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What changed in Investcorp Credit Management BDC, Inc.'s 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Investcorp Credit Management BDC, Inc.'s 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+523 added−574 removedSource: 10-K (2023-09-21) vs 10-K (2022-09-13)

Top changes in Investcorp Credit Management BDC, Inc.'s 2023 10-K

523 paragraphs added · 574 removed · 456 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

163 edited+16 added−13 removed166 unchanged
Biggest changeThe industry composition of our portfolio at fair value at June 30, 2022 was as follows: Percentage of Total Portfolio at June 30, 2022 Professional Services 11.55 % IT Services 9.25 Internet & Direct Marketing Retail 9.02 Household Durables 7.42 Trading Companies & Distributors 6.72 Commercial Services & Supplies 6.62 Chemicals 6.00 Energy Equipment & Services 5.59 Distributors 5.26 Consumer Finance 4.87 Software 3.77 Entertainment 3.40 Auto Components 3.39 Food & Staples Retailing 3.39 Containers & Packaging 3.10 Diversified Consumer Services 2.88 Specialty Retail 2.54 Building Products 2.02 Food Products 1.95 Electronic Equipment, Instruments & Components 1.26 100.00 % The Adviser and Administrator – CM Investment Partners LLC CM Investment Partners, our external investment adviser, was formed in July 2013 and is a registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”).
Biggest changeThere can be no assurance that the weighted average total yield will remain at its current level. 2 The industry composition of our portfolio at fair value at June 30, 2023 was as follows: Percentage of Total Portfolio at June 30, 2023 Trading Companies & Distributors 15.98 % Professional Services 12.83 IT Services 10.71 Commercial Services & Supplies 6.51 Software 6.26 Containers & Packaging 5.89 Machinery 4.36 Internet & Direct Marketing Retail 4.08 Entertainment 3.47 Household Durables 3.46 Chemicals 3.44 Diversified Consumer Services 3.30 Automobile Components 3.30 Hotels, Restaurants and Leisure 2.85 Consumer Staples Distribution & Retail 2.75 Specialty Retail 2.34 Building Products 2.05 Food Products 1.95 Automotive Retail 1.76 Electronic Equipment, Instruments & Components 1.48 Energy Equipment & Services 1.23 100.00 % The Adviser and Administrator – CM Investment Partners LLC CM Investment Partners, our external investment adviser, was formed in July 2013 and is a registered investment adviser under the Investment Advisers Act of 1940, as amended (the “Advisers Act”).
The Adviser evaluates a private equity sponsor or specialty lender along several key criteria, including: • investment track record; • industry experience. • capacity and willingness to provide additional financial support to the company through additional capital contributions, if necessary; and • reference checks. Investments The following describes the types of loans we generally make: Standalone first lien loans .
The Adviser evaluates a private equity sponsor or specialty lender along several key criteria, including: • investment track record; • industry experience. • capacity and willingness to provide additional financial support to the company through additional capital contributions, if necessary; and • reference checks. 8 Investments The following describes the types of loans we generally make: Standalone first lien loans .
Because any original issue discount or other amounts accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount.
Because any original issue discount or other amounts accrued will be included in our investment company taxable income for 25 the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount.
If the Adviser decides to pursue an opportunity, a preliminary term sheet will be produced for the target portfolio company. This term sheet serves as a basis for the discussion and negotiation of the critical terms of the proposed financing. At this stage, the Adviser begins its formal underwriting and investment approval process as 8 described below.
If the Adviser decides to pursue an opportunity, a preliminary term sheet will be produced for the target portfolio company. This term sheet serves as a basis for the discussion and negotiation of the critical terms of the proposed financing. At this stage, the Adviser begins its formal underwriting and investment approval process as described below.
As a business development company, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage.” Common Stock We are not generally able to issue and sell our common stock at a price below net asset value per share.
As a business development company, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage.” Common Stock We are not generally able to issue and sell our common stock at a price below net asset value per share.
The following outlines the general parameters and areas of evaluation and due diligence for investment decisions, although not all are necessarily considered or given equal weighting in the evaluation process. Business model and financial assessment The Adviser undertakes a review and analysis of the financial and strategic plans for the potential investment.
The following outlines the general parameters and areas of evaluation and due diligence for investment decisions, although not all are necessarily considered or given equal weighting in the evaluation process. 7 Business model and financial assessment The Adviser undertakes a review and analysis of the financial and strategic plans for the potential investment.
Investments with a rating of 4 are those for which some loss of return but no loss of principal is expected. 11 Investment Rating 5 Investments that are performing substantially below expectations and whose risks have increased substantially since the original investment. These investments are almost always in workout.
Investments with a rating of 4 are those for which some loss of return but no loss of principal is expected. Investment Rating 5 Investments that are performing substantially below expectations and whose risks have increased substantially since the original investment. These investments are almost always in workout.
In following these approaches, the types of factors that we may take into account in determining the fair value of our investments include, as relevant and among other factors: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, 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, merger and acquisition comparables, our principal market (as the reporting entity) and enterprise values.
In following these approaches, the types of factors that we may take into account in determining the fair value of our investments include, as relevant and among other factors: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, 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, merger and acquisition comparables, our principal market (as the reporting entity) and enterprise values.
Such hedging strategies would be utilized to seek to protect the value of our portfolio investments, for example, against possible adverse changes in the market value of securities held in our portfolio. Managerial Assistance As a BDC, we offer, and must provide upon request, managerial assistance to our portfolio companies.
Such hedging strategies would be utilized to seek to protect the value of our portfolio investments, for example, against possible adverse changes in the market value of securities held in our portfolio. 11 Managerial Assistance As a BDC, we offer, and must provide upon request, managerial assistance to our portfolio companies.
As a BDC, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage.” We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage.
As a BDC, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage.” We may also borrow amounts up to 5% of the value of our total assets for temporary or emergency purposes without regard to asset coverage.
If too many stockholders elect to receive cash, each stockholder electing to receive cash must 30 receive a pro rata amount of cash (with the balance of the distribution paid in stock). In no event will any stockholder, electing to receive cash, receive less than 20% (or 10%, if applicable) of his or her entire distribution in cash.
If too many stockholders elect to receive cash, each stockholder electing to receive cash must receive a pro rata amount of cash (with the balance of the distribution paid in stock). In no event will any stockholder, electing to receive cash, receive less than 20% (or 10%, if applicable) of his or her entire distribution in cash.
Portfolio companies with a rating of 3 may be out of compliance with their financial covenants. Investment Rating 4 Investments that are performing substantially below expectations and whose risks have increased substantially since the original investment. These investments are often in workout.
Portfolio companies with a rating of 3 may be out of compliance with their financial covenants. 9 Investment Rating 4 Investments that are performing substantially below expectations and whose risks have increased substantially since the original investment. These investments are often in workout.
We bear all other out-of-pocket costs and expenses of our operations and transactions, including, without limitation, those relating to: • our organization, the formation transactions and offerings; • calculating our net asset value (including the cost and expenses of any independent valuation firm(s)); • fees and expenses incurred by the Adviser or payable to third parties, including agents, consultants or other advisors, in monitoring financial and legal affairs for us and in monitoring our investments and performing due diligence on our prospective portfolio companies or otherwise relating to, or associated with, evaluating and making investments; • interest payable on debt, if any, incurred to finance our investments and expenses related to unsuccessful portfolio acquisition efforts; • other offerings of our common stock and other securities; • administration fees and expenses, if any, payable under the Administration Agreement (including our allocable portion of the Adviser’s overhead in performing its obligations under the Administration Agreement, including rent and the allocable portion of the cost of our Chief Compliance Officer, Chief Financial Officer and their respective staffs); • transfer agent, dividend agent and custodial fees and expenses; • costs associated with our reporting and compliance obligations under the 1940 Act, as amended, and other applicable federal and state securities laws, and stock exchange listing fees; • fees and expenses associated with independent audits and outside legal costs; • U.S. federal, state and local taxes; • Independent Directors’ fees and expenses; • costs of any reports, proxy statements or other notices to or communications and meetings with stockholders; • costs associated with investor relations; • costs and fees associated with any fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; • direct costs and expenses of administration, including printing, mailing, long distance telephone, copying, secretarial and other staff; and 21 • all other expenses incurred by us or the Adviser in connection with administering our business.
We bear all other out-of-pocket costs and expenses of our operations and transactions, including, without limitation, those relating to: • our organization, the formation transactions and offerings; • calculating our net asset value (including the cost and expenses of any independent valuation firm(s)); • fees and expenses incurred by the Adviser or payable to third parties, including agents, consultants or other advisors, in monitoring financial and legal affairs for us and in monitoring our investments and performing due diligence on our prospective portfolio companies or otherwise relating to, or associated with, evaluating and making investments; 17 • interest payable on debt, if any, incurred to finance our investments and expenses related to unsuccessful portfolio acquisition efforts; • other offerings of our common stock and other securities; • administration fees and expenses, if any, payable under the Administration Agreement (including our allocable portion of the Adviser’s overhead in performing its obligations under the Administration Agreement, including rent and the allocable portion of the cost of our Chief Compliance Officer, Chief Financial Officer and their respective staffs); • transfer agent, dividend agent and custodial fees and expenses; • costs associated with our reporting and compliance obligations under the 1940 Act, as amended, and other applicable federal and state securities laws, and stock exchange listing fees; • fees and expenses associated with independent audits and outside legal costs; • U.S. federal, state and local taxes; • Independent Directors’ fees and expenses; • costs of any reports, proxy statements or other notices to or communications and meetings with stockholders; • costs associated with investor relations; • costs and fees associated with any fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; • direct costs and expenses of administration, including printing, mailing, long distance telephone, copying, secretarial and other staff; and • all other expenses incurred by us or the Adviser in connection with administering our business.
The following factors are among those the Adviser analyzes: • sensitivity to economic cycles; • competitive environment, including number of competitors, threat of new entrants or substitutes; • fragmentation and relative market share of industry leaders; • growth potential; and 9 • regulatory and legal environment.
The following factors are among those the Adviser analyzes: • sensitivity to economic cycles; • competitive environment, including number of competitors, threat of new entrants or substitutes; • fragmentation and relative market share of industry leaders; • growth potential; and • regulatory and legal environment.
The Adviser believes that private equity sponsors and specialty lenders can serve as committed partners and advisors that will actively work with the Adviser, the company and its management team to meet company goals and create value. • Ability to exert meaningful influence.
The Adviser 6 believes that private equity sponsors and specialty lenders can serve as committed partners and advisors that will actively work with the Adviser, the company and its management team to meet company goals and create value. • Ability to exert meaningful influence.
In its consideration of the Advisory Agreement, our board of directors took into consideration (1) the nature, quality and extent of the advisory and other services to be provided to the Company by the Adviser; (2) comparative data with respect to advisory fees or similar expenses paid by other BDCs with similar investment objectives; (3) the Company’s operating expenses and expense ratio compared to BDCs with similar investment objectives; (4) the expected profitability of the Adviser; (5) information about the services to be performed and the personnel performing such services under the Advisory Agreement; (6) the organizational capability and financial condition of the Adviser and its affiliates; and (7) other factors our board of directors deemed to be relevant.
In its consideration of the Advisory Agreement, our board of directors took into consideration (1) the nature, quality and extent of the advisory and other services to be provided to the Company by the Adviser; (2) comparative data with respect to advisory fees or similar expenses paid by other BDCs with similar investment objectives; (3) the Company’s operating expenses and expense ratio compared to BDCs with similar investment objectives; (4) the expected profitability of the Adviser; (5) information about the services to be performed and the personnel performing such services under the Advisory Agreement; (6) the organizational capability and financial condition of the Adviser and its affiliates; and (7) other factors our board of directors deemed to be relevant.
In addition, changes in the market environment and other events may have differing impacts on the market quotations used to value some of our investments than on the fair values of our investments for which market quotations are not readily available.
In addition, changes in the market environment and other events may have differing impacts on the market quotations used to value some of our investments than on the fair values of our investments 10 for which market quotations are not readily available.
Debt and equity securities for which market quotations are not readily available or for which market quotations are deemed not to represent fair value are valued at fair value as determined in good faith by our board 12 of directors.
Debt and equity securities for which market quotations are not readily available or for which market quotations are deemed not to represent fair value are valued at fair value as determined in good faith by our board of directors.
Our officers are all 14 employees of the Adviser and our allocable portion of the cost of Rocco DelGuercio, as our Chief Financial Officer and Chief Compliance Officer, and his staff, is paid by us pursuant to the Administration Agreement with the Adviser.
Our officers are all employees of the Adviser and our allocable portion of the cost of Rocco DelGuercio, as our Chief Financial Officer and Chief Compliance Officer, and his staff, is paid by us pursuant to the Administration Agreement with the Adviser.
To ensure that the Adviser’s vote is not the product of a conflict of interest, the Adviser requires that (1) anyone involved in the decision-making process disclose to our Chief Compliance Officer any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxy vote; and (2) employees involved in the decision- making process or vote administration are prohibited from revealing how the Adviser intends to vote on a proposal in order to reduce any attempted influence from interested parties.
To ensure that the Adviser’s vote is not the product of a conflict of interest, the Adviser requires that (1) anyone involved in the decision-making process disclose to our Chief Compliance Officer any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxy vote; and (2) employees involved in the decision- making process or vote administration are prohibited from revealing how the Adviser intends to vote on a proposal in order to reduce any attempted influence from interested parties.
Our board of directors considered existing and potential sources of indirect income the Adviser receive as a result of the relationship with us, including reimbursements to the Adviser of allocable expenses under the Administration Agreement, and whether there would be potential for additional benefits to be derived by the Adviser as a result of our relationship with the Adviser, and was advised any such potential would be limited. 23 Our board of directors concluded that the proposed advisory fees are reasonable, taking into consideration these other indirect benefits.
Our board of directors considered existing and potential sources of indirect income the Adviser receive as a result of the relationship with us, including reimbursements to the Adviser of allocable expenses under the Administration Agreement, and whether there would be potential for additional benefits to be derived by the Adviser as a result of our relationship with the Adviser, and was advised any such potential would be limited. 19 Our board of directors concluded that the proposed advisory fees are reasonable, taking into consideration these other indirect benefits.
The Adviser will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions. 26 Senior Securities We are generally permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 150% immediately after each such issuance.
The Adviser will monitor the creditworthiness of the counterparties with which we enter into repurchase agreement transactions. 22 Senior Securities We are generally permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 150% immediately after each such issuance.
With respect to investments for which market quotations are not readily available, our board of directors undertakes a multi-step valuation process each quarter, as described below: • our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of the Adviser responsible for the portfolio investment; • preliminary valuation conclusions are then documented and discussed by the investment team of the Adviser; • on a periodic basis, at least once annually, the valuation for each portfolio investment is reviewed by an independent valuation firm engaged by our board of directors; • the valuation committee of our board of directors then reviews these preliminary valuations and makes a recommendation to our board of directors regarding the fair value of each investment; and • the board of directors then discusses these preliminary valuations and determines the fair value of each investment in our portfolio in good faith, based on the input of the Adviser, the independent valuation firm and the valuation committee.
With respect to investments for which market quotations are not readily available, our board of directors undertakes a multi-step valuation process each quarter, as described below: • our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of the Adviser responsible for the portfolio investment; • preliminary valuation conclusions are then documented and discussed by senior management and the Adviser; • on a periodic basis, at least once annually, the valuation for each portfolio investment is reviewed by an independent valuation firm engaged by our board of directors; • the valuation committee of our board of directors then reviews these preliminary valuations and makes a recommendation to our board of directors regarding the fair value of each investment; and • the board of directors then discusses these preliminary valuations and determines the fair value of each investment in our portfolio in good faith, based on the input of the Adviser, the independent valuation firm and the valuation committee.
The Adviser places 7 an emphasis on the strength of historical operations and profitability and the generation of free cash flow to reinvest in the business or to utilize for debt service.
The Adviser places an emphasis on the strength of historical operations and profitability and the generation of free cash flow to reinvest in the business or to utilize for debt service.
On June 21, 2019, we amended the Term Financing to increase the Term 1 Financing by $20.0 million from $102.0 million to $122.0 million. We subsequently repaid $20.0 million of the Term Financing on April 15, 2020.
On June 21, 2019, we amended the Term Financing to increase the Term Financing by $20.0 million from $102.0 million to $122.0 million. We subsequently repaid $20.0 million of the Term Financing on April 15, 2020.
Examples of Quarterly Incentive Fee Calculation Example 1: Income Related Portion of Incentive Fee before Total Return Requirement Calculation: Alternative 1 Assumptions Investment income (including interest, dividends, fees, etc.) = 1.25% 17 Hurdle rate (1) = 2.0% Management fee (2) = 0.4375% Other expenses (legal, accounting, custodian, transfer agent, etc.) (3) = 0.2% Pre-incentive fee net investment income (investment income – (management fee + other expenses) = 0.6125% Pre-incentive fee net investment income does not exceed hurdle rate, therefore there is no income-related incentive fee.
Examples of Quarterly Incentive Fee Calculation Example 1: Income Related Portion of Incentive Fee before Total Return Requirement Calculation: Alternative 1 Assumptions Investment income (including interest, dividends, fees, etc.) = 1.25% Hurdle rate (1) = 2.0% 14 Management fee (2) = 0.4375% Other expenses (legal, accounting, custodian, transfer agent, etc.) (3) = 0.2% Pre-incentive fee net investment income (investment income – (management fee + other expenses) = 0.6125% Pre-incentive fee net investment income does not exceed hurdle rate, therefore there is no income-related incentive fee.
Taking into account such information, our board of directors determined that the advisory fee structure under the Advisory Agreement was reasonable with respect to any economies of scale that may be realized as the Company grows, and that there were no material economies of scale to be realized at the Company’s current asset level. • Limited Potential for Additional Benefits Derived by the Adviser.
Taking into account such information, our board of directors determined that the advisory fee structure under the Advisory Agreement was reasonable with respect to any economies of scale that may be realized as the Company grows, and that there were no material economies of scale to be realized at the Company’s current asset level. • Limited Potential for Additional Benefits Derived by the Adviser.
The following is a graphic representation of the calculation of the Income-Based Fee: Quarterly Incentive Fee Based on Net Investment Income Pre-incentive Fee Net Investment Income (expressed as a percentage of the value of net assets) Percentage of Pre-incentive Fee Net Investment Income Allocated to Income-Based Fee Capital Gains Fee Under the Advisory Agreement, the Capital Gains Fee is determined and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement, as of the termination date), commencing with the fiscal year ending June 30, 2021, and will equal to 20.0% of our cumulative aggregate realized capital gains from the Commencement Date through the end of each fiscal year, computed net of our aggregate cumulative realized capital losses and our aggregate cumulative unrealized capital depreciation through the end of such year, less the aggregate amount of any previously paid Capital Gains Fees.
The following is a graphic representation of the calculation of the Income-Based Fee: Quarterly Incentive Fee Based on Net Investment Income Pre-incentive Fee Net Investment Income (expressed as a percentage of the value of net assets) Percentage of Pre-incentive Fee Net Investment Income Allocated to Income-Based Fee Capital Gains Fee Under the Advisory Agreement, the Capital Gains Fee is determined and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement, as of the termination date), commencing with the fiscal year ended June 30, 2021, and is equal to 20.0% of our cumulative aggregate realized capital gains from the Commencement Date through the end of each fiscal year, computed net of our aggregate cumulative realized capital losses and our aggregate cumulative unrealized capital depreciation through the end of such year, less the aggregate amount of any previously paid Capital Gains Fees.
