, 2019 was 4.11% and 4.52%, respectively. These costs are exclusive of other credit facility expenses such as unused fees, agency fees and other prepaid expenses related to establishing and/or amending the 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”), if any. The maximum amounts borrowed on the Credit Facilities during the year ended December 31, 2020 and the year ended December 31, 2019 were $677,000 and $616,186, respectively. Note 8(a). Income Tax Information and Distributions to Stockholders The tax character of distributions for the fiscal years ended December 31, 2020, 2019 and 2018 were as follows (1): 2020 2019 2018 Ordinary income $ 48,795 70.4 % $ 65,715 94.8 % $ 69,308 100.0 % Capital gains — 0.0 % — 0.0 % — 0.0 % Return of capital 20,513 29.6 % 3,592 5.2 % — 0.0 % Total distributions $ 69,308 100.0 % $ 69,307 100.0 % $ 69,308 100.0 % 131 Table of Contents SOLAR CAPITAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2020 (in thousands, except share amounts) As of December 31, 2020, 2019 and 2018 the total accumulated earnings (loss) on a tax basis were as follows (1): 2020 2019 2018 Undistributed ordinary income $ — $ — $ 13,259 Undistributed long-term net capital gains — — — Total undistributed net earnings — — 13,259 Post-October capital losses — — — Capital loss carryforward (69,384 ) (45,400 ) (37,319 ) Other book/tax temporary differences 2,168 2,004 (1,098 ) Net unrealized appreciation 4,446 8,172 853 Total tax accumulated loss $ (62,770 ) $ (35,224 ) $ (24,305 ) (1) Tax information for the fiscal years ended December 31, 2020, 2019 and 2018 are/were estimates and are not final until the Company files its tax returns, typically in September or October each year. The Company recognizes in its consolidated financial statements the tax effect of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. To the best of our knowledge, we did not have any uncertain tax positions that met the recognition or measurement criteria of ASC 740-10-25 nor did we have any unrecognized tax benefits as of the periods presented herein. Although we file federal and state tax returns, our major tax jurisdiction is federal. Our tax returns for each of our federal tax years since 2017 remain subject to examination by the Internal Revenue Service and the state department of revenue. The capital loss carryforwards shown above do not expire. Note 8(b). Other Tax Information (unaudited) For the fiscal years ended December 31, 2020, 2019 and 2018, 0.1%, 0.0% and 0.0%, respectively, of the dividends paid during the year were eligible for qualified dividend income treatment and the dividends received deduction for corporate stockholders. For the fiscal years ended December 31, 2020, 2019, and 2018, 92.05%, 83.81% and 89.69%, respectively, of each of the distributions paid during the year represent interest-related dividends. For the fiscal years ended December 31, 2020, 2019 and 2018, none of the distributions represent short-term capital gains dividends. 132 Table of Contents SOLAR CAPITAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2020 (in thousands, except share amounts) Note 9. Financial Highlights The following is a schedule of financial highlights for the respective years: 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 Per Share Data: (a) Net asset value, beginning of year $ 21.44 $ 21.75 $ 21.81 $ 21.74 $ 20.79 Net investment income 1.40 1.71 1.77 1.62 1.68 Net realized and unrealized gain (loss) (1.04 ) (0.38 ) (0.19 ) 0.05 0.84 Net increase in net assets resulting from operations 0.36 1.33 1.58 1.67 2.52 Distributions to stockholders (see note 8a): From net investment income (1.15 ) (1.55 ) (1.64 ) (1.60 ) (1.60 ) From return of capital (0.49 ) (0.09 ) — — — Anti-dilution — — — — 0.03 Net asset value, end of year $ 20.16 $ 21.44 $ 21.75 $ 21.81 $ 21.74 Per share market value, end of year $ 17.51 $ 20.62 $ 19.19 $ 20.21 $ 20.82 Total Return(b) (5.72 %) 16.22 % 2.77 % 4.47 % 37.49 % Net assets, end of year $ 852,023 $ 905,880 $ 919,171 $ 921,605 $ 918,507 Shares outstanding, end of year 42,260,826 42,260,826 42,260,826 42,260,826 42,248,525 Ratios to average net assets: Net investment income 6.93 % 7.83 % 8.10 % 7.43 % 7.91 % Operating expenses 4.14 % 5.76 % 5.83 % 5.80 % 6.25 % Interest and other credit facility expenses 3.18 % 3.13 % 2.67 % 2.35 %* 2.73 %* Total expenses 7.32 % 8.89 % 8.50 % 8.15 % 8.98 % Average debt outstanding $ 556,104 $ 561,249 $ 508,445 $ 414,264 $ 495,795 Portfolio turnover ratio 26.0 % 24.1 % 39.3 % 24.9 % 31.0 % (a) Calculated using the average shares outstanding method. (b) Total return is based on the change in market price per share during the year and takes into account distributions, if any, reinvested in accordance with the dividend reinvestment plan. Total return does not include a sales load. * Ratios are shown without the non-recurring upfront costs that were expensed in the period associated with the amendment and establishment of the Credit Facility and 2022 Unsecured Notes. Ratios excluding those non-recurring upfront costs would be 2.29% and 2.39% for the fiscal year ended December 31, 2017 and December 31, 2016, respectively. 133 Table of Contents SOLAR CAPITAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2020 (in thousands, except share amounts) Note 10. 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 $275,000 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 $400,000 at November 30, 2012 and a $275,000 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 $5,737. 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 $330,000. As of December 31, 2020 Crystal Financial LLC had 30 funded commitments to 24 different issuers with a total par value of approximately $404,115 on total assets of $433,914. As of December 31, 2019 Crystal Financial LLC had 35 funded commitments to 28 different issuers with total funded loans of approximately $496,833 on total assets of $518,024. As of December 31, 2020 and December 31, 2019, the largest loan outstanding totaled $45,000 and $45,000, respectively. For the same periods, the average exposure per issuer was $16,838 and $17,744, respectively. Crystal Financial LLC’s credit facility, which is non-recourse to Solar Capital, had approximately $183,896 and $275,954 of borrowings outstanding at December 31, 2020 and December 31, 2019, respectively. For the years ended December 31, 2020, 2019 and 2018 Crystal Financial LLC had net income of $23,293, $8,021 and $33,026, respectively, on gross income of $45,315, $61,177 and $58,758, respectively. Due to timing and non-cash items, there may be material differences between GAAP net income and cash available for distributions. 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. Note 11. Selected Quarterly Financial Data (unaudited) Quarter Ended Investment Income Net Investment Income Net Realized And Unrealized Gain (Loss) on Assets Net Increase (Decrease) In Net Assets From Operations Total Per Share Total Per Share Total Per Share Total Per Share December 31, 2020 $ 31,366 0.74 $ 14,894 0.35 $ 3,363 0.08 $ 18,257 0.43 September 30, 2020 28,851 0.68 14,267 0.34 4,350 0.10 18,617 0.44 June 30, 2020 28,625 0.68 14,201 0.34 39,845 0.94 54,046 1.28 March 31, 2020 32,904 0.78 15,853 0.38 (91,322 ) (2.16 ) (75,469 ) (1.79 ) December 31, 2019 $ 37,059 0.88 $ 17,123 0.41 $ (19,287 ) (0.46 ) $ (2,164 ) (0.05 ) September 30, 2019 39,711 0.94 18,426 0.44 (4,709 ) (0.11 ) 13,717 0.32 June 30, 2019 38,682 0.92 18,432 0.44 1,199 0.03 19,631 0.46 March 31, 2019 39,259 0.93 18,464 0.44 6,368 0.15 24,832 0.59 134 Table of Contents SOLAR CAPITAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2020 (in thousands, except share amounts) Note 12. Commitments and Contingencies The Company had unfunded debt and equity commitments to various revolving and delayed draw loans as well as to Crystal Financial LLC. The total amount of these unfunded commitments as of December 31, 2020 and December 31, 2019 is $126,180 and $124,529, respectively, comprised