Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
We are subject to financial market risks, including changes in interest rates. At December 31, 2020, 95.4% of debt investments in our portfolio bore interest based on floating rates, such as LIBOR, EURIBOR, the Federal Funds Rate or the Prime Rate. The interest rates on such investments generally reset by reference to the current market index after one to six months. At December 31, 2020, the percentage of floating rate debt investments in our portfolio that were subject to an interest rate floor was 79.7%. Floati ng rate investments subject to a floor generally reset by reference to the current market index after one to six months only if the index exceeds the floor.
Interest rate sensitivity refers to the change in earnings that may result from changes in the level of interest rates. Because we fund a portion of our investments with borrowings, our net investment income is affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. We assess our portfolio companies periodically to determine whether such companies will be able to continue making interest payments in the event that interest rates increase. There can be no assurances that the portfolio companies will be able to meet their contractual obligations at any or all levels of increases in interest rates.
Based on our December 31, 2020 balance sheet, the following table shows the annual impact on net investment income (excluding the related incentive compensation impact) of base rate changes in interest rates (considering interest rate floors for variable rate instruments and the fact that our assets and liabilities may not have the same base rate period as assumed in this table) assuming no changes in our investment and borrowing structure:
Basis Point Change Interest income Interest Expense Net Investment Income
Up 300 basis points $ 31,359,869 $ (4,693,628) $ 26,666,241
Up 200 basis points 16,823,290 (3,129,085) 13,694,205
Up 100 basis points 4,414,286 (1,564,543) 2,849,743
Down 100 basis points (438,606) 365,540 (73,066)
Down 200 basis points (438,606) 365,540 (73,066)
Down 300 basis points (438,606) 365,540 (73,066)
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