We believe that several factors render many U.S. financial institutions ill-suited to lend to U.S. middle-market companies. For example, based on the Investment Team’s experience, lending to private U.S. middle-market companies is generally more labor-intensive than lending to larger companies due to the smaller size of each investment and the fragmented nature of information for such companies.
We believe that several factors render many U.S. financial institutions ill-suited to lend to U.S. middle-market companies. For example, based on the Investment Team’s experience, lending to private U.S. middle-market companies is generally more labor-intensive than lending to larger companies due to the smaller size of each investment and the fragmented nature of information for such companies.
In many cases, we may also seek to obtain registration rights in connection with these equity interests, which may include demand and “piggyback” registration rights. Portfolio Management Strategy The investments in our portfolio are monitored by a member of the Investment Committee aided by the investment professionals of the Investment Team, who also perform credit updates on each investment quarterly.
In many cases, we may also seek to obtain registration rights in connection with these equity interests, which may include demand and “piggyback” registration rights. Portfolio Management Strategy The investments in our portfolio are monitored by a member of the Investment Committee aided by the investment professionals of the Investment Team, who also perform credit updates on each investment quarterly.
Competitive Strengths We believe that the Adviser’s disciplined approach to origination, portfolio construction and risk management should allow us to achieve favorable risk-adjusted returns while preserving our capital. We believe that the following competitive strengths provide positive returns for our investors: • Experienced Team with Substantial Resources. The Adviser and its Investment Team is led by Messrs.
Competitive Strengths We believe that the Adviser’s disciplined approach to origination, portfolio construction and risk management should allow us to achieve favorable risk-adjusted returns while preserving our capital. We believe that the following competitive strengths provide positive returns for our investors: • Experienced Team with Substantial Resources. The Adviser and its Investment Team is led by Messrs.
In most cases, the Adviser will vote in favor of proposals that the Adviser believes are likely to increase the value of the portfolio securities we hold.
In most cases, the Adviser will vote in favor of proposals that the Adviser believes are likely to increase the value 23 of the portfolio securities we hold.
Examples of these events could include cases where a security trades infrequently, causing a quoted purchase or sale price to become stale, where there is a “forced” sale by a distressed seller, where market quotations vary substantially among market makers, or where there is a wide bid-ask spread or significant increase in the bid ask spread.
Examples of these events could include cases where a security trades infrequently, causing a quoted purchase or sale price to become stale, where there is a “forced” sale by a distressed seller, where market quotations vary substantially among market makers, or where there is a wide bid-ask spread or significant increase in the bid ask spread.
Our board of directors reviewed a detailed comparison of performance metrics of the Company and a sample of peer BDCs. In considering the appropriate performance metrics by which to benchmark the Company’s performance against its peers, our board of directors focused on certain factors that it believes are significant drivers of stockholder value.
Our board of directors reviewed a detailed comparison of performance metrics of the Company and a sample of peer BDCs. In considering the appropriate performance metrics by which to benchmark the Company’s performance against its peers, our board of directors focused on certain factors that it believes are significant drivers of stockholder value.
Debt and equity securities that are not publicly traded or whose market price is not readily available are valued at fair value as determined in good faith by our board of directors based on the input of our management and audit committee.
Debt and equity securities that are not publicly traded or whose market price is not readily available are valued at fair value as determined in good faith by our board of directors based on the input of our management and valuation committee.
(1) Represents 8.0% annualized hurdle rate. (2) Represents 1.75% annualized base management fee. 18 (3) Excludes organizational and offering expenses.
(1) Represents 8.0% annualized hurdle rate. (2) Represents 1.75% annualized base management fee. (3) Excludes organizational and offering expenses.
Under the Stock Purchase Agreement, Investcorp BDC was required by August 30, 2021 to purchase (i) 680,985 newly issued shares of the Company’s common stock, par value $0.001 per share, at the most recently determined net asset value per share of the Company’s common stock at the time of such purchase, as adjusted as necessary to comply with Section 23 of the 1940 Act, and (ii) 680,985 shares of the Company’s common stock in open-market or secondary transactions.
Under the Stock Purchase Agreement, Investcorp BDC was required by August 30, 2021 to purchase (i) 680,985 newly issued shares of the Company’s common stock, par value $0.001 per share, at the most recently determined net asset value per share of the Company’s common stock at the time of such purchase, as adjusted as necessary to comply with Section 23 of the 1940 Act, and (ii) 680,985 shares of the Company’s common stock in open-market or secondary transactions.
Standalone second lien loans can incur greater “frictional costs” (e.g., increased professional costs relating to resolving conflicts among the lenders) in the event of a workout and, partly because of this possible impact on recovery rates, we expect to demand a significantly higher risk premium in the form of higher spreads, call protection and/or warrants for extending standalone second lien loans, compared to first lien loans of similar credit quality.
Standalone second lien loans can incur greater “frictional costs” (e.g., increased professional costs relating to resolving conflicts among the lenders) in the event of a workout and, partly because of this possible impact on recovery rates, we expect to demand a significantly higher risk premium in the form of higher spreads, call protection and/or warrants for extending standalone second lien loans, compared to first lien loans of similar credit quality.
We were formed in February 2012 and commenced operations in March 2012 as CM Finance LLC, a Maryland limited liability company. Immediately prior to the pricing of our initial public offering, CM Finance LLC was merged with and into CM Finance Inc, a Maryland corporation (the “Merger”).
We were formed in February 2012 and commenced operations in March 2012 as CM Finance LLC, a Maryland limited liability company. Immediately prior to the pricing of our initial public offering, CM Finance LLC was merged with and into CM Finance Inc, a Maryland corporation (the “Merger”).
Base Management Fee Under the Advisory Agreement, the Base Management Fee is calculated at an annual rate of 1.75% of our gross assets, including assets purchased with borrowed funds or other forms of leverage and excluding cash and cash equivalents (such amount, “Gross Assets”).
Base Management Fee Under the Advisory Agreement, the Base Management Fee is calculated at an annual rate of 1.75% of our gross assets, including assets purchased with borrowed funds or other forms of leverage and excluding cash and cash equivalents (such amount, “Gross Assets”).
Indemnification The Administration Agreement provides that, absent criminal conduct, willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, the Adviser and its officers, managers, partners, agents, employees, controlling persons and members, and any other person or entity affiliated with it, are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of the Adviser’s services under the Administration Agreement or otherwise as our administrator.
Indemnification The Administration Agreement provides that, absent criminal conduct, willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations, the Adviser and its officers, managers, partners, agents, employees, controlling persons and members, and any other person or entity affiliated with it, are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of the Adviser’s services under the Administration Agreement or otherwise as our administrator.
On November 20, 2017, as subsequently amended, we entered into a $50 million revolving financing facility with UBS, which was subsequently amended on June 21, 2019 to reduce the size to $30.0 million and extend the maturity date (as amended, the “Revolving Financing”).
On November 20, 2017, as subsequently amended, we entered into a $50 million revolving financing facility with UBS, which was subsequently amended on June 21, 2019 to reduce the size to $30.0 million and extend the maturity date (as amended, the “Revolving Financing”).
For a discussion of the risks associated with leverage, see “Risk Factors — Risks Relating to our Business and Structure — Regulations governing our operation as a business development company will affect our ability to, and the way in which we, raise additional capital.
For a discussion of the risks associated with leverage, see “Risk Factors — Risks Relating to our Business and Structure — Regulations governing our operation as a business development company will affect our ability to, and the way in which we, raise additional capital.
As with standalone second lien loans, we expect to demand a significantly higher risk premium in the form of higher spreads, call protection and/or warrants for mezzanine loans, given the lower recovery rates for such securities due in part to the greater “frictional costs” (e.g., increased professional costs relating to resolving conflicts among the lenders) in a protracted workout.
As with standalone second lien loans, we expect to demand a significantly higher risk premium in the form of higher spreads, call protection and/or warrants for mezzanine loans, given the lower recovery rates for such securities due in part to the greater “frictional costs” (e.g., increased professional costs relating to resolving conflicts among the lenders) in a protracted workout.
Indemnification The Advisory Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations under the Advisory Agreement, the Adviser and its officers, managers, partners, agents, employees, controlling persons and members, and any other person or entity affiliated with it, are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of the Adviser’s services under the Advisory Agreement or otherwise as the Adviser.
Indemnification The Advisory Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations under the Advisory Agreement, the Adviser and its officers, managers, partners, agents, employees, controlling persons and members, and any other person or entity affiliated with it, are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of the Adviser’s services under the Advisory Agreement or otherwise as the Adviser.
The Advisory Agreement may be terminated by either party without penalty by delivering notice of termination upon not less than 60 days’ written notice to the other party and will automatically terminate in the event of its assignment.
The Advisory Agreement may be terminated by either party without penalty by delivering notice of termination upon not less than 60 days’ written notice to the other party and will automatically terminate in the event of its assignment.
Under this provision, in any fiscal quarter, the Adviser receives no Incentive Fee until our Pre-Incentive Fee Net Investment Income equals the hurdle rate of 2.0%, but then receives, as a “catch-up,” 100% of our Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than 2.5% (which is 10.0% annualized).
Under this provision, in any fiscal quarter, the Adviser receives no Incentive Fee until our Pre-Incentive Fee Net Investment Income equals the hurdle rate of 2.0%, but then receives, as a “catch-up,” 100% of our Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than 2.5% (which is 10.0% annualized).
As part of this duty, the Adviser recognizes that it must vote our securities in a timely manner free of conflicts of interest and in our best interests. 27 The Adviser’s policies and procedures for voting proxies for its investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.
As part of this duty, the Adviser recognizes that it must vote our securities in a timely manner free of conflicts of interest and in our best interests. The Adviser’s policies and procedures for voting proxies for its investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.
Personnel subject to each such code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with such code’s requirements. Each code of ethics is available on the EDGAR Database on the SEC’s website at www.sec.gov.
Personnel subject to each such code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with such code’s requirements. Each code of ethics is available on the EDGAR Database on the SEC’s website at www.sec.gov.
Prior to funding, every initial investment requires the approval of a majority of the Investment Committee and such majority must include both Messrs. Mauer and Jansen. Follow-on investment decisions in existing portfolio companies and investment dispositions require the approval of a majority of the Investment Committee.
Prior to funding, every initial investment requires the approval of a majority of the Investment Committee and such majority must include both Messrs. Mauer and Shaikh. Follow-on investment decisions in existing portfolio companies and investment dispositions require the approval of a majority of the Investment Committee.
Mauer and Jansen have developed an investment process for reviewing lending opportunities, structuring transactions and monitoring investments throughout multiple credit cycles. The members of the Investment Team have extensive networks for sourcing investment opportunities through direct corporate relationships and relationships with private equity firms, investment banks, restructuring advisors, law firms, boutique advisory firms and distressed/specialty lenders.
Mauer and Shaikh have developed an 3 investment process for reviewing lending opportunities, structuring transactions and monitoring investments throughout multiple credit cycles. The members of the Investment Team have extensive networks for sourcing investment opportunities through direct corporate relationships and relationships with private equity firms, investment banks, restructuring advisors, law firms, boutique advisory firms and distressed/specialty lenders.
Our Investment Team has the expertise and ability to structure investments across all levels of a company’s capital structure. These individuals have extensive experience in cash flow, asset-based lending, workout situations and investing in distressed debt, which should enable us to take advantage of attractive investments in recently restructured companies.
Our Investment Team has the expertise and ability to structure investments across all levels of a company’s capital structure. These individuals have extensive experience in cash flow, asset-based lending, workout situations and investing in distressed debt, which should enable us to take advantage of attractive investments in recently restructured companies.
The companies in which we invest typically are highly leveraged, and, in most cases, our investments in such companies are not rated by national rating agencies. If such investments were rated, we believe that they would likely receive a rating that is often referred to as “junk.” We previously, through CM Finance SPV Ltd.
The companies in which we invest typically are highly leveraged, and, in most cases, our investments in such companies are not rated by national rating agencies. If such investments were rated, we believe that they would likely receive a rating that is often referred to as “junk.” We previously, through CM Finance SPV Ltd.
For more information, see “Risk Factors — Risks Related to Our Business and Structure — Regulations governing our operation as a BDC affect our ability to, and the way in which we raise additional capital.
For more information, see “Risk Factors — Risks Related to Our Business and Structure — Regulations governing our operation as a BDC affect our ability to, and the way in which we raise additional capital.
We also have adopted Accounting Standards Board Accounting Standards Codification 820, Fair Value Measurements and Disclosures , or “ASC 820.” This accounting statement requires us to assume that the portfolio investment is assumed to be sold in the principal market to market participants, or in the absence of a principal market, the most advantageous market, which may be a hypothetical market.
We also have adopted Accounting Standards Board Accounting Standards Codification 820, Fair Value Measurements and Disclosures , or “ASC 820.” This accounting statement requires us to assume that the portfolio investment is assumed to be sold in the principal market to market participants, or in the absence of a principal market, the most advantageous market, which may be a hypothetical market.
Mauer and Jansen, have over 100 combined years of structuring strategic capital for business expansion, refinancings, capital restructuring, post-reorganization financing and servicing the general corporate needs of middle-market companies.
Mauer and Shaikh, have over 100 combined years of structuring strategic capital for business expansion, refinancings, capital restructuring , post-reorganization financing and servicing the general corporate needs of middle-market companies.
Payments under the Administration Agreement equal an amount based upon our allocable portion (subject to the review of our board of directors) of the Adviser’s overhead in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and their respective staffs.
Payments under the Administration Agreement equal an amount based upon our allocable portion (subject to the review of our board of directors) of the Adviser’s overhead in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and our allocable portion of the cost of our Chief Financial Officer and Chief Compliance Officer and their respective staffs.
At the closing of the Investcorp Transaction on August 30, 2019, we entered into a new administration agreement with the Adviser (the “Administration Agreement”). Under the Administration Agreement, the 4 Adviser provides us with our chief financial officer, accounting and back-office professionals, equipment and clerical, bookkeeping, recordkeeping and other administrative services.
At the closing of the Investcorp Transaction on August 30, 2019, we entered into a new administration agreement with the Adviser (the “Administration Agreement”). Under the Administration Agreement, the Adviser provides us with our chief financial officer, accounting and back-office professionals, equipment and clerical, bookkeeping, recordkeeping and other administrative services.
In accordance with the 1940 Act, on May 2, 2018, our board of directors, including a “required majority,” approved the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, our asset coverage requirements for senior securities changed from 200% to 150%, effective May 2, 2019.
In accordance with the 1940 Act, on May 2, 2018, our board of directors, including a “required majority,” approved the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, our asset coverage requirements for senior securities changed from 200% to 150%, effective May 2, 2019.
Subject to certain limitations under the Code, corporate distributees would be eligible for the dividends-received deduction. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s tax basis, and any remaining distributions would be treated as a capital gain.
Subject to certain limitations under the Code, corporate distributees would be eligible for the dividends-received deduction. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s tax basis, and any remaining distributions would be treated as a capital gain.
The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates (including any investment advisers), principal underwriters and affiliates of those affiliates or underwriters and requires that a majority of the directors be persons other than “interested persons,” as that term is defined in the 1940 Act.
The 1940 Act contains prohibitions and restrictions relating to transactions between BDCs and their affiliates (including any investment advisers), principal underwriters and affiliates of those affiliates or underwriters and requires that a majority of the directors be persons other than “interested persons,” as that term is defined in the 1940 Act.
In order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things: • continue to qualify as a BDC under the 1940 Act at all times during each taxable year; • derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to loans of certain securities, gains from the sale of stock or other securities, net income from certain “qualified publicly traded partnerships,” or other income derived with respect to our business of investing in such stock or securities (the “90% Income Test”); and • diversify our holdings so that at the end of each quarter of the taxable year: • at least 50% of the value of our assets consists of cash, cash equivalents, U.S.
In order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things: • continue to qualify as a BDC under the 1940 Act at all times during each taxable year; • derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to loans of certain securities, gains from the sale of stock or other securities, net income from certain “qualified publicly traded partnerships,” or other income derived with respect to our business of investing in such stock or securities (the “90% Income Test”); and • diversify our holdings so that at the end of each quarter of the taxable year: • at least 50% of the value of our assets consists of cash, cash equivalents, U.S.
The Capital One Revolving Financing requires the payment of an upfront fee of 1.125% of the available borrowings under the Capital One Revolving Financing at the closing and requires the payment of an unused fee of (i) 0.75% annually for any undrawn amounts below 50% of the Capital One Revolving Financing, (ii) 0.50% annually for any undrawn amounts between 50% and 75% of the Capital One Revolving Financing, and (iii) 0.25% annually for any undrawn amounts above 75% of the Capital One Revolving Financing.
The Capital One Revolving Financing required the payment of an upfront fee of 1.125% ($1.3 million) of the available borrowings under the Capital One Revolving Financing at the closing, and requires the payment of an unused fee of (i) 0.75% annually for any undrawn amounts below 50% of the Capital One Revolving Financing, (ii) 0.50% annually for any undrawn amounts between 50% and 75% of the Capital One Revolving Financing, and (iii) 0.25% annually for any undrawn amounts above 75% of the Capital One Revolving Financing.
The guidelines will be reviewed periodically by the Adviser and our directors who are not “interested persons,” and, accordingly, are subject to change. Introduction As an investment adviser registered under the Advisers Act, the Adviser has a fiduciary duty to act solely in our best interests.
The guidelines will be reviewed periodically by the Adviser and our directors who are not “interested persons,” and, accordingly, are subject to change. Introduction As an investment adviser registered under the Advisers Act, the Adviser has a fiduciary duty to act solely in our best interests.
With respect to such securities, we may, for the purpose of public resale, be deemed an “underwriter” as that term is defined in the Securities Act.
With respect to such securities, we may, for the purpose of public resale, be deemed an “underwriter” as that term is defined in the Securities Act.
Risk Ratings In addition to various risk management and monitoring tools, we use the Adviser’s investment rating system to characterize and monitor the credit profile and expected level of returns on each investment in our portfolio. This investment rating system uses a five-level numeric rating scale.
Risk Ratings In addition to various risk management and monitoring tools, we use the Adviser’s investment rating system to characterize and monitor the credit profile and expected level of returns on each investment in our portfolio. This investment rating system uses a five-level numeric rating scale.
Deal Origination The Adviser’s deal-originating efforts are focused on its direct corporate relationships and relationships with private equity firms, investment banks, restructuring advisers, law firms, and boutique advisory firms and distressed/specialty lenders. The Adviser’s investment team continues to enhance and expand these relationships.
Deal Origination The Adviser’s deal-originating efforts are focused on its direct corporate relationships and relationships with private equity firms, investment banks, restructuring advisers, law firms, and boutique advisory firms and distressed/specialty lenders. The Adviser’s Investment Team continues to enhance and expand these relationships.
We may take mezzanine type risk in the form of “structured equity” investments. In cases where portfolio companies may be constrained in their ability to raise additional capital in the form of debt, we may have the opportunity to structure preferred equity or other equity-like instruments.
We may take mezzanine type risk in the form of “structured equity” investments. In cases where portfolio companies may be constrained in their ability to raise additional capital in the form of debt, we may have the opportunity to structure preferred equity or other equity-like instruments.