of the following: December 31, 2020 December 31, 2019 Crystal Financial LLC* $ 44,263 $ 44,263 Smile Doctors LLC 26,740 — Soleo Health Holdings, Inc. 7,421 — Cardiva Medical, Inc. 7,333 11,000 Kindred Biosciences, Inc. 6,897 13,795 Neuronetics, Inc. 6,691 — One Touch Direct, LLC 5,042 — PQ Bypass, Inc. 5,000 5,000 NEF Holdings, Inc. 4,150 — Centrexion Therapeutics, Inc. 3,785 7,569 Atria Wealth Solutions, Inc. 3,529 387 Sentry Data Systems, Inc. 1,577 — Pinnacle Treatment Centers, Inc. 1,386 — Delphinus Medical Technologies, Inc. 1,250 — Basic Fun, Inc. 1,116 — Rubius Therapeutics, Inc. — 13,430 Cerapedics, Inc. — 5,372 Phynet Dermatology LLC — 4,668 Altern Marketing, LLC — 4,227 Varilease Finance, Inc. — 3,438 MRI Software LLC — 3,331 Enhanced Capital Group, LLC — 2,523 Solara Medical Supplies, Inc. — 1,934 RS Energy Group U.S., Inc. — 1,685 Alimera Sciences, Inc. — 1,115 iCIMS, Inc. — 792 Total Commitments $ 126,180 $ 124,529 * 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. 135 Table of Contents SOLAR CAPITAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2020 (in thousands, except share amounts) Note 13. 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 $209,866 in cash to effect the transaction, of which $145,000 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 $64,866 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 $150,000 non-recourse facility with an accordion feature to expand up to $250,000. In September 2019, NEF amended the facility, increasing commitments to $213,957 with an accordion feature to expand up to $313,957 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 $94,587, 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 $188,448 on total assets of $263,443. 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 $244,996 on total assets of $304,203. As of December 31, 2020 and December 31, 2019, the largest position outstanding totaled $25,103 and $26,948, respectively. For the same periods, the average exposure per customer was $3,089 and $3,141, respectively. NEF’s credit facility, which is non-recourse to Solar Capital, had approximately $100,569 and $128,150 of borrowings outstanding at December 31, 2020 and December 31, 2019, respectively. For the years ended December 31, 2020, 2019 and 2018, NEF had net income (loss) of ($8,883), ($6,023) and $3,426, respectively on gross income of $24,512, $31,928 and $30,044, respectively. Due to timing and non-cash items, there may be material differences between GAAP net income and cash available for distributions. 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. Note 14. Capital Share Transactions As of December 31, 2020 and December 31, 2019, 200,000,000 shares of $0.01 par value capital stock were authorized. Transactions in capital stock were as follows: Shares Amount Year ended December 31, 2020 Year ended December 31, 2019 Year ended December 31, 2020 Year ended December 31, 2019 Shares issued in reinvestment of distributions — — $ — $ — Net increase (decrease) — — $ — $ — 136 Table of Contents SOLAR CAPITAL LTD. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) December 31, 2020 (in thousands, except share amounts) Note 15. 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 $216,596 to effect the transaction, of which $136,596 was invested to acquire 87.5% of KBHT’s equity and $80,000 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. As of December 31, 2020, KBHT had total assets of $744,684. KBHT also had recourse debt outstanding of $219,044 as well as non-recourse debt outstanding of $335,899. For the period November 3, 2020 through December 31, 2020, KBHT had net income of $2,170, on gross income of $43,618. 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. Note 16. Subsequent Events The Company has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the consolidated financial statements were issued. 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. 137 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure None.