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Item 3. Quantitative and Qualitative Disclosures About Market Risk

2021-05-10 compared with 2020-11-09 · 47 added, 45 removed, 21 unchanged (81% of the section changed)

Quantitative and Qualitative Disclosures About Market

Quantitative and Qualitative Disclosures About Market Risk

We are subject to financial market risks,

including changes in interest rates.

During the period covered by our financial statements, many of the loans in our portfolio

had floating interest rates, and we expect that many of our loans to portfolio companies in the future will also have floating

interest rates.

These loans are usually based on a floating rate based on LIBOR that resets quarterly to the applicable LIBOR.

Interest rate fluctuations may have a substantial negative impact on our investments, the value of our common stock and our rate

of return on invested capital.

Since we plan to use debt to finance investments, our net investment income will depend, in part,

upon the difference between the rate at which we borrow funds and the rate at which we invest those funds.

During the period covered by our financial statements, many of the loans in our portfolio had floating

interest rates, and we expect that many of our loans to portfolio companies in the future will also have floating interest rates.

loans are usually based on a floating rate based on LIBOR that resets quarterly to the applicable LIBOR.

Interest rate fluctuations may

have a substantial negative impact on our investments, the value of our common stock and our rate of return on invested capital.

we plan to use debt to finance investments, our net investment income will depend, in part, upon the difference between the rate at which

we borrow funds and the rate at which we invest those funds.

In addition, U.S.

global capital markets have experienced a higher level of stress due to the global COVID-19 pandemic which has resulted in an increase

in the level of volatility across such markets and a general decline in value of securities held by us.

As a result, we can offer

no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.

and global capital markets have experienced a higher level

of stress due to the global COVID-19 pandemic which has resulted in an increase in the level of volatility across such markets and a general

decline in value of securities held by us.

As a result, we can offer no assurance that a significant change in market interest rates will

not have a material adverse effect on our net investment income.

Assuming that the consolidated statement

of assets and liabilities as of September 30, 2020 was to remain constant and that we took no actions to alter our existing

interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates

(dollars in thousands).

of assets and liabilities as of March 31, 2021 was to remain constant and that we took no actions to alter our existing interest rate

sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates (dollars in thousands).

Increase(Decrease) in

2 unchanged sentences

Increase(Decrease)

As of September 30, 2020, nearly all

of the performing floating rate investments in our portfolio had interest rate floors.

Variable-rate investments subject to a floor

generally reset periodically to the applicable floor and, in the case of investments in our portfolio, quarterly to a floor based

on LIBOR, only if the floor exceeds the index.

Under these loans, we do not benefit from increases in interest rates until such

rates exceed the floor and thereafter benefit from market rates above any such floor.

As of March 31, 2021, nearly all of the performing

floating rate investments in our portfolio had interest rate floors.

Variable-rate investments subject to a floor generally reset periodically

to the applicable floor and, in the case of investments in our portfolio, quarterly to a floor based on LIBOR, only if the floor exceeds

Under these loans, we do not benefit from increases in interest rates until such rates exceed the floor and thereafter benefit

from market rates above any such floor.

For a discussion of the risks associated

2 unchanged sentences

Risks Relating to Our Business and Structure —

Since we are using debt to finance our investments, and we may use additional debt or preferred stock financing going forward,

changes in interest rates may affect our cost of capital, net investment income, value of our common stock and our rate of return

on invested capital”

we are using debt to finance our investments, and we may use additional debt or preferred stock financing going forward, changes in interest

rates may affect our cost of capital, net investment income, value of our common stock and our rate of return on invested capital”

in our annual report on Form 10-K for the year ended December 31, 2020.

Although management believes that this

analysis is indicative of our existing sensitivity to interest rate changes, it does not adjust for changes in the credit markets,

the size, credit quality or composition of the assets in our portfolio and other business developments, including borrowing, that

could affect net increase in net assets resulting from operations or net income.

It also does not adjust for the effect of the

time-lag between a change in the relevant interest rate index and the rate adjustment under the applicable loan.

Accordingly, we

can offer no assurances that actual results would not differ materially from the statement above.

We utilized forward foreign currency contracts

to protect ourselves against fluctuations in exchange rates.

We may in the future hedge against interest rate fluctuations by using

standard hedging instruments such as futures, options and forward contracts to the extent permitted under the 1940 Act and applicable

commodities laws.

While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability

to participate in the benefits of lower interest rates with respect to the investments in our portfolio with fixed interest rates.

See Note 3 to our consolidated financial statements for further discussion of foreign exchange forward contracts.

analysis is indicative of our existing sensitivity to interest rate changes, it does not adjust for changes in the credit markets, the

size, credit quality or composition of the assets in our portfolio and other business developments, including borrowing, that could affect

net increase in net assets resulting from operations or net income.

It also does not adjust for the effect of the time-lag between a change

in the relevant interest rate index and the rate adjustment under the applicable loan.

Accordingly, we can offer no assurances that actual

results would not differ materially from the statement above.

We may in the future hedge against interest

rate fluctuations by using standard hedging instruments such as futures, options and forward contracts to the extent permitted under the

1940 Act and applicable commodities laws.

While hedging activities may insulate us against adverse changes in interest rates, they may

also limit our ability to participate in the benefits of lower interest rates with respect to the investments in our portfolio with fixed

interest rates.

We may enter into foreign currency forward contracts from time to

time to facilitate settlement of purchases and sales of investments denominated in foreign currencies and to hedge economically the

impact that an adverse change in foreign exchange rates would have on the value of our investments denominated in foreign

We currently utilize forward foreign currency exchange contracts to protect ourselves against fluctuations in exchange

During the three months ended March 31, 2021 and 2020, we recognized a realized gain of $0 and $6,000 and an unrealized loss

of $1,000 and $1,000, respectively, in the statement of operations relating to forward currency exchange contracts held during the

See Note 3 to our Notes to consolidated financial statements.

In addition, the COVID-19 pandemic has

3 unchanged sentences

our gross investment income.

In addition, our net investment income could also decline if such decreases in LIBOR are not offset

by, among other things, a corresponding increase in the spread over LIBOR in our portfolio investments, a decrease in our operating

In addition, our net investment income could also decline if such decreases in LIBOR are not offset by,

among other things, a corresponding increase in the spread over LIBOR in our portfolio investments, a decrease in our operating

expenses or a decrease in the interest rates of our liabilities that are tied to LIBOR.

See “Item 2.

Management’s Discussion

and Analysis of Financial Condition and Results of Operations—COVID-19 Developments.”

Management’s

Discussion and Analysis of Financial Condition and Results of Operations—COVID-19 Developments.”

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 3. Quantitative and Qualitative Disclosures About Market Risk