Example 3: Capital Gains Portion of Incentive Fee(*): 19 Alternative 1: Assumptions Year 1: $2.0 million investment made in Company A (“Investment A”), and $3.0 million investment made in Company B (“Investment B”) Year 2: Investment A sold for $5.0 million and fair market value (“FMV”) of Investment B determined to be $3.5 million Year 3: FMV of Investment B determined to be $2.0 million Year 4: Investment B sold for $3.25 million The capital gains portion of the incentive fee would be: Year 1: None Year 2: Capital gains incentive fee of $0.6 million — ($3.0 million realized capital gains on sale of Investment A multiplied by 20.0%) Year 3: None — $0.4 million (20.0% multiplied by ($3.0 million cumulative capital gains less $1.0 million cumulative capital depreciation)) less $0.6 million (previous capital gains fee paid in Year 2) Year 4: Capital gains incentive fee of $50,000 — $0.65 million ($3.25 million cumulative realized capital gains multiplied by 20%) less $0.6 million (capital gains incentive fee taken in Year 2) Alternative 2 Assumptions Year 1: $2.0 million investment made in Company A (“Investment A”), $5.25 million investment made in Company B (“Investment B”) and $4.5 million investment made in Company C (“Investment C”) Year 2: Investment A sold for $4.5 million, FMV of Investment B determined to be $4.75 million and FMV of Investment C determined to be $4.5 million Year 3: FMV of Investment B determined to be $5.0 million and Investment C sold for $5.5 million Year 4: FMV of Investment B determined to be $6.0 million Year 5: Investment B sold for $4.0 million The capital gains incentive fee, if any, would be: Year 1: None Year 2: Capital gains incentive fee of $0.4 million — 20.0% multiplied by $2.0 million ($2.5 million realized capital gains on Investment A less $0.5 million unrealized capital depreciation on Investment B) Year 3: $0.25 million capital gains incentive fee (1) — $0.65 million (20.0% multiplied by $3.25 million ($3.5 million cumulative realized capital gains less $0.25 million unrealized capital depreciation)) less $0.4 million capital gains incentive fee received in Year 2 Year 4: $0.05 million capital gains incentive fee — $0.7 million ($3.50 million cumulative realized capital gains multiplied by 20.0%) less $0.65 million cumulative capital gains incentive fee paid in Year 2 and Year 3 Year 5: None — $0.45 million (20.0% multiplied by $2.25 million (cumulative realized capital gains of $3.5 million less realized capital losses of $1.25 million)) less $0.7 million cumulative capital gains incentive fee paid in Year 2, Year 3 and Year 4 (2) 20 * The hypothetical amounts of returns shown are based on a percentage of our total net assets and assume no leverage.
Example 3: Capital Gains Portion of Incentive Fee(*): Alternative 1: Assumptions Year 1: $2.0 million investment made in Company A (“Investment A”), and $3.0 million investment made in Company B (“Investment B”) Year 2: Investment A sold for $5.0 million and fair market value (“FMV”) of Investment B determined to be $3.5 million Year 3: FMV of Investment B determined to be $2.0 million Year 4: Investment B sold for $3.25 million 16 The capital gains portion of the incentive fee would be: Year 1: None Year 2: Capital gains incentive fee of $0.6 million — ($3.0 million realized capital gains on sale of Investment A multiplied by 20.0%) Year 3: None — $0.4 million (20.0% multiplied by ($3.0 million cumulative capital gains less $1.0 million cumulative capital depreciation)) less $0.6 million (previous capital gains fee paid in Year 2) Year 4: Capital gains incentive fee of $50,000 — $0.65 million ($3.25 million cumulative realized capital gains multiplied by 20%) less $0.6 million (capital gains incentive fee taken in Year 2) Alternative 2 Assumptions Year 1: $2.0 million investment made in Company A (“Investment A”), $5.25 million investment made in Company B (“Investment B”) and $4.5 million investment made in Company C (“Investment C”) Year 2: Investment A sold for $4.5 million, FMV of Investment B determined to be $4.75 million and FMV of Investment C determined to be $4.5 million Year 3: FMV of Investment B determined to be $5.0 million and Investment C sold for $5.5 million Year 4: FMV of Investment B determined to be $6.0 million Year 5: Investment B sold for $4.0 million The capital gains incentive fee, if any, would be: Year 1: None Year 2: Capital gains incentive fee of $0.4 million — 20.0% multiplied by $2.0 million ($2.5 million realized capital gains on Investment A less $0.5 million unrealized capital depreciation on Investment B) Year 3: $0.25 million capital gains incentive fee (1) — $0.65 million (20.0% multiplied by $3.25 million ($3.5 million cumulative realized capital gains less $0.25 million unrealized capital depreciation)) less $0.4 million capital gains incentive fee received in Year 2 Year 4: $0.05 million capital gains incentive fee — $0.7 million ($3.50 million cumulative realized capital gains multiplied by 20.0%) less $0.65 million cumulative capital gains incentive fee paid in Year 2 and Year 3 Year 5: None — $0.45 million (20.0% multiplied by $2.25 million (cumulative realized capital gains of $3.5 million less realized capital losses of $1.25 million)) less $0.7 million cumulative capital gains incentive fee paid in Year 2, Year 3 and Year 4 (2) * The hypothetical amounts of returns shown are based on a percentage of our total net assets and assume no leverage.
Our board of directors also considered the investment selection process employed by the Adviser, including the flow of transaction opportunities resulting from the Investment Team’s significant experience in structuring strategic capital for business expansion, refinancings, capital restructuring, post-reorganization financing and servicing the general corporate needs of middle-market companies; the employment of the Adviser’s investment philosophy, diligence procedures, credit 22 recommendation process, investment structuring, and ongoing relationships with and monitoring of portfolio companies, in light of the investment objective of the Company.
Our board of directors also considered the investment selection process employed by the Adviser, including the flow of transaction opportunities resulting from the Investment Team’s significant experience in structuring strategic capital for business expansion, refinancings, capital restructuring, post-reorganization financing and servicing the general corporate needs of middle-market companies; the employment of the Adviser’s investment philosophy, diligence procedures, credit recommendation process, investment structuring, and ongoing relationships with and monitoring of portfolio companies, in light of the investment objective of the Company.
The Adviser may structure such equity investments and warrants to include provisions protecting our rights as a minority-interest holder, as well as a “put,” or right to sell such securities back to the issuer, upon the occurrence of specified events.
The Adviser may structure such equity investments and warrants to include provisions protecting our rights as a minority-interest holder, as well as a “put,” or right to sell such securities back to the issuer, upon the occurrence of specified events.
Mauer and Jansen, we refer to as the “Investment Team.” The members of the Investment Team have over 100 combined years of structuring customized debt solutions for middle-market companies, which we believe will enable us to generate favorable returns across credit cycles with an emphasis on preserving capital. Messrs.
Mauer and Shaikh, we refer to as the “Investment Team.” The members of the Investment Team have over 100 combined years of structuring customized debt solutions for middle-market companies, which we believe will enable us to generate favorable returns across credit cycles with an emphasis on preserving capital. Messrs.
Middle-market transactions tend to offer stronger covenant packages, higher interest rates, lower leverage levels and better call protection compared to larger financings. In addition, middle-market loans typically offer other investor protections such as default penalties, lien protection, change of control provisions and 5 information rights for lenders.
Middle-market transactions tend to offer stronger covenant packages, higher interest rates, lower leverage levels and better call protection compared to larger financings. In addition, middle-market loans typically offer other investor protections such as default penalties, lien protection, change of control provisions and information rights for lenders. • Specialized Lending Requirements.
We believe that the strength of these relationships in conjunction with the Investment Team’s ability to structure financing solutions for companies that incorporate credit protections at attractive returns for us provide us with a competitive advantage in identifying investment opportunities in our target market. • Disciplined Underwriting Policies and Rigorous Portfolio Management. Messrs.
We believe that the strength of these relationships in conjunction with the Investment Team’s ability to structure financing solutions for companies that incorporate credit protections at attractive returns for us provide us with a competitive advantage in identifying investment opportunities for us in our target market. • Disciplined Underwriting Policies and Rigorous Portfolio Management.
Income-Based Fee Under the Advisory Agreement, the Income-Based Fee is calculated and payable quarterly in arrears based on our Pre-Incentive Fee Net Investment Income (as defined below) for the immediately preceding fiscal quarter, subject to a total return requirement (the “Total Return Requirement”) and deferral of non-cash amounts, and is 20.0% of the amount, if any, by which our Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of our net assets attributable to its common stock, for the immediately preceding fiscal quarter, exceeds a 2.0% (which is 8.0% annualized) hurdle rate and a “catch-up” provision measured as of the end of each fiscal quarter.
Income-Based Fee Under the Advisory Agreement, the Income-Based Fee is calculated and payable quarterly in arrears based on our Pre-Incentive Fee Net Investment Income (as defined below) for the immediately preceding fiscal quarter, subject to a total return requirement (the “Total Return Requirement”) and deferral of non-cash amounts, and is 20.0% of the amount, if any, by which our Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of our net assets attributable to its common stock, for the immediately preceding fiscal quarter, exceeds a 2.0% (which is 8.0% annualized) hurdle rate and a “catch-up” provision measured as of the end of each fiscal quarter.
Standalone second lien loans are loans that are typically senior on a lien basis to other liabilities in the issuer’s capital structure and have the benefit of a security interest over the assets of the borrower, although ranking junior to first lien loans.
Standalone second lien loans are loans that are typically senior on a lien basis to other liabilities in the issuer’s capital structure and have the benefit of a security interest over the assets of the borrower, although ranking junior to first lien loans.
On July 20, 2021, the SEC issued an order, which superseded a prior order issued on March 19, 2019, granting the Company’s application for exemptive relief to co-invest, subject to the satisfaction of certain conditions, in certain private placement transactions with other funds managed by the Adviser or its affiliates and any future funds that are advised by the Adviser or its affiliated investment advisers (the “Exemptive Relief”).
On July 20, 2021, the SEC issued an order, which superseded a prior order issued on March 19, 2019, granting the Company’s application for exemptive relief to co-invest, subject to the satisfaction of certain conditions, in certain private placement transactions with other funds managed by the Adviser or its affiliates and any future funds that are advised by the Adviser or its affiliated investment advisers (the “Exemptive Relief”).
We believe that current market conditions allow us to structure attractively priced debt investments and may allow us to incorporate other return-enhancing mechanisms such as commitment fees, original issue discounts (“OID”), early redemption premiums, payment-in-kind (“PIK”) interest and certain forms of equity securities.
We believe that current market conditions allow us to structure attractively priced debt investments and may allow us to incorporate other return-enhancing mechanisms such as commitment fees, original issue discounts (“OID”), early redemption premiums, payment-in-kind (“PIK”) interest and certain forms of equity securities.
The holders of a majority of our outstanding voting securities may also terminate the Advisory Agreement without penalty upon 60 days’ written notice.
The holders of a majority of our outstanding voting securities may also terminate the Advisory Agreement without penalty upon 60 days’ written notice.
Alternative 3 Assumptions Investment income (including interest, dividends, fees, etc.) = 3.5% Hurdle rate (1) = 2.0% Management fee (2) = 0.4375% Other expenses (legal, accounting, custodian, transfer agent, etc.) (3) = 0.2% Pre-incentive fee net investment income (investment income – (management fee + other expenses) = 2.8625% Incentive fee = 100% × Pre-incentive fee net investment income (subject to “catch-up”) (4) Incentive fee = 100% × “catch-up” + (20.0% × (Pre-Incentive Fee Net Investment Income – 2.5%)) “Catch-up” = 2.5% – 2.0% = 0.5% Incentive fee = (100% × 0.5%) + (20.0% × (2.8625% – 2.5%)) = 0.5% + (20.0% × 0.3625%) = 0.5% + 0.725% = 0.5725% Pre-incentive fee net investment income exceeds the hurdle rate, and fully satisfies the “catch-up” provision; therefore, the income related portion of the incentive fee is 0.5725%.
Alternative 3 Assumptions Investment income (including interest, dividends, fees, etc.) = 3.5% Hurdle rate (1) = 2.0% Management fee (2) = 0.4375% Other expenses (legal, accounting, custodian, transfer agent, etc.) (3) = 0.2% Pre-incentive fee net investment income (investment income – (management fee + other expenses) = 2.8625% Incentive fee = 100% × Pre-incentive fee net investment income (subject to “catch-up”) (4) Incentive fee = 100% × “catch-up” + (20.0% × (Pre-Incentive Fee Net Investment Income – 2.5%)) “Catch-up” = 2.5% – 2.0% = 0.5% Incentive fee = (100% × 0.5%) + (20.0% × (2.8625% – 2.5%)) = 0.5% + (20.0% × 0.3625%) = 0.5% + 0.725% = 0.5725% Pre-incentive fee net investment income exceeds the hurdle rate, and fully satisfies the “catch-up” provision; therefore, the income related portion of the incentive fee is 0.5725%.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAs a BDC, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage .” • pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the 2026 Notes, including subordinated indebtedness, in each case other than dividends, purchases, redemptions or payments that would cause a violation of Section 18(a)(1)(B) as modified by Section 61(a)(2) of the 1940 Act or any successor provisions, giving effect to any no-action relief granted by the SEC to another BDC and upon which we may reasonably rely (or to us if we determine to seek such similar SEC no-action or other relief) permitting the BDC to declare any cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) as modified by Section 61(a)(2) of the 1940 Act in order to maintain the BDC’s status as a RIC under Subchapter M of the Code; • sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets); • enter into transactions with affiliates 63 • create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions; • make investments; or • create restrictions on the payment of dividends or other amounts to us from our subsidiaries.
Biggest changeAs a BDC, the necessity of raising additional capital may expose us to risks, including the typical risks associated with leverage .” • pay dividends on, or purchase or redeem or make any payments in respect of, capital stock or other securities ranking junior in right of payment to the 2026 Notes, including subordinated indebtedness, in each case other than dividends, purchases, redemptions or payments that would cause a violation of Section 18(a)(1)(B) as modified by Section 61(a)(2) of the 1940 Act or any successor provisions, giving effect to any no-action relief granted by the SEC to another BDC and upon which we may reasonably rely (or to us if we determine to seek such similar SEC no-action or other relief) permitting the BDC to declare any cash dividend or distribution notwithstanding the prohibition contained in Section 18(a)(1)(B) as modified by Section 61(a)(2) of the 1940 Act in order to maintain the BDC’s status as a RIC under Subchapter M of the Code; • sell assets (other than certain limited restrictions on our ability to consolidate, merge or sell all or substantially all of our assets); • enter into transactions with affiliates • create liens (including liens on the shares of our subsidiaries) or enter into sale and leaseback transactions; • make investments; or • create restrictions on the payment of dividends or other amounts to us from our subsidiaries. 46 Furthermore, the terms of the Indenture and the 2026 Notes do not protect holders of the 2026 Notes in the event that we experience changes (including significant adverse changes) in our financial condition, results of operations or credit ratings, if any, as they do not require that we or our subsidiaries adhere to any financial tests or ratios or specified levels of net worth, revenues, income, cash flow or liquidity.
The Adviser receives an incentive fee based, in part, upon net capital gains realized on our investments. Unlike that portion of the incentive fee based on income, there is no hurdle rate applicable to the portion of the incentive fee based on net capital gains.
The Adviser receives an Incentive Fee based, in part, upon net capital gains realized on our investments. Unlike that portion of the Income-Based Fee, there is no hurdle rate applicable to the Capital Gains Fee.
Uncertainty can result in or coincide with, among other things: increased volatility in the financial markets for securities, derivatives, loans, credit and currency; a decrease in the reliability of market prices and difficulty in valuing assets (including portfolio company assets); greater fluctuations in spreads on debt investments and currency exchange rates; increased risk of default (by both government and private obligors and issuers); further social, economic, and political instability; nationalization of private enterprise; greater governmental involvement in the economy or in social factors that impact the economy; changes to governmental regulation and supervision of the loan, securities, derivatives and currency markets and market participants and decreased or revised monitoring of such markets by governments or self-regulatory organizations and reduced enforcement of regulations; limitations on the activities of investors in such markets; controls or restrictions on foreign investment, capital controls and limitations on repatriation of invested capital; the significant loss of liquidity and the inability to purchase, sell and otherwise fund investments or settle transactions (including, but not limited to, a market freeze); unavailability of currency hedging techniques; substantial, and in some periods extremely high, rates of inflation, which can last many years and have substantial negative effects on credit and securities markets as well as the economy as a whole; recessions; and difficulties in obtaining and/or enforcing legal judgments.
Uncertainty can result in or coincide with, among other things: increased volatility in the financial markets for securities, derivatives, loans, credit and currency; a decrease in the reliability of market prices and difficulty in valuing assets (including portfolio company assets); greater fluctuations in spreads on debt investments and currency exchange rates; increased risk of default (by both government and private obligors and issuers); further social, economic, and political instability; nationalization of private enterprise; greater governmental involvement in the economy or in social factors that impact the economy; changes to governmental regulation and supervision of the loan, securities, derivatives and currency markets and market participants and decreased or revised monitoring of such markets by governments or self-regulatory organizations and reduced enforcement of regulations; limitations on the activities of investors in such markets; controls or restrictions on foreign investment, capital controls and limitations on repatriation of invested capital; the significant loss of liquidity and the inability to purchase, sell and otherwise fund investments or settle transactions (including, but not limited to, a market freeze); unavailability of currency hedging techniques; substantial, and in some periods 49 extremely high, rates of inflation, which can last many years and have substantial negative effects on credit and securities markets as well as the economy as a whole; recessions; and difficulties in obtaining and/or enforcing legal judgments.
In particular, the terms of the Indenture and the 2026 Notes do not place any restrictions on our or our subsidiaries’ ability to: • issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to the 2026 Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the 2026 Notes to the extent of the values of the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to the 2026 Notes and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the 2026 Notes with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18(a)(1)(A) as modified by Section 61(a)(2) of the 1940 Act or any successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, but giving effect, in either case, to any exemptive relief granted to us by the SEC, which generally prohibit us from incurring additional indebtedness, including through the issuance of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 150% after such incurrence or issuance.
In particular, the terms of the Indenture and the 2026 Notes do not place any restrictions on our or our subsidiaries’ ability to: • issue securities or otherwise incur additional indebtedness or other obligations, including (1) any indebtedness or other obligations that would be equal in right of payment to the 2026 Notes, (2) any indebtedness or other obligations that would be secured and therefore rank effectively senior in right of payment to the 2026 Notes to the extent of the values of the assets securing such debt, (3) indebtedness of ours that is guaranteed by one or more of our subsidiaries and which therefore is structurally senior to the 2026 Notes and (4) securities, indebtedness or obligations issued or incurred by our subsidiaries that would be senior to our equity interests in our subsidiaries and therefore rank structurally senior to the 2026 Notes with respect to the assets of our subsidiaries, in each case other than an incurrence of indebtedness or other obligation that would cause a violation of Section 18(a)(1)(A) as modified by Section 61(a)(2) of the 1940 Act or any successor provisions, whether or not we continue to be subject to such provisions of the 1940 Act, but giving effect, in either case, to any exemptive relief granted to us by the SEC, which generally prohibit us from incurring additional indebtedness, including through the issuance of additional debt securities, unless our asset coverage, as defined in the 1940 Act, equals at least 150% after such incurrence or issuance.
