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Since that time, we have engaged in the business of providing short-term specialty finance solutions primarily to private businesses, micro- and small-cap public companies and high-net-worth individuals.
−Removed: To avoid again becoming subject to regulation under the 1940 Act, we generally seek to structure our short-term loans such that they do not constitute “securities” under federal securities law, and we monitor our holdings as a whole to ensure that no more than 40% of our total assets may consist of “investment securities,” as that term is defined under the 1940 Act.
+Added: To avoid again becoming subject to regulation under the 1940 Act, we generally seek to structure our short-term loans such that they do not constitute “securities” under federal securities law, and we monitor our holdings as a whole to ensure that no more than 40% of our total assets may consist of “investment securities,” as that term is defined and understood under the 1940 Act.
The principal specialty finance solutions we provide are high-interest short-term lending arrangements.
−Removed: Typically, these lending arrangements involve us obtaining collateral as security for the borrower’s repayment of funds to us, or personal guarantees from the principals or affiliates of the borrower.
+Added: Typically, these lending arrangements involve us obtaining collateral as security for the borrower’s repayment of funds to us, the right to seek and obtain such collateral, or personal guarantees from the principals or affiliates of the borrower.
In some circles, short-term high-interest collateralized lending is referred to as “hard-money lending.”
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and that may involve dollar amounts that are not suitable for institutional lenders.
−Removed: We generally provide specialty finance solutions that are short-term in nature.
+Added: We generally seek to provide specialty finance solutions that are short-term in nature.
By this, we mean lending arrangements that mature or come due within nine months of the lending date.
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and (ii) it helps minimize regulatory risk.
−Removed: In terms of non-performance risk, short-term lending requires us to focus upon, and a potential borrower to identify to us, us a near-term source of liquidity for repayment of the funds they borrow from us.
−Removed: This permits us to evaluate that source of repayment clearly and carefully, thus helping identify the potential risks involved in a particular transaction and how we may be able to include structural terms, such as specific collateral and collateral-related arrangements, guarantees, or other types of covenants or arrangements that mitigate these risks.
+Added: In terms of non-performance risk, short-term lending requires us to focus upon, and a potential borrower to identify to us, a near-term source of liquidity for repayment of the funds they borrow from us.
+Added: This permits us to evaluate that source of repayment clearly and carefully, thus helping identify the potential risks involved in a particular transaction and how we may be able to include structural terms, such as specific collateral and collateral-related arrangements, guarantees, or other types of covenants or arrangements that mitigate those risks.
In terms of regulatory risk, we believe that short-term lending permits us to avail ourselves of a court-recognized exception for treating promissory notes (evidencing a loan) as “securities” under federal securities law.
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We believe that our management’s strong combination of experience and contacts in the securities and investment finance sector, including the experience and contacts of our independent directors, should be sufficient to continue attracting suitable prospective investment opportunities.
−Removed: To date, the network of contacts of our management and directors has been successful thus far in sourcing all of the transactions in which we have participated.
+Added: To date, the network of contacts of our management and directors has been successful in sourcing all of the transactions in which we have participated.
Accordingly, we presently do not have any plans to hire any business development professionals to assist us with transactional volume.
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Throughout our history and in particular after ceasing to be a BDC, we have approached investment opportunities flexibly and creatively in terms of transactional structures and terms.
−Removed: In part, we are able to be flexible and creative because we are not subject to many of the regulatory limitations that govern our other more traditional or institutional competitors.
+Added: In part, we are able to be flexible and creative because we are not subject to many of the regulatory restrictions that govern our other more traditional or institutional competitors.
Those competitors are often subject to limitations on the type transactions they undertake, the amount that may be invested in a specific transaction or a particular type of transaction, the markets in which they operate, the maturity or time horizon of their investment, uses of proceeds, or otherwise.
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Other Matters
−Removed: We do not believe that we are dependent in any material way on any particular borrower, type of specialty finance transaction, or industry.
+Added: In general, we do not believe that we are dependent in any material way on any particular borrower, type of specialty finance transaction, or industry.
+Added: At this time, however, we have a significant amount invested in a particular borrower, Mustang Funding, LLC (a provider of litigation finance), as a result of a potential strategic combination transaction that was ultimately abandoned in August 2024.
+Added: The failure of this combination transaction to occur resulted in our need to restructure our loan to Mustang Funding in a way that ensured the maximum collateral security we could reasonably obtain, consistent with prevailing market-based commercial lending terms, while acceding to the requirements of their senior lender in respect of a subordination and intercreditor agreement and an extension of the maturity date for our loan.
We do not own or use through license any patents, trademarks, or other intellectual properties and we do not believe that any such assets would be material to our business.
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Our Investment Process
−Removed: We have identified several criteria that we believe are generally important guidelines for us to meet our financial objectives.
+Added: We have identified several criteria that we believe are important general guidelines for us to meet our financial objectives.
These criteria are, however, only general guidelines for our investment decisions and, in the case of some transactions in which we invest, fewer than all—or even none—of these criteria will be met.
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Because the vast majority of our transactions involve short-term maturities, we typically seek to identify a liquidity source for the borrower to repay us.
−Removed: Examples of sources of potential liquidity may include accounts receivable, another valuable asset, or a pending payment (e.g., a tax refund, or a litigation judgment or settlement payment) that is reasonably expected to pay out prior to the maturity of the credit we provide.
+Added: Examples of sources of potential liquidity may include accounts receivable, another valuable asset, or a pending payment (e.g., a tax refund, or a litigation judgment or settlement payment) or pending transaction, that is reasonably expected to close and pay out prior to the maturity of the credit we provide.
Collateral Value .
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our familiarity with the borrower (or, in the case of a business borrower, our familiarity with management or other persons such as directors involved with the borrower);
−Removed: in the case of a business borrower, our review and assessment of the potential borrower’s financing history, as well as the likely need for additional financings after our transaction;
+Added: in the case of a business borrower, our review and assessment of the potential borrower’s financing history, overall capitalization, existing senior and secured lending positions, existing affiliated lending positions, as well as the likely need for additional financings after our transaction;
the industry in which the borrower operates, our knowledge and familiarity with that industry, our assessment of the complexity of the business, any regulatory matters or other unique aspects presenting special risks, and the competitive landscape faced by the borrower;
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Depending on timing, we may not use a letter of intent and will instead proceed directly to definitive documentation.
−Removed: As indicated above, to avoid becoming subject to the regulatory requirements of the 1940 Act, we monitor our investment holdings as a whole to ensure that investments and other holdings which may be considered “investment securities” do not comprise more than 40% of our total assets.
+Added: As indicated above, to avoid becoming subject to the regulatory requirements of the 1940 Act, we monitor our investment holdings as a whole with a view towards ensuring that investments and other holdings which may be considered “investment securities” do not comprise more than 40% of our total assets.
We undertake this analysis (1) at least on a quarterly basis and in connection with the review and preparation of our financial statements filed as part of our quarterly and annual reports with the SEC, and (2) at other times when we are considering how to structure a new transaction that is of a significant size—with “significance” largely based on the outcome of our most recent quarterly review.
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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.