The occurrence of events similar to those in recent years, such as the aftermath of the war in Iraq, instability in Afghanistan, Pakistan, Egypt, Libya, Syria, Russia, Ukraine and the Middle East, ongoing epidemics of infectious diseases in certain parts of the world, such as the COVID-19 outbreak, terrorist attacks in the U.S. and around the world, social and political discord, debt crises, sovereign debt downgrades, continued tensions between North Korea and the United States and the international community generally, new and continued political unrest in various countries, such as Venezuela, the exit or potential exit of one or more countries from the European Union (the “EU”) or the Economic and Monetary Union, the change in the U.S. president and the new administration, among others, may result in market volatility, may have long term effects on the U.S. and worldwide financial markets, and may cause further economic uncertainties in the U.S. and worldwide.
The occurrence of events similar to those in recent years, such as the aftermath of the war in Iraq, instability in Afghanistan, Pakistan, Egypt, Libya, Syria, Russia, Ukraine and the Middle East, ongoing epidemics of infectious diseases in certain parts of the world, such as the COVID-19 outbreak, terrorist attacks in the U.S. and around the world, social and political discord, debt crises, sovereign debt downgrades, continued tensions between North Korea and the United States and the international community generally, new and continued political unrest in various countries, such as Venezuela, the exit or potential exit of one or more countries from the EU or the Economic and Monetary Union, the change in the U.S. president and the new administration, among others, may result in market volatility, may have long term effects on the U.S. and worldwide financial markets, and may cause further economic uncertainties in the U.S. and worldwide.
If we decide to make any distributions consistent with this revenue procedure that are payable in part in our stock, taxable stockholders receiving such dividends will be required to include the full amount of the dividend (whether received in cash, our stock, or combination thereof) as ordinary income (or as long-term capital gain to the extent such distribution is properly designated as a capital gain dividend) to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes.
If we decide to make any distributions consistent with this revenue procedure that are payable in part in our stock, taxable stockholders receiving such dividends will be required to include the full amount of the 43 dividend (whether received in cash, our stock, or combination thereof) as ordinary income (or as long-term capital gain to the extent such distribution is properly designated as a capital gain dividend) to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes.
The risk of purchasing shares of a BDC that might trade at a discount or unsustainable premium is more pronounced for 60 investors who wish to sell their shares in a relatively short period of time because, for those investors, realization of a gain or loss on their investments is likely to be more dependent upon changes in premium or discount levels than upon increases or decreases in net asset value per share.
The risk of purchasing shares of a BDC that might trade at a discount or unsustainable premium is more pronounced for investors who wish to sell their shares in a relatively short period of time because, for those investors, realization of a gain or loss on their investments is likely to be more dependent upon changes in premium or discount levels than upon increases or decreases in net asset value per share.
Even if we are able to retain comparable management, whether internal or external, the integration of such management and their lack of familiarity with our investment objective may result in additional costs and time delays that may adversely affect our business, financial condition, results of operations and cash flows. 50 There are conflicts related to other arrangements with the Adviser.
Even if we are able to retain comparable management, whether internal or external, the integration of such management and their lack of familiarity with our investment objective may result in additional costs and time delays that may adversely affect our business, financial condition, results of operations and cash flows. There are conflicts related to other arrangements with the Adviser.
Absent further quantitative easing by the Federal Reserve, these developments could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms. In addition, disagreement over the federal budget has caused the U.S. federal government to shut down for periods of time.
Absent further quantitative easing by the Federal Reserve, these developments could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms. In addition, disagreement over the federal budget has caused the U.S. federal government 50 to shut down for periods of time.
If the holders of the 2026 Notes exercise their right to require us to repurchase 2026 Notes upon a Change of Control Repurchase Event, the financial effect of this repurchase could cause a default under our current and future debt instruments, and we may not have sufficient funds to repay any such accelerated indebtedness. 65 Risks Related to U.S.
If the holders of the 2026 Notes exercise their right to require us to repurchase 2026 Notes upon a Change of Control Repurchase Event, the financial effect of this repurchase could cause a default under our current and future debt instruments, and we may not have sufficient funds to repay any such accelerated indebtedness. Risks Related to U.S.
To the extent that we invest in loans with a PIK interest component and the accretion of PIK interest constitutes a portion of our income, we will be exposed to risks associated with the requirement to include such non-cash income in taxable and accounting income prior to receipt of cash, including the following: • loans with a PIK interest component may have higher interest rates that reflect the payment deferral and increased credit risk associated with these instruments, and PIK instruments generally represent a significantly higher credit risk than coupon loans; • loans with a PIK interest component may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of any associated collateral; • the deferral of PIK interest increases the loan-to-value ratio, which is a fundamental measure of loan risk; and • even if the accounting conditions for PIK interest accrual are met, the borrower could still default when the borrower’s actual payment is due at the maturity of the loan.
To the extent that we invest in loans with a PIK interest component and the accretion of PIK interest constitutes a portion of our income, we will be exposed to risks associated with the requirement to include such non-cash income in taxable and accounting income prior to receipt of cash, including the following: • loans with a PIK interest component may have higher interest rates that reflect the payment deferral and increased credit risk associated with these instruments, and PIK instruments generally represent a significantly higher credit risk than coupon loans; • loans with a PIK interest component may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of any associated collateral; • the deferral of PIK interest increases the loan-to-value ratio, which is a fundamental measure of loan risk; and • even if the accounting conditions for PIK interest accrual are met, the borrower could still default when the borrower’s actual payment is due at the maturity of the loan.
Inferior internal controls could 47 also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock. As a non-accelerated filer, we are not required to comply with the auditor attestation requirements of the Sarbanes-Oxley Act.
Inferior internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our common stock. As a non-accelerated filer, we are not required to comply with the auditor attestation requirements of the Sarbanes-Oxley Act.
We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. 54 Our portfolio may be concentrated in a limited number of industries, which may subject us to a risk of significant loss if there is a downturn in a particular industry in which a number of our investments are concentrated.
We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. Our portfolio may be concentrated in a limited number of industries, which may subject us to a risk of significant loss if there is a downturn in a particular industry in which a number of our investments are concentrated.
The escalation or continuation of the war between Russia and Ukraine or other hostilities presents heightened risks relating to cyber-attacks, the frequency and volume of failures to settle securities transactions, supply chain disruptions, inflation, as well as the potential for increased volatility in commodity, currency and other financial markets.
The 53 escalation or continuation of the war between Russia and Ukraine or other hostilities presents heightened risks relating to cyber-attacks, the frequency and volume of failures to settle securities transactions, supply chain disruptions, inflation, as well as the potential for increased volatility in commodity, currency and other financial markets.
Investcorp owns approximately 25% and Stifel owns approximately 15% of our total outstanding common stock. The shares held by Investcorp and Stifel are 61 generally freely tradable in the public market, subject to the volume limitations, applicable holding periods and other provisions of Rule 144 under the Securities Act.
Investcorp owns approximately 25% and Stifel owns approximately 15% of our total outstanding common stock. The shares held by Investcorp and Stifel are generally freely tradable in the public market, subject to the volume limitations, applicable holding periods and other provisions of Rule 144 under the Securities Act.
In addition, any such increase in a 49 loan balance due to the receipt of PIK interest will cause such loan to accrue interest on the higher loan balance, which will result in an increase in our pre-incentive fee net investment income and, as a result, an increase in incentive fees that are payable to the Adviser.
In addition, any such increase in a loan balance due to the receipt of PIK interest will cause such loan to accrue interest on the higher loan balance, which will result in an increase in our pre-incentive fee net investment income and, as a result, an increase in incentive fees that are payable to the Adviser.
We may not have the ability to control or direct such actions, even if our rights are adversely affected. 57 The disposition of our investments may result in contingent liabilities. We currently expect that substantially all of our investments will involve loans and private securities.
We may not have the ability to control or direct such actions, even if our rights are adversely affected. The disposition of our investments may result in contingent liabilities. We currently expect that substantially all of our investments will involve loans and private securities.
If the resolution exempting business combinations is repealed or our board of directors does not approve a business combination, the Business Combination Act may discourage third parties from trying to acquire control of us and increase the difficulty of consummating such an offer.
If the resolution exempting business combinations is 34 repealed or our board of directors does not approve a business combination, the Business Combination Act may discourage third parties from trying to acquire control of us and increase the difficulty of consummating such an offer.
All distributions will be made at the discretion of our board of directors and will depend on our earnings, financial condition, maintenance of RIC status, compliance with applicable BDC regulations, and such 59 other factors as our board of directors may deem relative from time to time.
All distributions will be made at the discretion of our board of directors and will depend on our earnings, financial condition, maintenance of RIC status, compliance with applicable BDC regulations, and such other factors as our board of directors may deem relative from time to time.
We depend upon the Adviser to maintain its relationships with private equity sponsors, placement agents, investment banks, management groups and other financial institutions and we expect to rely to a significant extent upon these relationships to provide us with potential investment opportunities.
We depend upon the Adviser to maintain its relationships with private equity sponsors, placement agents, investment banks, management groups and other financial institutions and we expect to rely to a significant extent upon these relationships to provide us 28 with potential investment opportunities.
In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our Board, closely approximates the fair value of such securities (less any distributing commission or discount).
In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our Board, closely 32 approximates the fair value of such securities (less any distributing commission or discount).
There could be: • sudden electrical or telecommunications outages; • natural disasters such as earthquakes, tornadoes and hurricanes; • disease pandemics; • events arising from local or larger scale political or social matters, including terrorist acts; and • cyber-attacks.
There could be: • sudden electrical or telecommunications outages; • natural disasters such as earthquakes, tornadoes and hurricanes; 52 • disease pandemics; • events arising from local or larger scale political or social matters, including terrorist acts; and • cyber-attacks.
In addition, if our borrowing base under the Capital One Revolving Financing or any other borrowing facility were to decrease, we would be required to secure additional assets in an amount equal to any borrowing base deficiency.
In addition, if our borrowing base under the Capital One Revolving Financing or any other borrowing facility were to decrease, we would be required to secure additional 30 assets in an amount equal to any borrowing base deficiency.
By their terms, such debt instruments may provide that the holders are entitled to receive payment of interest or principal on or before the dates on which we are entitled to 56 receive payments in respect of the loans in which we invest.
By their terms, such debt instruments may provide that the holders are entitled to receive payment of interest or principal on or before the dates on which we are entitled to receive payments in respect of the loans in which we invest.
The holders of obligations secured by first priority liens on the collateral will generally control the liquidation of, and be entitled to receive proceeds from, any realization of the collateral to repay their obligations in full before us.
The holders of obligations secured by first priority liens on the collateral will generally control the liquidation of, and be entitled to receive proceeds from, any realization of the collateral to repay their 41 obligations in full before us.
In addition, our common stockholders will bear the burden of any increase in our expenses as a result of our use of leverage, including interest expenses and any increase in the Base Management Fee payable to the Adviser.
In addition, our common 29 stockholders will bear the burden of any increase in our expenses as a result of our use of leverage, including interest expenses and any increase in the Base Management Fee payable to the Adviser.
As a result, our board of directors will determine the fair value of these loans and securities in good faith as described below in “— Most of our portfolio investments will be recorded at fair value as determined in good faith by our board of directors and, as a result, there may be uncertainty as to the value of our portfolio investments.” In connection with that determination, investment professionals from the Adviser may provide our board of directors with valuations 43 based upon the most recent portfolio company financial statements available and projected financial results of each portfolio company.
As a result, our board of directors will determine the fair value of these loans and securities in good faith as described below in “— Most of our portfolio investments will be recorded at fair value as determined in good faith by our board of directors and, as a result, there may be uncertainty as to the value of our portfolio investments.” In connection with that determination, investment professionals from the Adviser may provide our board of directors with valuations based upon the most recent portfolio company financial statements available and projected financial results of each portfolio company.
Under the Advisory Agreement, the Adviser, its officers, members and personnel, and any person controlling or controlled by the Adviser will not be liable to us, any subsidiary of ours, our directors, our stockholders or any subsidiary’s stockholders or partners for acts or omissions performed in accordance with and pursuant to the Advisory Agreement, except those resulting from acts constituting gross negligence, willful misconduct, bad faith or reckless disregard of the duties that the Adviser owes to us under the Advisory Agreement.
Under the Advisory Agreement, the Adviser, its officers, members and personnel, and any person controlling or controlled by the Adviser will not be liable to us, any subsidiary of ours, our directors, our stockholders or any subsidiary’s stockholders or partners for acts or omissions performed in accordance with and pursuant to the Advisory Agreement, except those resulting from acts constituting gross negligence, willful misconduct, bad faith or reckless disregard of the duties that the Adviser owes to us under the Advisory Agreement.
As a registered closed-end investment company, we would be subject 46 to substantially more regulatory restrictions under the 1940 Act, which would significantly decrease our operating flexibility.
As a registered closed-end investment company, we would be subject to substantially more regulatory restrictions under the 1940 Act, which would significantly decrease our operating flexibility.
In addition, such companies typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns. Additionally, middle-market companies are more likely to depend on the management talents and efforts of a small group of persons.
In addition, such companies typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns. Additionally, middle-market companies are more likely to depend on the management talents and efforts of a small group of persons.
If an active trading market does not develop for the 2026 Notes, you may not be able to sell them. 33 Risks Relating to U.S.
If an active trading market does not develop for the 2026 Notes, you may not be able to sell them. Risks Relating to U.S.
In addition, as part of the Advisory Agreement, we have agreed to indemnify the Adviser and each of its officers, directors, members, managers and employees from and against any claims or liabilities, including reasonable legal fees and other expenses reasonably incurred, arising out of or in connection with our business and operations or any action taken or omitted on our behalf pursuant to authority granted by the Advisory Agreement, except where attributable to gross negligence, willful misconduct, bad faith or reckless disregard of such person’s duties under the Advisory Agreement.
In addition, as part of the Advisory Agreement, we have agreed to indemnify the Adviser and each of its officers, directors, members, managers and employees from and against any claims or liabilities, including reasonable legal fees and other expenses reasonably incurred, arising out of or in connection with our business and operations or any action taken or omitted on our behalf pursuant to authority granted by the Advisory Agreement, except where attributable to gross negligence, willful misconduct, bad faith or reckless disregard of such person’s duties under the Advisory Agreement.
Impact of Russian Invasion of Ukraine The Russian invasion of Ukraine has negatively affected the global economy and has resulted in significant disruptions in financial markets and increased macroeconomic uncertainty. In addition, governments around the world have responded to Russia’s invasion by imposing economic sanctions and export controls on certain industry sectors, companies and individuals in or associated with Russia.
Impact of Russian Invasion of Ukraine The Russian invasion of Ukraine has negatively affected the global economy and has resulted in significant disruptions in financial markets and increased macroeconomic uncertainty. In addition, governments around the world have responded to Russia’s invasion by imposing economic sanctions and export controls on certain industry sectors, companies and individuals in or associated with Russia.
In addition, our and our portfolio companies’ operations may be significantly impacted, or even temporarily or permanently halted, as a result of government quarantine measures, voluntary and precautionary restrictions on travel or meetings and other factors related to a public health emergency, including its potential adverse impact on the health of any of our or our portfolio companies’ personnel.
In addition, our and our portfolio companies’ operations may be significantly impacted, or even temporarily or permanently halted, as a result of government quarantine measures, voluntary and precautionary restrictions on travel or meetings and other factors related to a public health emergency, including its potential adverse impact on the health of any of our or our portfolio companies’ personnel.
Lenders of these funds have fixed dollar claims on our assets that are superior to the claims of our common stockholders, and we would expect such lenders to seek recovery against our assets in the event of a default. As of June 30, 2022, substantially all of our assets were pledged as collateral under the Capital One Revolving Financing.
Lenders of these funds have fixed dollar claims on our assets that are superior to the claims of our common stockholders, and we would expect such lenders to seek recovery against our assets in the event of a default. As of June 30, 2023, substantially all of our assets were pledged as collateral under the Capital One Revolving Financing.
The Adviser’s investment professionals may have substantial responsibilities in connection with the management of other investment funds, accounts and investment vehicles. The personnel of the Adviser may also be called upon to provide managerial assistance to our portfolio companies. These activities may distract them from identifying new investment opportunities for us or slow our rate of investment.
The Adviser’s investment professionals may have substantial responsibilities in connection with the management of other investment funds, accounts and investment vehicles. The personnel of the Adviser may also be called upon to provide managerial assistance to our portfolio companies. These activities may distract them from identifying new investment opportunities for us or slow our rate of investment.
See “— Regulations governing our operation as a BDC affect our ability to, and the way in which we raise additional capital.
See “— Regulations governing our operation as a BDC affect our ability to, and the way in which we raise additional capital.
For example, to the extent the Adviser’s incentive compensation is not subject to a hurdle or total return requirement with respect to another fund, it may have an incentive to devote time and resources to such other fund. As a result, the investment professionals of the Adviser may devote time and resources to a higher fee-paying fund.
For example, to the extent the Adviser’s incentive compensation is not subject to a hurdle or total return requirement with respect to another fund, it may have an incentive to devote time and resources to such other fund. As a result, the investment professionals of the Adviser may devote time and resources to a higher fee-paying fund.
The Adviser can resign as the Adviser or administrator upon 60 days’ notice and we may not be able to find a suitable replacement within that time, or at all, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.
The Adviser can resign as the Adviser or administrator upon 60 days’ notice and we may not be able to find a suitable replacement within that time, or at all, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.
Risks Relating to the Adviser or Its Affiliates • Our incentive fee may induce the Adviser to make speculative investments. • The Adviser’s liability is limited under the Advisory Agreement and we have agreed to indemnify the Adviser against certain liabilities, which may lead the Adviser to act in a riskier manner on our behalf than it would when acting for its own account. • The Adviser can resign as the Adviser or administrator upon 60 days’ notice and we may not be able to find a suitable replacement within that time, or at all, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.
Risks Relating to the Adviser or Its Affiliates • Our incentive fee may induce the Adviser to make speculative investments. • The Adviser’s liability is limited under the Advisory Agreement and we have agreed to indemnify the Adviser against certain liabilities, which may lead the Adviser to act in a riskier manner on our behalf than it would when acting for its own account. • The Adviser can resign as the Adviser or administrator upon 60 days’ notice and we may not be able to find a suitable replacement within that time, or at all, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.
This will create conflicts of interest that our board of directors will monitor. For example, under the terms of the license agreement, we will be unable to preclude the Adviser from licensing or transferring the ownership of the “Investcorp” name to third parties, some of whom may compete against us.
This will create conflicts of interest that our board of directors will monitor. For example, under the terms of the license agreement, we will be unable to preclude the Adviser from licensing or transferring the ownership of the “Investcorp” name to third parties, some of whom may compete against us.
Neither our portfolio companies nor we will have any control over the pace of technology development. Commercial success is difficult to predict, and the marketing efforts of our portfolio companies may not be successful. 55 Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.
Neither our portfolio companies nor we will have any control over the pace of technology development. Commercial success is difficult to predict, and the marketing efforts of our portfolio companies may not be successful. 40 Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.
As part of the valuation process, we may take into account the following types of factors, if relevant, in determining the fair value of our investments: • available current market data, including relevant and applicable market trading and transaction comparables; • applicable market yields and multiples; • security covenants; • call protection provisions; • information rights; • the nature and realizable value of any collateral; • the portfolio company’s ability to make payments, its earnings and discounted cash flows and the markets in which it does business; • comparisons of financial ratios of peer companies that are public; • comparable merger and acquisition transactions; and • principal market and enterprise values.
As part of the valuation process, we may take into account the following types of factors, if relevant, in determining the fair value of our investments: • available current market data, including relevant and applicable market trading and transaction comparables; • applicable market yields and multiples; • security covenants; • call protection provisions; • information rights; • the nature and realizable value of any collateral; • the portfolio company’s ability to make payments, its earnings and discounted cash flows and the markets in which it does business; • comparisons of financial ratios of peer companies that are public; • comparable merger and acquisition transactions; and 37 • principal market and enterprise values.
The types of factors that the board of directors may take into account in determining the fair value of our investments generally include, as appropriate, comparison to publicly traded securities including such factors as yield, maturity and measures of credit quality, the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business and other relevant factors.
The types of factors that the board of directors may take into account in determining the fair value of our investments generally include, as appropriate, comparison to publicly traded securities including such factors as yield, maturity and measures of credit quality, the enterprise value of a portfolio company, the nature and realizable value of any collateral, the portfolio company’s ability to make payments and its earnings and discounted cash flow, the markets in which the portfolio company does business and other relevant 33 factors.
As a BDC, we may not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. We believe that most of the investments that we may acquire in the future will constitute qualifying assets.
As a BDC, we may not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. We believe that most of the investments that we may acquire in the future will constitute qualifying assets.
The Adviser’s liability is limited under the Advisory Agreement and we have agreed to indemnify the Adviser against certain liabilities, which may lead the Adviser to act in a riskier manner on our behalf than it would when acting for its own account.
The Adviser’s liability is limited under the Advisory Agreement and we have agreed to indemnify the Adviser against certain liabilities, which may lead the Adviser to act in a riskier manner on our behalf than it would when acting for its own account.
Consequently, we will be unable to prevent any damage to goodwill that may occur as a result of the activities of the Adviser or others. Furthermore, in the event the license agreement is terminated, we will be required to change our name and cease using “Investcorp” as part of our name.
Consequently, we will be unable to prevent any damage to goodwill that may occur as a result of the activities of the Adviser or others. Furthermore, in the event the license agreement is terminated, we will be required to change our name and cease using “Investcorp” as part of our name.
See “Business — Taxation as a Regulated Investment Company.” We cannot predict how tax reform legislation will affect us, our investments, or our stockholders, and any such legislation could adversely affect our business. Legislative or other actions relating to taxes could have a negative effect on us.
See “Business — Taxation as a Regulated Investment Company.” We cannot predict how tax reform legislation will affect us, our investments, or our stockholders, and any such legislation could adversely affect our business. Legislative or other actions relating to taxes could have a negative effect on us.
A decrease in energy use due to weather changes may affect some of our portfolio companies’ financial condition, through decreased revenues. Extreme weather conditions in general require more system backup, adding to costs, and can contribute to increased system stresses, including service interruptions.
A decrease in energy use due to weather changes may affect some of our portfolio companies’ financial condition, through decreased revenues. Extreme weather conditions in general require more system backup, adding to costs, and can contribute to increased system stresses, including service interruptions.
Any of these factors could depress economic activity and restrict our portfolio companies’ access to suppliers or customers and have a material adverse effect on their business, financial condition and results of operations, which in turn would negatively impact us.
Any of these factors could depress economic activity and restrict our portfolio companies’ access to suppliers or customers and have a material adverse effect on their business, financial condition and results of operations, which in turn would negatively impact us.
Moreover, as the Base Management Fee payable to the Adviser will be payable based on the value of our gross assets, including those assets acquired through the use of leverage, the Adviser will have a financial incentive to incur leverage, which may not be consistent with our stockholders’ interests.
Moreover, as the Base Management Fee payable to the Adviser will be payable based on the value of our gross assets, including those assets acquired through the use of leverage, the Adviser will have a financial incentive to incur leverage, which may not be consistent with our stockholders’ interests.
Under the Advisory Agreement, the Adviser has not assumed any responsibility to us other than to render the services called for under that agreement. It will not be responsible for any action of our board of directors in following or declining to follow the Adviser’s advice or recommendations.
Under the Advisory Agreement, the Adviser has not assumed any responsibility to us other than to render the services called for under that agreement. It will not be responsible for any action of our board of directors in following or declining to follow the Adviser’s advice or recommendations.
The terms of the Indenture and the 2026 Notes do not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have a material adverse impact on your investment in the 2026 Notes.
The terms of the Indenture and the 2026 Notes do not restrict our or any of our subsidiaries’ ability to engage in, or otherwise be a party to, a variety of corporate transactions, circumstances or events that could have a material adverse impact on your investment in the 2026 Notes.
With respect to all investments, we may lose some investment opportunities if we do not match our competitors’ pricing, terms and structure. However, if we match our competitors’ pricing, terms and structure, we may experience decreased net interest income, lower yields and increased risk of credit loss.
With respect to all investments, we may lose some investment opportunities if we do not match our competitors’ pricing, terms and structure. However, if we match our competitors’ pricing, terms and structure, we may experience decreased net interest income, lower yields and increased risk of credit loss.
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Due to the potential volatility of our stock price, we may become the target of securities litigation in the future.
In the past, following periods of volatility in the market price of a company’s securities, securities class action litigation has often been brought against that company. Due to the potential volatility of our stock price, we may become the target of securities litigation in the future.
Even if we are able to retain comparable professionals the integration of such investment professionals and their lack of familiarity with our investment objective may result in additional costs and time delays that may adversely affect our business, financial condition, results of operations and cash flows. Our business model depends to a significant extent upon our Adviser’s network of relationships.
Even if we are able to retain comparable professionals the integration of such investment professionals and their lack of familiarity with our investment objective may result in additional costs and time delays that may adversely affect our business, financial condition, results of operations and cash flows. Our business model depends to a significant extent upon our Adviser’s network of relationships.
Risks Relating to an Investment in Our Notes • The indenture under which our 4.875% notes due 2026 (the “2026 Notes”) are issued contains limited protection for holders of the 2026 Notes. • There is no active trading market for the 2026 Notes.
Risks Relating to an Investment in Our Notes • The indenture under which our 4.875% notes due 2026 (the “2026 Notes”) are issued contains limited protection for holders of the 2026 Notes. • There is no active trading market for the 2026 Notes.
We adjust quarterly the valuation of our portfolio to reflect our board of directors’ determination of the fair value of each investment in our portfolio. Any changes in fair value are recorded in our statement of operations as net change in unrealized appreciation or depreciation.
We adjust quarterly the valuation of our portfolio to reflect our board of directors’ determination of the fair value of each investment in our portfolio. Any changes in fair value are recorded in our statement of operations as net change in unrealized appreciation or depreciation.
In addition, lenders can be subject to lender liability claims for actions taken by them where they become too involved in the borrower’s business or exercise control over the borrower. It is possible that we could become subject to a lender’s liability claim, including as a result of actions taken if we actually render significant managerial assistance.
In addition, lenders can be subject to lender liability claims for actions taken by them where they become too involved in the borrower’s business or exercise control over the borrower. It is possible that we could become subject to a lender’s liability claim, including as a result of actions taken if we actually render significant managerial assistance.
The first priority liens on the collateral will secure the portfolio company’s obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the portfolio company under the agreements governing the loans.
The first priority liens on the collateral will secure the portfolio company’s obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the portfolio company under the agreements governing the loans.
A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its assets. This could trigger cross-defaults under other agreements and jeopardize such portfolio company’s ability to meet its obligations under the loans or debt or equity securities that we hold.
A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its assets. This could trigger cross-defaults under other agreements and jeopardize such portfolio company’s ability to meet its obligations under the loans or debt or equity securities that we hold.
A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its assets, which could trigger cross-defaults under other agreements and jeopardize our portfolio company’s ability to meet its obligations under the loans and debt securities that we hold.
A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its assets, which could trigger cross-defaults under other agreements and jeopardize our portfolio company’s ability to meet its obligations under the loans and debt securities that we hold.
The Adviser has the right under the Advisory Agreement to resign as the Adviser at any time upon not less than 60 days’ written notice, whether we have found a replacement or not.
The Adviser has the right under the Advisory Agreement to resign as the Adviser at any time upon not less than 60 days’ written notice, whether we have found a replacement or not.
Similarly, the Adviser has the right under the Administration Agreement to resign at any time upon not less than 60 days’ written notice, whether we have found a replacement or not.
Similarly, the Adviser has the right under the Administration Agreement to resign at any time upon not less than 60 days’ written notice, whether we have found a replacement or not.
The impact of this or any further downgrades to the U.S. government’s sovereign credit rating or its perceived creditworthiness could adversely affect the U.S. and global financial markets and economic conditions.
The impact of this or any further downgrades to the U.S. government’s sovereign credit rating or its perceived creditworthiness could adversely affect the U.S. and global financial markets and economic conditions.
The 2026 Notes are not be secured by any of our assets or any of the assets of any of our subsidiaries.
The 2026 Notes are not secured by any of our assets or any of the assets of any of our subsidiaries.
If such proceeds were not sufficient to repay amounts outstanding under the loan obligations secured by the second priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the portfolio company’s remaining assets, if any.
If such proceeds were not sufficient to repay amounts outstanding under the loan obligations secured by the second priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the portfolio company’s remaining assets, if any.
The extent of the impact of any public health emergency, including the COVID-19 pandemic, on our and our portfolio companies’ operational and financial performance will depend on many factors, including the duration and scope of such public health emergency, the actions taken by governmental authorities to contain its financial and economic impact, the extent of any related travel advisories and restrictions implemented, the impact of such public health emergency on overall supply and demand, goods and services, investor liquidity, consumer confidence and levels of economic activity and the extent of its disruption to important global, regional and local supply chains and economic markets, all of which are highly uncertain and cannot be predicted.
The extent of the impact of any public health emergency on our and our portfolio companies’ operational and financial performance will depend on many factors, including the duration and scope of such public health emergency, the actions taken by governmental authorities to contain its financial and economic impact, the extent of any related travel advisories and restrictions implemented, the impact of such public health emergency on overall supply and demand, goods and services, investor liquidity, consumer confidence and levels of economic activity and the extent of its disruption to important global, regional and local supply chains and economic markets, all of which are highly uncertain and cannot be predicted.
Treasury regulations, administrative interpretations or court decisions interpreting such legislation could 66 significantly and negatively affect our ability to qualify for tax treatment as a RIC or the U.S. federal income tax consequences to us and our shareholders of such qualification, or could have other adverse consequences.
Treasury regulations, administrative interpretations or court decisions interpreting such legislation could significantly and negatively affect our ability to qualify for tax treatment as a RIC or the U.S. federal income tax consequences to us and our stockholders of such qualification, or could have other adverse consequences.
Department of the 68 Treasury’s Office of Foreign Assets Control administers and enforces laws, executive orders and regulations establishing U.S. economic and trade sanctions, which prohibit, among other things, transactions with, and the provision of services to, certain non-U.S. countries, territories, entities and individuals.
Department of the Treasury’s Office of Foreign Assets Control administers and enforces laws, executive orders and regulations establishing U.S. economic and trade sanctions, which prohibit, among other things, transactions with, and the provision of services to, certain non-U.S. countries, territories, entities and individuals.
Securities litigation could result in substantial costs and divert management’s attention and resources from our business. Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock. Our two largest investors are Investcorp and Stifel.
Securities litigation could result in substantial costs and divert management’s attention and resources from our business. Sales of substantial amounts of our common stock in the public market may have an adverse effect on the market price of our common stock. Our two largest investors are Investcorp and Stifel.
In addition, the fiscal policy of foreign nations, such as Russia and China, may have a severe impact on the worldwide and U.S. financial markets.
In addition, the foreign and fiscal policies of foreign nations, such as Russia and China, may have a severe impact on the worldwide and U.S. financial markets.
Such a failure would have a material adverse effect on us and our stockholders. See “Business — Taxation as a Regulated Investment Company.” We may have difficulty paying our required distributions if we recognize income before, or without, receiving cash representing such income.
Such a failure would have a material adverse effect on us and our stockholders. See “Business — Taxation as a Regulated Investment Company.” We may have difficulty paying our required distributions if we recognize income before, or without, receiving cash representing such income.
Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as “follow-on” investments, including exercising warrants, options or convertible securities that were acquired in the original or subsequent financing; in seeking to: • increase or maintain in whole or in part our position as a creditor or our equity ownership percentage in a portfolio company; • preserve or enhance the value of our investment.
Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as “follow-on” investments, including exercising warrants, options or convertible securities that were acquired in the original or subsequent financing; in seeking to: • increase or maintain in whole or in part our position as a creditor or our equity ownership percentage in a portfolio company; • preserve or enhance the value of our investment.
The achievement of our investment objective on a cost-effective basis will depend upon the Adviser’s execution of our investment process, its ability to provide competent, attentive and efficient services to us and, to a lesser extent, our access to financing on acceptable terms.
The achievement of our investment objective on a cost-effective basis will depend upon the Adviser’s execution of our investment process, its ability to provide competent, attentive and efficient services to us and, to a lesser extent, our access to financing on acceptable terms.
While our board of directors is not expected to review or approve each investment decision, borrowing or incurrence of leverage, the Independent Directors will periodically review the Adviser’s services and fees as well as its portfolio management decisions and portfolio performance.
While our board of directors is not expected to review or approve each investment decision, borrowing or incurrence of leverage, the Independent Directors will periodically review the Adviser’s services and fees as well as its portfolio management decisions and portfolio performance.
To the extent that we assume large positions in the securities of a small number of issuers or our investments are concentrated in relatively few industries, our net asset value may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer.
To the extent that we assume large positions in the securities of a small number of issuers or our investments are 39 concentrated in relatively few industries, our net asset value may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer.
Portfolio companies in the professional services industry must respond quickly to technological changes and understand the impact of these changes on customers’ preferences.
Portfolio companies in the professional services industry must respond quickly to technological changes and understand the impact of these changes on customers’ preferences.
Although such return of capital may not be taxable, such distributions would generally decrease a stockholder’s basis in our common stock and may therefore increase such stockholder’s tax liability for capital gains upon the future sale of such stock.
Although such return of capital may not be taxable, such distributions would generally decrease a stockholder’s basis in our common stock and may therefore increase such stockholder’s tax liability for capital gains upon the future sale of such stock.
We may issue debt securities or preferred stock and/or borrow money from banks or other financial institutions, which we refer to collectively as “senior securities,” up to the maximum amount permitted by the 1940 Act.
We may issue debt securities or preferred stock and/or borrow money from banks or other financial institutions, which we refer to collectively as “senior securities,” up to the maximum amount permitted by the 1940 Act.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeWe believe that our office facilities are and will be suitable and adequate for our business as we contemplate conducting it. 70
Biggest changeWe believe that our office facilities are and will be suitable and adequate for our business as we contemplate conducting it.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeWhile the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations. Item 4. Mine Safety Disclosures Not applicable. 71 PART II
Biggest changeWhile the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations. Item 4. Min e Safety Disclosures Not applicable. 55 PA RT II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs a result, if we make cash distributions, then stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash distributions. 73 The following table reflects, for the periods indicated, the distributions per share that our board of directors has declared on our common stock: Fiscal Year Ended Distribution Date Declared Record Date Pay Date Amount Per Share June 30, 2023 First Quarter Base August 25, 2022 September 23, 2022 October 14, 2022 $ 0.1500 June 30, 2022 Fourth Quarter Base May 5, 2022 June 17, 2022 July 8, 2022 $ 0.1500 Third Quarter Base February 3, 2022 March 11, 2022 March 31, 2022 $ 0.1500 Second Quarter Base November 3, 2021 December 10, 2021 January 4, 2022 $ 0.1500 First Quarter Base August 25, 2021 September 24, 2021 October 14, 2021 $ 0.1500 June 30, 2021 Fourth Quarter Base May 6, 2021 June 18, 2021 July 9, 2021 $ 0.1500 Third Quarter Base February 3, 2021 March 12, 2021 April 1, 2021 $ 0.1500 Third Quarter Supplemental February 3, 2021 March 12, 2021 April 1, 2021 $ 0.0300 Second Quarter Base November 3, 2020 December 10, 2020 January 4, 2021 $ 0.1500 Second Quarter Supplemental November 3, 2020 December 10, 2020 January 4, 2021 $ 0.0300 First Quarter Base August 26, 2020 September 25, 2020 October 15, 2020 $ 0.1500 First Quarter Supplemental August 26, 2020 September 25, 2020 October 15, 2020 $ 0.0300 June 30, 2020 Fourth Quarter Base May 7, 2020 June 19, 2020 July 10, 2020 $ 0.1500 Fourth Quarter Supplemental May 7, 2020 June 19, 2020 July 10, 2020 $ 0.0300 Third Quarter Base February 4, 2020 March 13, 2020 April 2, 2020 $ 0.2500 Second Quarter Base November 6, 2019 December 13, 2019 January 2, 2020 $ 0.2500 First Quarter Base August 28, 2019 September 26, 2019 October 16, 2019 $ 0.2500 Total $ 2.3700 Sales of Unregistered Securities Except as previously reported by the Company on its current reports on Form 8-K, the Company did not engage in any sales of unregistered securities during the fiscal year ended June 30, 2022.
Biggest changeThe following table reflects, for the periods indicated, the distributions per share that our board of directors has declared on our common stock: Fiscal Year Ended Distribution Date Declared Record Date Pay Date Amount Per Share June 30, 2024 First Quarter Base September 14, 2023 October 12, 2023 November 2, 2023 $0.12 First Quarter Supplemental September 14, 2023 October 12, 2023 November 2, 2023 $0.03 June 30, 2023 Fourth Quarter Base May 4, 2023 June 16, 2023 July 7, 2023 $0.13 Fourth Quarter Supplemental May 4, 2023 June 16, 2023 July 7, 2023 $0.05 Third Quarter Base February 2, 2023 March 10, 2023 March 30, 2023 $0.13 Third Quarter Supplemental February 2, 2023 March 10, 2023 March 30, 2023 $0.02 Second Quarter Base November 11, 2022 December 16, 2022 January 10, 2023 $0.13 Second Quarter Supplemental November 11, 2022 December 16, 2022 January 10, 2023 $0.02 First Quarter Base August 25, 2022 September 23, 2022 October 14, 2022 $0.15 June 30, 2022 Fourth Quarter Base May 5, 2022 June 17, 2022 July 8, 2022 $0.15 Third Quarter Base February 3, 2022 March 11, 2022 March 31, 2022 $0.15 Second Quarter Base November 3, 2021 December 10, 2021 January 4, 2022 $0.15 First Quarter Base August 25, 2021 September 24, 2021 October 14, 2021 $0.15 June 30, 2021 Fourth Quarter Base May 6, 2021 June 18, 2021 July 9, 2021 $0.15 Third Quarter Base February 3, 2021 March 12, 2021 April 1, 2021 $0.15 Third Quarter Supplemental February 3, 2021 March 12, 2021 April 1, 2021 $0.03 Second Quarter Base November 3, 2020 December 10, 2020 January 4, 2021 $0.15 Second Quarter Supplemental November 3, 2020 December 10, 2020 January 4, 2021 $0.03 First Quarter Base August 26, 2020 September 25, 2020 October 15, 2020 $0.15 First Quarter Supplemental August 26, 2020 September 25, 2020 October 15, 2020 $0.03 Total $2.07 Sales of Unregistered Securities Except as previously reported by the Company on its current reports on Form 8-K, the Company did not engage in any sales of unregistered securities during the fiscal year ended June 30, 2023 .
If we qualify as a RIC, we will not be taxed on our investment company taxable income or realized net capital gains, to the extent that such taxable income or gains are distributed, or deemed to be distributed, to stockholders on a timely basis.
If we qualify as a RIC, we will not be taxed on our investment 56 company taxable income or realized net capital gains, to the extent that such taxable income or gains are distributed, or deemed to be distributed, to stockholders on a timely basis.
The stock price performance included in the above graph is not necessarily indicative of future stock price performance. Item 6. [Reserved]
The stock price performance included in the above graph is not necessarily indicative of future stock price performance. Item 6. [Reserved] 58
The graph assumes that, on June 30, 2017 an investment of $100 (with reinvestment of all dividends) was made in our common stock (at the initial public offering price of $15.00 per share), in each index and in the peer group. 74 The graph measures total stockholder return, which takes into account both changes in stock price and dividends.
The graph assumes that, on June 30, 2018 an investment of $100 (with reinvestment of all dividends) was made in our common stock (at the initial public offering price of $15.00 per share), in each index and in the peer group. The graph measures total stockholder return, which takes into account both changes in stock price and dividends.
It assumes that dividends paid are invested in like securities. The graph and other information furnished under this Part II Item 5 of this Form 10-K shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the 1934 Act.
It assumes that dividends paid are invested in like securities. The graph and other information furnished under this Part II Item 5 of this Form 10-K shall not be deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C, or to the liabilities of Section 18 of the 1934 Act.
(4) Represents the regular and special, if applicable, distribution declared in the specified quarter. We have adopted an “opt out” dividend reinvestment plan for our common stockholders.
(4) Represents the regular and special, if applicable, distribution declared in the specified quarter. We have adopted an “opt out” dividend reinvestment plan for our common stockholders.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Price Range of Common Stock Our common stock is traded on the NASDAQ Global Select Market under the symbol “ICMB.” The following table sets forth, for the periods indicated, the range of high and low sales prices of our common stock, as reported on the NASDAQ Global Select Market: NAV Per Share(1) Closing Sales Price(2) Premium or Discount of High Sales to NAV(3) Premium or Discount of Low Sales to NAV(3) Distributions Per Share (4) Fiscal Year Ended High Low June 30, 2023 First quarter (through September 2, 2022) $ * $ 4.72 $ 4.15 *% *% $ 0.15 June 30, 2022 Fourth quarter 6.50 5.35 3.75 (17.69 )% (42.31 )% 0.15 Third quarter 6.93 5.72 5.08 (17.46 )% (26.70 )% 0.15 Second quarter 7.09 5.70 4.87 (19.61 )% (31.38 )% 0.15 First quarter 7.00 6.42 5.30 (8.29 )% (24.29 )% 0.15 June 30, 2021 Fourth quarter 6.92 6.04 5.40 (12.72 )% (21.97 )% 0.15 Third quarter 7.93 6.05 4.62 (23.71 )% (41.74 )% 0.18 Second quarter 7.84 5.45 2.99 (30.48 )% (61.86 )% 0.18 First quarter 7.81 4.38 3.09 (43.92 )% (60.44 )% 0.18 June 30, 2020 Fourth quarter 7.79 4.84 2.95 (37.87 )% (62.13 )% 0.18 Third quarter 8.15 7.65 1.49 (6.13 )% (81.72 )% 0.25 Second quarter 10.15 7.32 6.45 (27.88 )% (36.45 )% 0.25 First quarter 10.19 7.65 6.65 (24.93 )% (34.74 )% 0.25 (1) NAV is determined as of the last date in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices.
Market for Re gistrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Price Range of Common Stock Our common stock is traded on the NASDAQ Global Select Market under the symbol “ICMB.” The following table sets forth, for the periods indicated, the range of high and low sales prices of our common stock, as reported on the NASDAQ Global Select Market: NAV Per Share (1) Closing Sales Price (2) Premium or Discount of High Sales to NAV (3) Premium or Discount of Low Sales to NAV (3) Distributions Per Share (4) Fiscal Year Ended High Low June 30, 2024 First quarter (through September 15, 2023) $ * $ 4.35 $ 3.68 * % * % $0.15 June 30, 2023 Fourth quarter 6.12 3.98 3.24 ( 34.97 )% ( 46.99 )% 0.18 Third quarter 6.13 4.23 3.39 ( 31.00 )% ( 44.70 )% 0.15 Second quarter 6.36 4.32 3.42 ( 32.08 )% ( 46.23 )% 0.15 First quarter 6.47 4.85 3.52 ( 25.04 )% ( 45.60 )% 0.15 June 30, 2022 Fourth quarter 6.50 5.35 3.75 ( 17.69 )% ( 42.31 )% 0.15 Third quarter 6.93 5.72 5.08 ( 17.46 )% ( 26.70 )% 0.15 Second quarter 7.09 5.70 4.87 ( 19.61 )% ( 31.38 )% 0.15 First quarter 7.00 6.42 5.30 ( 8.29 )% ( 24.29 )% 0.15 June 30, 2021 Fourth quarter 6.92 6.04 5.40 ( 12.72 )% ( 21.97 )% 0.15 Third quarter 7.93 6.05 4.62 ( 23.71 )% ( 41.74 )% 0.18 Second quarter 7.84 5.45 2.99 ( 30.48 )% ( 61.86 )% 0.18 First quarter 7.81 4.38 3.09 ( 43.92 )% ( 60.44 )% 0.18 (1) NAV is determined as of the last date in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices.
As a result, if we declare a distribution, stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash distributions.
As a result, if we declare a distribution, stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash distributions.
Stock Performance Graph This graph compares the return on our common stock with that of the Wilshire BDC Index, the NASDAQ Financial Index and a customized peer group of six companies that includes Crescent Capital BDC, Inc., Stellus Capital Investment Corporation, First Eagle Alternative Capital BDC, Inc., Monroe Capital Corporation, CION Investment Corporation, and WhiteHorse Finance Inc., for the period from June 30, 2017 through June 30, 2022.
Purchases of Equity Securities None. 57 Stock Performance Graph This graph compares the return on our common stock with that of the NASDAQ Financial Index and a customized peer group of six companies that includes Crescent Capital BDC, Inc., Stellus Capital Investment Corporation, First Eagle Alternative Capital BDC, Inc., Monroe Capital Corporation, CION Investment Corporation, and WhiteHorse Finance Inc., for the period from June 30, 2018 through June 30, 2023.
As of September 2, 2022, our shares of common stock traded at a discount equal to approximately 33.08% of the net assets attributable to those shares based upon our $6.50 net asset value per 72 share as of June 30, 2022.
As of September 15, 2023 , our shares of common stock traded at a discount equal to approximately 33.50 % of the net assets attributable to those shares based upon our $ 6.09 net asset value per share as of June 30, 2023.
See “Dividend Reinvestment Plan.” * The last reported sale price for our common stock on the NASDAQ Global Select Market on September 2, 2022 was $4.35 per share. As of September 2, 2022, we had 30 stockholders of record, which did not include stockholders for whom shares are held in nominee or “street” name.
See “Dividend Reinvestment Plan.” * The last reported sale price for our common stock on the NASDAQ Global Select Market on September 15, 2023 was $4.05 per share. As of September 15, 2023 , we had 31 stockholders of record, which did not include stockholders for whom shares are held in nominee or “street” name.
Removed
We have adopted an “opt out” dividend reinvestment plan (“DRIP”) for our common stockholders.
Added
We have adopted an “opt out” dividend reinvestment plan (“DRIP”) for our common stockholders. As a result, if we make cash distributions, then stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock, unless they specifically “opt out” of the dividend reinvestment plan so as to receive cash distributions.

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

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Biggest changeCONTROLS AND PROCEDURES 143 ITEM 9B. OTHER INFORMATION 144 PART III 145 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 145 ITEM 11. EXECUTIVE COMPENSATION 145 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 145 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 145 ITEM 14.
Biggest changeCONTROLS AND PROCEDURES 114 ITEM 9B. OTHER INFORMATION 114 PART III 115 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE 115 ITEM 11. EXECUTIVE COMPENSATION 115 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS 115 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE 115 ITEM 14.
ITEM 6. [RESERVED] 75 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 75 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 95 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 96 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON ACCOUNTING AND FINANCIAL DISCLOSURE 143 ITEM 9A.
ITEM 6. [RESERVED] 58 ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 59 ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK 74 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 76 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON ACCOUNTING AND FINANCIAL DISCLOSURE 114 ITEM 9A.
PRINCIPAL ACCOUNTANT FEES AND SERVICES 145 PART IV 146 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 146 SIGNATURES 150 i PART I
PRINCIPAL ACCOUNTANT FEES AND SERVICES 115 PART IV 116 ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES 116 SIGNATURES 119 i PAR T I

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeAt June 30, 2022 and June 30, 2021, respectively, the industry composition of our portfolio in accordance with GICS at fair value, as a percentage of our total portfolio, was as follows: Percentage of Total Portfolio at June 30, 2022 Percentage of Total Portfolio at June 30, 2021 Professional Services 11.55 % 10.56 % IT Services 9.25 3.53 Internet & Direct Marketing Retail 9.02 2.57 Household Durables 7.42 — Trading Companies & Distributors 6.72 5.58 Commercial Services & Supplies 6.62 6.00 Chemicals 6.00 — Energy Equipment & Services 5.59 8.30 Distributors 5.26 3.87 Consumer Finance 4.87 5.29 Software 3.77 5.44 Entertainment 3.40 — Auto Components 3.39 3.54 Food & Staples Retailing 3.39 — Containers & Packaging 3.10 7.61 Diversified Consumer Services 2.88 — Specialty Retail 2.54 — Building Products 2.02 — Food Products 1.95 — Electronic Equipment, Instruments & Components 1.26 — Construction & Engineering — 6.54 Retail — 4.69 Home Improvement Retail — 3.95 Airlines — 3.73 Automobiles — 3.24 Real Estate Management & Development — 3.21 Textiles, Apparel & Luxury Goods — 2.81 Internet Software & Services — 2.34 Construction Materials — 1.98 Personal Products — 1.96 Road & Rail — 1.77 Technology Hardware, Storage & Peripherals — 0.79 Diversified Telecommunication Services — 0.62 Media — 0.08 100.00 % 100.00 % 86 During the year ended June 30, 2022, we made investments in 14 new portfolio companies and eight existing portfolio companies.
Biggest changeAt June 30, 2023 and June 30, 2022, respectively, the industry composition of our portfolio in accordance with GICS at fair value, as a percentage of our total portfolio, was as follows: Percentage of Total Portfolio at June 30, 2023 2022 Trading Companies & Distributors 15.98 % 6.72 % Professional Services 12.83 11.55 IT Services 10.71 9.25 Commercial Services & Supplies 6.51 6.62 Software 6.26 3.77 Containers & Packaging 5.89 3.10 Machinery 4.36 — Internet & Direct Marketing Retail 4.08 9.02 Entertainment 3.47 3.40 Household Durables 3.46 7.42 Chemicals 3.44 6.00 Diversified Consumer Services 3.30 2.88 Automobile Components 3.30 3.39 Hotels, Restaurants and Leisure 2.85 — Consumer Staples Distribution & Retail 2.75 — Specialty Retail 2.34 2.54 Building Products 2.05 2.02 Food Products 1.95 1.95 Automotive Retail 1.76 — Electronic Equipment, Instruments & Components 1.48 1.26 Energy Equipment & Services 1.23 5.59 Distributors — 5.26 Consumer Finance — 4.87 Food & Staples Retailing — 3.39 100.00 % 100.00 % During the year ended June 30, 2023, we made investments in eight new portfolio companies and four existing portfolio companies.
The 2026 Notes may be redeemed in whole or in part at any time or from time to time at our option, upon not less than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof, at a redemption price (as determined by us) equal to the greater of the following amounts, plus, in each case, accrued and unpaid interest to, but excluding, the redemption date: (1) 100% of the principal amount of the 2026 Notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest (exclusive of accrued and unpaid interest to the date of redemption) on the 2026 Notes to be redeemed, discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) using the applicable Treasury Rate (as defined in the 2026 Notes Indenture (as defined below)) plus 50 basis points; provided, however, that if we redeem any 2026 Notes on or after January 1, 2026 (the date falling three months prior to the maturity date of the 2026 Notes), the redemption price for the 2026 Notes will be equal to 100% of the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption; provided, further, that no such partial redemption shall reduce the portion of the principal amount of a 2026 Note not redeemed to less than $2,000.
The 2026 Notes may be redeemed in whole or in part at any time or from time to time at our option, upon not less than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof, at a redemption price (as determined by us) equal to the greater of the following amounts, plus, in each case, accrued and unpaid interest to, but excluding, the redemption date: (1) 100% of the principal amount of the 2026 Notes to be redeemed or (2) the sum of the present values of the remaining scheduled payments of principal and interest (exclusive of accrued and unpaid interest to the date of redemption) on the 2026 Notes to be redeemed, discounted to the redemption date on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) 64 using the applicable Treasury Rate (as defined in the 2026 Notes Indenture (as defined below)) plus 50 basis points; provided, however, that if we redeem any 2026 Notes on or after January 1, 2026 (the date falling three months prior to the maturity date of the 2026 Notes), the redemption price for the 2026 Notes will be equal to 100% of the principal amount of the 2026 Notes to be redeemed, plus accrued and unpaid interest, if any, to, but excluding, the date of redemption; provided, further, that no such partial redemption shall reduce the portion of the principal amount of a 2026 Note not redeemed to less than $2,000.
(9) On March 26, 2021, we caused notice to be issued to the holders of the 2023 Notes regarding our exercise of the option to redeem in full all $51,375,000 in aggregate principal amount of the 2023 Notes at 100% of their principal amount ($25 per Note), plus the accrued and unpaid interest thereon from April 1, 2021, through, but excluding, the redemption date, April 25, 2021.
(9) On March 26, 2021, we caused notice to be issued to the holders of the 2023 Notes regarding our exercise of the option to redeem in full all $51,375,000 in aggregate principal amount of the 2023 Notes at 100% of their principal amount ($25 per 71 Note), plus the accrued and unpaid interest thereon from April 1, 2021, through, but excluding, the redemption date, April 25, 2021.
CM Finance Inc had no assets or operations prior to completion of the Merger and, as a result, the books and records of CM Finance LLC became our books and records, as the surviving entity. Immediately after the Merger, we issued 2,181,818 shares of our common stock to Stifel Venture Corp. (“Stifel”) in exchange for $32.7 million in cash.
CM Finance Inc had no assets or operations prior to completion of the Merger and, as a result, the books and records of CM Finance LLC became our books and records, as the surviving entity. Immediately after the Merger, we issued 2,181,818 shares of our common stock to Stifel Venture Corp. (“Stifel”) in exchange for $32.7 million in cash.
Accordingly, the notes to our financial statements express the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on the consolidated financial statements. Rule 2a-5 under the 1940 Act was adopted in December 2020 by the SEC and establishes requirements for determining fair value in good faith for purposes of the 1940 Act.
Accordingly, the notes to our financial statements express the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on the consolidated financial statements. 62 Rule 2a-5 under the 1940 Act was adopted in December 2020 by the SEC and establishes requirements for determining fair value in good faith for purposes of the 1940 Act.
The weighted average total yield of our debt investments is not the same as a return on investment for our stockholders but, rather, relates to a portion of our investment portfolio and is calculated before payment of all of our fees and expenses, including any sales load paid in connection with an offering of our securities.
The weighted average total yield of our debt investments is not the same as a return on investment for our stockholders but, rather, relates to a portion of our investment portfolio and is calculated before payment of all of our fees and expenses, including 66 any sales load paid in connection with an offering of our securities.
To qualify for RIC tax treatment, we must, among other things, distribute to our stockholders, with respect to each taxable year, at least 90% of our investment company net taxable income (i.e., our net ordinary income and our realized net short-term capital gains in excess of realized net long-term capital losses, if any).
To continue to qualify for RIC tax treatment, we must, among other things, distribute to our stockholders, with respect to each taxable year, at least 90% of our investment company net taxable income (i.e., our net ordinary income and our realized net short-term capital gains in excess of realized net long-term capital losses, if any).
Expenses Total expenses for the year ended June 30, 2022 decreased to $15.5 million from $17.6 million for the year ended June 30, 2021, primarily due to a decrease in interest expenses related to decreased borrowings under our credit facilities, a decrease in base management fees (including waiver) related to a decrease in total assets and no income-based incentive fees.
Expenses Total (net) expenses for the year ended June 30, 2022 decreased to $15.5 million from $17.6 million for the year ended June 30, 2021, primarily due to a decrease in interest expenses related to decreased borrowings under our credit facilities, a decrease in base management fees (including waiver) related to a decrease in total assets and no income-based incentive fees.
With respect to investments for which market quotations are not readily available, our board of directors undertakes a multi-step valuation process each quarter, as described below: • our quarterly valuation process begins with each portfolio company or investment being initially valued by the members of the Investment Team responsible for the portfolio investment; • preliminary valuation conclusions are then documented and discussed by the investment team of the Adviser; • on a periodic basis, at least once annually, the valuation for each portfolio investment is reviewed by an independent valuation firm engaged by our board of directors; • the valuation committee of our board of directors then reviews these preliminary valuations and makes a recommendation to our board of directors regarding the fair value of each investment; and • the board of directors then reviews and discusses these preliminary valuations and determines the fair value of each investment in our portfolio in good faith, based on the input of the Adviser, the independent valuation firm and the valuation committee.
With respect to investments for which market quotations are not readily available, our board of directors undertakes a multi-step valuation process each quarter, as described below: • our quarterly valuation process begins with each portfolio company or investment being initially valued by the members of the Investment Team responsible for the portfolio investment; • preliminary valuation conclusions are then documented and discussed by senior management and the Adviser; • on a periodic basis, at least once annually, the valuation for each portfolio investment is reviewed by an independent valuation firm engaged by our board of directors; • the valuation committee of our board of directors then reviews these preliminary valuations and makes a recommendation to our board of directors regarding the fair value of each investment; and • the board of directors then reviews and discusses these preliminary valuations and determines the fair value of each investment in our portfolio in good faith, based on the input of the Adviser, the independent valuation firm and the valuation committee.
Our primary investment objective is to maximize total return to stockholders in the form of current income and capital appreciation by investing directly in debt and related equity of privately held middle-market companies to help these companies fund acquisitions, growth or refinancing.
Our primary investment objective is to maximize total return to stockholders in the form of current income and capital appreciation by investing directly in debt and related equity of privately held middle-market companies to help these companies fund 59 acquisitions, growth or refinancing.
Due to the inherent uncertainty and subjectivity of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments and may differ materially from the values that we may ultimately realize.
Due to the inherent uncertainty and subjectivity of determining the fair value of investments that do not have a readily available market revalue, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments and may differ materially from the values that we may ultimately realize.
The total net proceeds received by us from the sale of the 2023 Notes in October 2019 and November 2019 was approximately $16.4 million, based on the purchase price paid by the underwriters and after deducting 82 underwriting discounts and commissions and estimated offering expenses.
The total net proceeds received by us from the sale of the 2023 Notes in October 2019 and November 2019 was approximately $16.4 million, based on the purchase price paid by the underwriters and after deducting underwriting discounts and commissions and estimated offering expenses.
Class and Year Total Amount Outstanding Exclusive of Treasury Securities(1) Asset Coverage per Unit(2) Involuntary Liquidating Preference per Unit(3) Average Market Value per Unit(4) Capital One Revolving Financing Fiscal Year ended June 30, 2022 $ 84,000,000 (5) $ 2,864 — N/A UBS Financing Facility Fiscal Year ended June 30, 2021 $ 102,000,000 (6) $ 2,567 — N/A Fiscal Year ended June 30, 2020 $ 132,000,000 (6) $ 2,200 — N/A Fiscal Year ended June 30, 2019 $ 133,026,670 (6) $ 2,329 — N/A Fiscal Year ended June 30, 2018 $ 119,823,000 (6) $ 2,431 — N/A Fiscal Year ended June 30, 2017 $ 102,000,000 $ 2,666 — N/A Fiscal Year ended June 30, 2016 $ 132,478,329 (7) $ 2,229 — N/A Fiscal Year ended June 30, 2015 $ 150,847,459 (7) $ 2,306 — N/A Fiscal Year ended June 30, 2014 $ 85,591,314 (7) $ 3,339 — N/A Fiscal Year ended June 30, 2013 $ 76,500,000 $ 1,860 — N/A Citi Revolving Financing (8) Fiscal Year ended June 30, 2021 $ — N/A — N/A Fiscal Year ended June 30, 2020 $ — N/A — N/A Fiscal Year ended June 30, 2019 $ — N/A — N/A Fiscal Year ended June 30, 2018 $ — N/A — N/A Fiscal Year ended June 30, 2017 $ — N/A — N/A 6.125% notes due 2023 (9) Fiscal Year ended June 30, 2021 $ — $ — — $ — Fiscal Year ended June 30, 2020 $ 51,375,000 $ 5,674 — $ 926 Fiscal Year ended June 30, 2019 $ 34,500,000 $ 8,969 — $ 1,012 4.875% notes due 2026 (10) Fiscal Year ended June 30, 2022 $ 65,000,000 $ 3,701 — $ N/A Fiscal Year ended June 30, 2021 $ 65,000,000 $ 4,027 — N/A (1) Total amount of senior securities outstanding at the end of the period presented.
Class and Year Total Amount Outstanding Exclusive of Treasury Securities (1) Asset Coverage per Unit (2) Involuntary Liquidating Preference per Unit (3) Average Market Value per Unit (4) Capital One Revolving Financing Fiscal Year ended June 30, 2023 $ 71,900,000 (5) $ 3,133 — N/A Fiscal Year ended June 30, 2022 $ 84,000,000 (5) $ 2,864 — N/A UBS Financing Facility Fiscal Year ended June 30, 2021 $ 102,000,000 (6) $ 2,567 — N/A Fiscal Year ended June 30, 2020 $ 132,000,000 (6) $ 2,200 — N/A Fiscal Year ended June 30, 2019 $ 133,026,670 (6) $ 2,329 — N/A Fiscal Year ended June 30, 2018 $ 119,823,000 (6) $ 2,431 — N/A Fiscal Year ended June 30, 2017 $ 102,000,000 $ 2,666 — N/A Fiscal Year ended June 30, 2016 $ 132,478,329 (7) $ 2,229 — N/A Fiscal Year ended June 30, 2015 $ 150,847,459 (7) $ 2,306 — N/A Fiscal Year ended June 30, 2014 $ 85,591,314 (7) $ 3,339 — N/A Fiscal Year ended June 30, 2013 $ 76,500,000 $ 1,860 — N/A Citi Revolving Financing (8) Fiscal Year ended June 30, 2021 $ — N/A — N/A Fiscal Year ended June 30, 2020 $ — N/A — N/A Fiscal Year ended June 30, 2019 $ — N/A — N/A Fiscal Year ended June 30, 2018 $ — N/A — N/A Fiscal Year ended June 30, 2017 $ — N/A — N/A 6.125% notes due 2023 (9) Fiscal Year ended June 30, 2021 $ — $ — — $ — Fiscal Year ended June 30, 2020 $ 51,375,000 $ 5,674 — $ 926 Fiscal Year ended June 30, 2019 $ 34,500,000 $ 8,969 — $ 1,012 4.875% notes due 2026 (10) Fiscal Year ended June 30, 2023 $ 65,000,000 $ 3,466 — N/A Fiscal Year ended June 30, 2022 $ 65,000,000 $ 3,701 — N/A Fiscal Year ended June 30, 2021 $ 65,000,000 $ 4,027 — N/A (1) Total amount of senior securities outstanding at the end of the period presented.
(3) The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it. The “—” indicates information which the SEC expressly does not require to be disclosed for certain types of senior securities.
(3) The amount to which such class of senior security would be entitled upon the involuntary liquidation of the issuer in preference to any security junior to it. The “—” indicates information which the SEC expressly does not require to be disclosed for certain types of senior securities.
(6) On November 19, 2021, we satisfied all obligations under the 2017 UBS Revolving Financing and the agreement was terminated. On November 19, 2021, we repaid the Term Financing in full in accordance with the terms of the Term Financing. 91 (7) Includes senior securities under the 2013 UBS Revolving Financing and the Term Financing.
(6) On November 19, 2021, we satisfied all obligations under the 2017 UBS Revolving Financing and the agreement was terminated. On November 19, 2021, we repaid the Term Financing in full in accordance with the terms of the Term Financing. (7) Includes senior securities under the 2013 UBS Revolving Financing and the Term Financing.
While the investment rating system identifies 87 the relative risk for each investment, the rating alone does not dictate the scope and/or frequency of any monitoring that will be performed.
While the investment rating system identifies the relative risk for each investment, the rating alone does not dictate the scope and/or frequency of any monitoring that will be performed.
Notes due 2026 On March 31, 2021, we closed the public offering of $65 million in aggregate principal amount of 4.875% notes due 2026 (the “2026 Notes”). The total net proceeds to us from the 2026 Notes after deducting underwriting discounts and commissions of approximately $1.3 million and estimated offering expenses of approximately $215,000, were approximately $63.1 million.
Notes due 2026 On March 31, 2021, we closed the public offering of $65 million in aggregate principal amount of 4.875% notes due 2026 (the “2026 Notes”). The total net proceeds to us from the 2026 Notes after deducting underwriting discounts and commissions of approximately $1.3 million and estimated offering expenses of approximately $215,000, were approximately $63.1 million.
Examples of these events could include cases where a security trades infrequently, causing a quoted purchase or sale price to become stale, where there is a “forced” sale by a distressed seller, where market quotations vary substantially among market makers, or where there is a wide bid- ask spread or significant increase in the bid ask spread.
Examples of these events could include cases where a security trades infrequently, causing a quoted purchase or sale price to become stale, where there is a “forced” sale by a distressed seller, where market quotations vary substantially among market makers, or where there is a wide bid- ask spread or significant increase in the bid ask spread.
As a BDC, we are required to comply with certain regulatory requirements. For instance, as a BDC, we may not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions).
As a BDC, we are required to comply with certain regulatory requirements. For instance, as a BDC, we may not acquire any assets other than “qualifying assets” specified in the 1940 Act unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions).
At June 30, 2022, 99.6% of our debt investments bore interest based on floating rates based on indices such as LIBOR, SOFR, the Euro Interbank Offered Rate, the Federal Funds Rate or the Prime Rate (in certain cases, subject to interest rate floors), and 0.4% bore interest at fixed rates.
At June 30, 2023, 99.6% of our debt investments bore interest based on floating rates based on indices such as LIBOR, SOFR, the Euro Interbank Offered Rate, the Federal Funds Rate or the Prime Rate (in certain cases, subject to interest rate floors), and 0.4% bore interest at fixed rates.
In following these approaches, the types of factors that we may take into account in 79 determining the fair value of our investments include, as relevant and among other factors: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, information rights, 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, merger and acquisition comparables, our principal market (as the reporting entity) and enterprise values.
In following these approaches, the types of factors that we may take into account in determining the fair value of our investments include, as relevant and among other factors: available current market data, including relevant and applicable market trading and transaction comparables, applicable market yields and multiples, security covenants, call protection provisions, 61 information rights, 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, merger and acquisition comparables, our principal market (as the reporting entity) and enterprise values.
The Capital One Revolving Financing required the payment of an upfront fee of 1.125% of the available borrowings under the Capital One Revolving Financing at the closing and requires the payment of an unused fee of (i) 0.75% annually for any undrawn amounts below 50% of the Capital One Revolving Financing, (ii) 0.50% annually for any undrawn amounts between 50% and 75% of the Capital One Revolving Financing, and (iii) 0.25% annually for any undrawn amounts above 75% of the Capital One Revolving Financing.
The Capital One Revolving Financing required the payment of an upfront fee of 1.125% ($1.3 million) of the available borrowings under the Capital One Revolving Financing at the closing, and requires the payment of an unused fee of (i) 0.75% annually for any undrawn amounts below 50% of the Capital One Revolving Financing, (ii) 0.50% annually for any undrawn amounts between 50% and 75% of the Capital One Revolving Financing, and (iii) 0.25% annually for any undrawn amounts above 75% of the Capital One Revolving Financing.
Notes due 2023 In July 2018, we issued an aggregate of $34.5 million in aggregate principal amount of 6.125% notes due 2023 (the “2023 Notes”) for total net proceeds, after deducting underwriting discounts and commissions and estimated offering expenses, of approximately $33.2 million.
Notes due 2023 In July 2018, we issued an aggregate of $34.5 million in aggregate principal amount of 6.125% notes due 2023 (the “2023 Notes”) for total net proceeds, after deducting underwriting discounts and commissions and estimated offering expenses, of approximately $33.2 million.
Under the Advisory Agreement, the Capital Gains Fee is determined and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement, as of the termination date), commencing with the fiscal year ending June 30, 2021, and will equal to 20.0% of our cumulative aggregate realized capital gains from the Commencement Date through the end of each fiscal year, computed net of our aggregate cumulative realized capital losses and our aggregate cumulative unrealized capital depreciation through the end of such year, less the aggregate amount of any previously paid Capital Gains Fees.
Under the Advisory Agreement, the Capital Gains Fee is determined and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement, as of the termination date), commencing with the fiscal year ended June 30, 2021, and is equal to 20.0% of our cumulative aggregate realized capital gains from the Commencement Date through the end of each fiscal year, computed net of our aggregate cumulative realized capital losses and our aggregate cumulative unrealized capital depreciation through the end of such year, less the aggregate amount of any previously paid Capital Gains Fees.
On February 5, 2014, we priced our initial public offering, selling 7,666,666 shares of our common stock, par value $0.001, including the underwriters’ over-allotment, at a price of $15.00 per share with net proceeds of approximately $111.5 million. 76 CM Finance LLC, a Maryland limited liability company, commenced operations in March 2012.
On February 5, 2014, we priced our initial public offering, selling 7,666,666 shares of our common stock, par value $0.001, including the underwriters’ over-allotment, at a price of $15.00 per share with net proceeds of approximately $111.5 million. CM Finance LLC, a Maryland limited liability company, commenced operations in March 2012.
On November 20, 2017, as subsequently amended, we entered into a $50 million revolving financing facility with UBS, which was subsequently amended on June 21, 2019 to reduce the size to $30.0 million and extend the maturity date (as amended, the “Revolving Financing”).
On November 20, 2017, as subsequently amended, we entered into a $50 million revolving financing facility with UBS, which was subsequently amended on June 21, 2019 to reduce the size to $30.0 million and extend the maturity date (as amended, the “Revolving Financing”).
Under this provision, in any fiscal quarter, the Adviser receives no Incentive Fee until our Pre-Incentive Fee Net Investment Income equals the hurdle rate of 2.0%, but then receives, as a “catch-up,” 100% of our Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than 2.5% (which is 10.0% annualized).
Under this provision, in any fiscal quarter, the Adviser receives no Incentive Fee until our Pre-Incentive Fee Net Investment Income equals the hurdle rate of 2.0%, but then receives, as a “catch-up,” 100% of our Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than 2.5% (which is 10.0% annualized).
In addition, on June 26, 2019, we entered into a definitive stock purchase and transaction agreement with Investcorp BDC Holdings Limited (“Investcorp BDC”), an affiliate of Investcorp (the “Stock Purchase Agreement”), pursuant to which, following the initial closing under the Stock Purchase Agreement on August 30, 2019 (the “Closing”) and prior to the second anniversary of the date of the Closing, Investcorp BDC was required to purchase (i) 680,985 newly issued shares of our common stock, par value $0.001 per share, at the most recently determined net asset value per share of our common stock at the time of such purchase, as adjusted as necessary to comply with Section 23 of the 1940 Act, and (ii) 680,985 shares of our common stock in open-market or secondary transactions.
In addition, on June 26, 2019, we entered into a definitive stock purchase and transaction agreement with Investcorp BDC Holdings Limited (“Investcorp BDC”), an affiliate of Investcorp (the “Stock Purchase Agreement”), pursuant to which, following the initial closing under the Stock Purchase Agreement on August 30, 2019 (the “Closing”) and prior to the second anniversary of the date of the Closing, Investcorp BDC was required to purchase (i) 680,985 newly issued shares of our common stock, par value $0.001 per share, at the most recently determined net asset value per share of our common stock at the time of such purchase, as adjusted as necessary to comply with Section 23 of the 1940 Act, and (ii) 680,985 shares of our common stock in open-market or secondary transactions.
As of June 30, 2022 and June 30, 2021, there were no borrowings outstanding under the Revolving Financing. On August 23, 2021, we, through Investcorp Credit Management BDC SPV, LLC, our wholly-owned subsidiary, entered into a five-year, $115 million senior secured revolving credit facility (the “Capital One Revolving Financing”) with Capital One, N.A.
As of June 30, 2023 and June 30, 2022, there were no borrowings outstanding under the Revolving Financing. On August 23, 2021, we, through Investcorp Credit Management BDC SPV, LLC, our wholly-owned subsidiary, entered into a five-year, $115 million senior secured revolving credit facility (the “Capital One Revolving Financing”) with Capital One, N.A.
The indenture under which the 2026 Notes are issued (the “2026 Notes Indenture”) contains certain covenants, including covenants requiring us to comply with Section 18(a)(1)(A) as modified by Section 61(a)(2) of 1940 Act, or any successor provisions, to comply with Section 18(a)(1)(B) as modified by Section 61(a)(2) of the 1940 Act, or any successor provisions but giving effect to any no-action relief granted by the SEC to another BDC and upon which we may reasonably rely (or to us if we determine to seek such similar no-action or other 83 relief), and to provide financial information to the holders of the 2026 Notes and the Trustee if we should no longer be subject to the reporting requirements under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
The indenture under which the 2026 Notes are issued (the “2026 Notes Indenture”) contains certain covenants, including covenants requiring us to comply with Section 18(a)(1)(A) as modified by Section 61(a)(2) of 1940 Act, or any successor provisions, to comply with Section 18(a)(1)(B) as modified by Section 61(a)(2) of the 1940 Act, or any successor provisions but giving effect to any no-action relief granted by the SEC to another BDC and upon which we may reasonably rely (or to us if we determine to seek such similar no-action or other relief), and to provide financial information to the holders of the 2026 Notes and the Trustee if we should no longer be subject to the reporting requirements under the Securities Exchange Act of 1934, as amended (the “Exchange Act”).
Immediately prior to our initial public offering, CM Finance LLC merged with and into us (the “Merger”). In connection with the Merger, we issued 6,000,000 shares of common stock and $39.8 million in debt to the pre-existing CM Finance LLC investors, consisting of certain funds (the “Cyrus Funds” managed by Cyrus Capital.
Immediately prior to our initial public offering, CM Finance LLC merged with and into us (the “Merger”). In connection with the Merger, we issued 6,000,000 shares of common stock and $39.8 million in debt to the pre-existing CM Finance LLC investors, consisting of certain funds (the “Cyrus Funds”) managed by Cyrus Capital.
As of June 30, 2022, and June 30, 2021 all of our investments were classified as Level 3 investments, determined based on valuations by our board of directors. Determination of fair value involves subjective judgments and estimates.
As of June 30, 2023, and June 30, 2022 all of our investments were classified as Level 3 investments, determined based on valuations by our board of directors. Determination of fair value involves subjective judgments and estimates.
There can be no assurance that the weighted average total yield will remain at its current level. We use Global Industry Classification Standard (“GICS”) codes to identify the industry groupings.
There can be no assurance that the weighted average total yield will remain at its current level. We use Global Industry Classification Standard (“GICS”) codes to identify the industry groupings.
The 2023 Notes were redeemed on April 25, 2021. (10) On March 31, 2021, we closed the public offering of $65,000,000 in aggregate principal amount of 4.875% notes due 2026 (the “2026 Notes”).
The 2023 Notes were redeemed on April 25, 2021. (10) On March 31, 2021, we closed the public offering of $65,000,000 in aggregate principal amount of 4.875% notes due 2026 (the “2026 Notes”).
The Base Management Fee is equal to 1.75% of our gross assets, payable in arrears on a quarterly basis. The Incentive Fee, which provides the Adviser with a share of the income that it generates for the Company, has two components, ordinary income (the “Income-Based Fee”) and capital gains (the “Capital Gains Fee”).
The Base Management Fee is equal to 1.75% of our gross assets, payable in arrears on a quarterly basis. The Incentive Fee, which provides the Adviser with a share of the income that it generates for the Company, has two components, ordinary income (the “Income-Based Fee”) and capital gains (the “Capital Gains Fee”).
We bear all other out-of-pocket costs and expenses of our operations and transactions, including, without limitation, those relating to: • our organization and our offering; • valuing our assets and calculating our net asset value per share (including the cost and expenses of any independent valuation firm(s)); 84 • fees and expenses incurred by the Adviser or payable to third parties, including agents, consultants or other advisors, in monitoring financial and legal affairs for us and in monitoring our investments and performing due diligence on our prospective portfolio companies or otherwise relating to, or associated with, evaluating and making investments; • interest payable on debt, if any, incurred to finance our investments and expenses related to unsuccessful portfolio acquisition efforts; • offerings of our common stock and other securities; • administration fees and expenses, if any, payable under the Prior Administration Agreement or Administration Agreement, as applicable (including our allocable portion of the Adviser’s overhead in performing its obligations under such Administration Agreement, including rent, equipment and the allocable portion of the cost of our Chief Compliance Officer, Chief Financial Officer and his staffs’ compensation and compensation-related expenses); • transfer agent and custody fees and expenses; • federal and state registration fees; • costs of registration and listing our shares on any securities exchange; • U.S. federal, state and local taxes; • Independent Directors’ fees and expenses; • costs of preparing and filing reports or other documents required by the SEC or other regulators; • costs of any reports, proxy statements or other notices to stockholders including printing costs; • costs associated with individual or group stockholders; • costs and fees associated with any fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; • direct costs and expenses of administration and operation, including printing, mailing, long distance telephone, copying, secretarial and other staff, independent auditors and outside legal costs; and • all other non-investment advisory expenses incurred by us or the Adviser in connection with administering our business.
We bear all other out-of-pocket costs and expenses of our operations and transactions, including, without limitation, those relating to: • our organization and our offering; 65 • valuing our assets and calculating our net asset value per share (including the cost and expenses of any independent valuation firm(s)); • fees and expenses incurred by the Adviser or payable to third parties, including agents, consultants or other advisors, in monitoring financial and legal affairs for us and in monitoring our investments and performing due diligence on our prospective portfolio companies or otherwise relating to, or associated with, evaluating and making investments; • interest payable on debt, if any, incurred to finance our investments and expenses related to unsuccessful portfolio acquisition efforts; • offerings of our common stock and other securities; • administration fees and expenses, if any, payable under the Administration Agreement (including our allocable portion of the Adviser’s overhead in performing its obligations under the Administration Agreement, including rent, equipment and the allocable portion of the cost of our chief compliance officer, chief financial officer and his staffs’ compensation and compensation-related expenses); • transfer agent and custody fees and expenses; • federal and state registration fees; • costs of registration and listing our shares on any securities exchange; • federal, state and local taxes; • independent directors’ fees and expenses; • costs of preparing and filing reports or other documents required by the SEC or other regulators; • costs of any reports, proxy statements or other notices to stockholders including printing costs; • costs associated with individual or group stockholders; • our allocable portion of the costs and fees associated with any fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premiums; • direct costs and expenses of administration and operation, including printing, mailing, long distance telephone, copying, secretarial and other staff, independent auditors and outside legal costs; and • all other non-investment advisory expenses incurred by us or the Adviser in connection with administering our business.
The Advisory Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations under the Advisory Agreement, the Adviser and its officers, managers, partners, agents, employees, controlling persons and members, and any other person or entity affiliated with it, are entitled to indemnification from us for any 94 damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of the Adviser’s services under the Advisory Agreement or otherwise as the Adviser.
The Advisory Agreement provides that, absent willful misfeasance, bad faith or gross negligence in the performance of its duties or by reason of the reckless disregard of its duties and obligations under the Advisory Agreement, the Adviser and its officers, managers, partners, agents, employees, controlling persons and members, and any other person or entity affiliated with it, are entitled to indemnification from us for any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising from the rendering of the Adviser’s services under the Advisory Agreement or otherwise as the Adviser.
The terms of the Administration Agreement, including the reimbursement of expenses by the Company to the Adviser, are identical to those contained in the Company’s prior administration agreement with the Adviser. From time to time, we may form certain taxable subsidiaries (the “Taxable Subsidiaries”) that are taxed as corporations for U.S. federal income tax purposes.
The terms of the Administration Agreement, including the reimbursement of expenses by the Company to the Adviser, are identical to those contained in the Company’s prior administration agreement with the Adviser. From time to time, we may form certain taxable subsidiaries (the “Taxable Subsidiaries”) that are taxed as corporations for U.S. federal income tax purposes.
Unobservable inputs are developed based on the best information available under the circumstances, which might include the Company’s own data. The Company’s own data used to develop unobservable inputs is adjusted if information is reasonably available without undue cost and effort that indicates that market participants would use different assumptions.
Unobservable inputs are developed based on the best information available under the circumstances, which might include the Company’s own data. The Company’s own data used to develop unobservable inputs is adjusted if information is reasonably available without undue cost and effort that indicates that market participants would use different assumptions.
Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment about ultimate collectability of principal. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current.
Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment about ultimate collectability of principal. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current.
As of June 30, 2022 and June 30, 2021, there was no Capital Gains Fee accrued, earned or payable to the Adviser under the Advisory Agreement. As of June 30, 2020, there was no Capital Gains Fee accrued, earned or payable to the Adviser under the Advisory Agreement.
As of June 30, 2023, June 30, 2022 and June 30, 2021, there was no Capital Gains Fee accrued, earned or payable to the Adviser under the Advisory Agreement.
Net change in unrealized (depreciation) appreciation on investments We recorded a net change in unrealized appreciation of $8.1 million for the year ended June 30, 2022, primarily due to the restructure of 1888 Industrial Services, LLC –Term B and Fusion Connect Inc. –Take-Back Term Loan offset by the decrease in fair value of Techniplas Foreign Holdco LP common stock. 88 We recorded a net change in unrealized depreciation of $5.6 million for the year ended June 30, 2021, primarily due to a decrease in fair value of our investments in 1888 Industrial Services, LLC , Bioplan, Exela Technologies, American Teleconferencing Services, Ltd.
Net change in unrealized (depreciation) appreciation on investments We recorded a net change in unrealized appreciation of $8.1 million for the year ended June 30, 2022, primarily due to the restructure of 1888 Industrial Services, LLC –Term B and Fusion Connect Inc. –Take-Back Term Loan offset by the decrease in fair value of Techniplas Foreign Holdco LP common stock. 69 We recorded a net change in unrealized depreciation of $5.6 million for the year ended June 30, 2021, primarily due to a decrease in fair value of our investments in 1888 Industrial Services, LLC and American Teleconferencing Services, Ltd.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Some of the statements in this annual report on Form 10-K constitute forward-looking statements, which relate to future events or our future performance or financial condition.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations Some of the statements in this annual report on Form 10-K constitute forward-looking statements, which relate to future events or our future performance or financial condition.
GAAP. 90 Senior Securities Information about our senior securities is shown in the following table as of each of the fiscal years ended June 30, 2022, 2021, 2020, 2019, 2018, 2017, 2016, 2015, 2014 and 2013, respectively.
GAAP. 70 Senior Securities Information about our senior securities is shown in the following table as of each of the fiscal years ended June 30, 2023, 2022, 2021, 2020, 2019, 2018, 2017, 2016, 2015, 2014 and 2013, respectively.
Under the Advisory Agreement, the Income-Based Fee is calculated and payable quarterly in arrears based on our Pre-Incentive Fee Net Investment Income (as defined below) for the immediately preceding fiscal quarter, subject to a total return requirement (the “Total Return Requirement”) and deferral of non-cash amounts, and is 20.0% of the amount, if any, by which our Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of our net assets attributable to its common stock, for the immediately preceding fiscal quarter, exceeds a 2.0% (which is 8.0% annualized) hurdle rate and a “catch-up” provision measured as of the end of each fiscal quarter.
Under the Advisory Agreement, the Income-Based Fee is calculated and payable quarterly in arrears based on our Pre-Incentive Fee Net Investment Income (as defined below) for the immediately preceding fiscal quarter, subject to a total return requirement (the “Total Return Requirement”) and deferral of non-cash amounts, and is 20.0% of the amount, if any, by which our Pre-Incentive Fee Net Investment Income, expressed as a rate of return on the value of our net assets attributable to its common stock, for the immediately preceding fiscal quarter, exceeds a 2.0% (which is 8.0% annualized) hurdle rate and a “catch-up” provision measured as of the end of each fiscal quarter.
At the Closing, we entered into a new administration agreement with the Adviser (the “Administration Agreement”). Under the Administration Agreement, the Adviser provides us with our chief financial officer, accounting and back-office professionals, equipment and clerical, bookkeeping, recordkeeping and other 77 administrative services.
At the Closing, we entered into a new administration agreement with the Adviser (the “Administration Agreement”). Under the Administration Agreement, the Adviser provides us with our chief financial officer, accounting and back-office professionals, equipment and clerical, bookkeeping, recordkeeping and other administrative services.
At the Closing, we entered into the Advisory Agreement with the Adviser, pursuant to which we have agreed to pay the Adviser a fee for investment advisory and management services consisting of two components — a base management fee (the “Base Management Fee”) and an incentive fee (the “Incentive Fee”).
At the Closing, we entered into the Advisory Agreement with the Adviser, pursuant to which we have agreed to pay the Adviser a fee for investment advisory and management services consisting of two components — a base management fee (the “Base Management Fee”) and an incentive fee (the “Incentive Fee”).
PIK interest is not accrued if we do not expect the issuer to be able to pay all principal and interest when due. As of June 30, 2022, we had six investments on non-accrual status, which represented approximately 1.08% of our portfolio at fair value.
PIK interest is not accrued if we do not expect the issuer to be able to pay all principal and interest when due. As of June 30, 2023, we had six investments on non-accrual status, which represented approximately 4.08% of our portfolio at fair value.
Borrowings under the Term Financing, as amended, bore interest with respect to the $102.0 million (i) at a rate per annum equal to one-month LIBOR plus 3.55% from December 5, 2019 through December 4, 2020, and (ii) at a rate per annum equal to one-month LIBOR plus 3.15% from December 5, 2020 through December 4, 2021.
Borrowings under the Term Financing, as amended, bore interest with respect to the $102.0 million (i) at a rate per annum equal to one-month London Interbank Offered Rate (“LIBOR”) plus 3.55% from December 5, 2019 through December 4, 2020, and (ii) at a rate per annum equal to one-month LIBOR plus 3.15% from December 5, 2020 through December 4, 2021.
The frequency of the Adviser’s monitoring of an investment will be determined by a number of factors, including, but not limited to, the trends in the financial performance of the portfolio company, the investment structure and the type of collateral securing the investment.
The frequency of the Adviser’s monitoring of an investment will be determined by a number of factors, including, but not limited to, the trends in the financial performance of the portfolio company, the investment structure and the type of collateral securing the investment.
However, the fair value measurement objective remains the same, that is, an exit price from the perspective 80 of a market participant that holds the asset or owes the liability. Therefore, unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk.
However, the fair value measurement objective remains the same, that is, an exit price from the perspective of a market participant that holds the asset or owes the liability. Therefore, unobservable inputs reflect the Company’s own assumptions about the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk.
In each case, the company must be organized in the United States. As of June 30, 2022, approximately 2.33% of our total assets were non-qualifying assets. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements.
In each case, the company must be organized in the United States. As of June 30, 2023, approximately 2.23% of our total assets were non-qualifying assets. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements.
The 2023 Notes were listed on the NASDAQ Global Select Market under the trading symbol “CMFNL,” were scheduled to mature on July 1, 2023 and bore interest at a rate of 6.125%.
The 2023 Notes were listed on the NASDAQ Global Select Market under the trading symbol “CMFNL,” were scheduled to mature on July 1, 2023 and bore interest at a rate of 6.125%.
For the foregoing purpose, the “cumulative net increase in net assets resulting from operations” is the amount, if positive, of the sum of Pre-Incentive Fee Net Investment Income, realized gains and losses and unrealized appreciation and depreciation of the Company for the then current fiscal quarter and the Lookback Period.
For the foregoing purpose, the “cumulative net increase in net assets resulting from operations” is the amount, if positive, of the sum of Pre-Incentive Fee Net Investment Income, realized gains and losses and unrealized appreciation and depreciation of the Company for the then current fiscal quarter and the Lookback Period.
Under the Advisory Agreement, the Base Management Fee is calculated at an annual rate of 1.75% of our gross assets, including assets purchased with borrowed funds or other forms of leverage and excluding cash and cash equivalents (such amount, “Gross Assets”).
Under the Advisory Agreement, the Base Management Fee is calculated at an annual rate of 1.75% of the Company’s gross assets, including assets purchased with borrowed funds or other forms of leverage and excluding cash and cash equivalents (such amount, “Gross Assets”).
The Capital Gains Fee is determined and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement, as of the termination date), commencing with the fiscal year ending June 30, 2021, and will equal to 20.0% of the Company’s cumulative aggregate realized capital gains from the Commencement Date through the end of each fiscal year, computed net of the Company’s aggregate cumulative realized capital losses and the Company’s aggregate cumulative unrealized capital depreciation through the end of such year, less the aggregate amount of any previously paid Capital Gains Fees.
The Capital Gains Fee is determined and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement, as of the termination date), commencing with the fiscal year ended June 30, 2021, and is equal to 20.0% of the Company’s cumulative aggregate realized capital gains from the Commencement Date through the end of each fiscal year, computed net of the Company’s aggregate cumulative realized capital losses and the Company’s aggregate cumulative unrealized capital depreciation through the end of such year, less the aggregate amount of any previously paid Capital Gains Fees.
PIK and certain discount accretion) and are not payable until such amounts are received in cash. For the year ended June 30, 2021, we incurred no Income-Based Fees. As of June 30, 2021, $647,885 of Income-Based Fees are currently payable to the Adviser and were generated from deferred interest (i.e.
As of June 30, 2022, $182,095 of Income-Based Fees are currently payable to the Adviser and were generated from deferred interest (i.e. PIK and certain discount accretion) and are not payable until such amounts are received in cash. For the year ended June 30, 2021, we incurred no Income-Based Fees.
On August 30, 2019, Investcorp Credit Management (“Investcorp”) acquired an approximate 76% ownership interest in the Adviser through the acquisition of the interests held by the Cyrus Funds and Stifel and through a direct purchase of equity from the Adviser (the “Investcorp Transaction”).
On August 30, 2019, Investcorp Credit Management (“Investcorp”) acquired an approximate 76% ownership interest in the Adviser through the acquisition of the interests held by the Cyrus Funds and Stifel and through a direct purchase of equity from the Adviser (the “Investcorp Transaction”).
Qualifying assets include investments in “eligible portfolio companies.” Under the relevant SEC rules, the term “eligible portfolio company” includes all private companies, companies whose securities are not listed on a national securities exchange, and certain public companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250 million.
Qualifying assets include investments in “eligible portfolio companies.” Under the relevant SEC rules, the term “eligible portfolio company” includes all private companies, companies whose securities are not listed on a national securities exchange, and certain public companies that have listed their securities on a national securities exchange and have a market capitalization of less than $250 million.
(4) Not applicable, except for the 6.125% notes due 2023 (the “2023 Notes”), which were publicly traded.
(4) Not applicable, except for the 6.125% notes due 2023 (the “2023 Notes”), which were publicly traded.
The weighted average total yield was computed using an internal rate of return calculation of our debt investments based on contractual cash flows, including interest and amortization payments, and, for floating rate investments, the spot LIBOR, as of June 30, 2022 of all of our debt investments.
The weighted average total yield was computed using an internal rate of return calculation of our debt investments based on contractual cash flows, including interest and amortization payments, and, for floating rate investments, the spot LIBOR or SOFR, as applicable, as of June 30, 2023 of all of our debt investments.
The Income-Based Fee is equal to 20.0% of pre-incentive fee net investment income, subject to an annualized hurdle rate of 8.0% with a “catch up” fee for returns between the 8.0% hurdle and 10.0%.
The Income-Based Fee is equal to 20.0% of pre-incentive fee net investment income, subject to an annualized hurdle rate of 8.0% with a “catch up” fee for returns between the 8.0% hurdle and 10.0%.
The forward-looking statements contained in this annual report on Form 10-K involve risks and uncertainties, including statements as to: • our, or our portfolio companies’, future business, operations, operating results or prospects; • our business prospects and the prospects of our portfolio companies; • the return or impact of current and future investments; • the impact of global health pandemics, such as the current novel coronavirus (“COVID-19”) pandemic, on our or our portfolio companies’ business and the global economy; • our contractual arrangements and relationships with Investcorp and its affiliates; • our contractual arrangements and relationships with lenders and other third parties; 75 • actual and potential conflicts of interest with the Adviser; • the dependence of our future success on the general economy, interest rates and the effects of each on the industries in which we invest; • the impact of the elimination of the London Interbank Offered Rate (“LIBOR”) on our operating results; • the impact of fluctuations in interest rates on our business; • the ability of our portfolio companies to achieve their objectives or service their debt obligations to us; • the use of borrowed money to finance a portion of our investments; • the adequacy of our financing sources and working capital; • the timing of cash flows, if any, from the operations of our portfolio companies; • the ability of the Adviser to locate suitable investments for us and to monitor and administer our investments; • the ability of the Adviser to attract and retain highly talented professionals; • our ability to qualify and maintain our qualification as a RIC and as a BDC; • our ability to obtain exemptive relief from the Securities and Exchange Commission (“SEC”); • the effect of changes to tax legislation and our tax position and other legislative and regulatory changes; and • the effect of new or modified laws or regulations governing our operations.
The forward-looking statements contained in this annual report on Form 10-K involve risks and uncertainties, including statements as to: • our, or our portfolio companies’, future business, operations, operating results or prospects; • our business prospects and the prospects of our portfolio companies; • the return or impact of current and future investments; • the impact of global health pandemics, such as the coronavirus pandemic or other large scale events, on our or our portfolio companies’ business and the global economy; • our contractual arrangements and relationships with Investcorp and its affiliates; • our contractual arrangements and relationships with lenders and other third parties; • actual and potential conflicts of interest with the Adviser; • the dependence of our future success on the general economy, interest rates and the effects of each on the industries in which we invest; • the impact of fluctuations in interest rates on our business; • elevating levels of inflation, and its impact on us, on our portfolio companies and on the industries in which we invest; • the ability of our portfolio companies to achieve their objectives or service their debt obligations to us; • the use of borrowed money to finance a portion of our investments; • the adequacy of our financing sources and working capital; • the timing of cash flows, if any, from the operations of our portfolio companies; • the ability of the Adviser to locate suitable investments for us and to monitor and administer our investments; • the ability of the Adviser to attract and retain highly talented professionals; • our ability to qualify and maintain our qualification as a RIC and as a BDC; • our ability to obtain exemptive relief from the Securities and Exchange Commission (“SEC”); • the effect of changes to tax legislation and our tax position and other legislative and regulatory changes; and • the effect of new or modified laws or regulations governing our operations.
Investcorp is a leading global credit investment platform with assets under management of $42.7 billion as of June 30, 2022. Investcorp manages funds that invest primarily in senior secured corporate debt issued by mid and large-cap corporations in Western Europe and the United States.
Investcorp is a leading global credit investment platform with assets under management of $48.0 billion as of June 30, 2023. Investcorp manages funds that invest primarily in senior secured corporate debt issued by mid and large-cap corporations in Western Europe and the United States.
The “Lookback Period” means (1) through June 30, 2022, the period that on the last day of the fiscal quarter in which the Commencement Date occurs and ends on the last day of the fiscal quarter immediately preceding the fiscal quarter for which the Income-Based Fee is being calculated, and (2) after June 30, 2022, the eleven fiscal quarters immediately preceding the fiscal quarter for which the Income-Based Fee is being calculated.
The “Lookback Period” means (1) through June 30, 2023, the period that commences on the last day of the fiscal quarter in which the Commencement Date occurs and ends on the last day of the fiscal quarter immediately preceding the fiscal quarter for which the Income-Based Fee is being calculated, and (2) after June 30, 2023, the eleven fiscal quarters immediately preceding the fiscal quarter for which the Income-Based Fee is being calculated.
As of June 30, 2021, our off-balance sheet arrangements consisted of $4.4 million in unfunded commitments to three of our portfolio companies. We maintain sufficient liquidity (through cash and borrowings under our Capital One Revolving Financing) to fund such unfunded loan commitments should the need arise.
As of June 30, 2022, our off-balance sheet arrangements consisted of $13.9 million in unfunded commitments to eight of our portfolio companies. We maintain sufficient liquidity (through cash and borrowings under our Capital One Revolving Financing) to fund such unfunded loan commitments should the need arise.
As of June 30, 2022 and June 30, 2021, there were $84 million and $0 in borrowings outstanding under the Capital One Revolving Financing, respectively.
As of June 30, 2023 and June 30, 2022, there were $71.9 million and $84.0 million in borrowings outstanding under the Capital One Revolving Financing, respectively.
In connection with the Investcorp Transaction, on June 26, 2019, our board of directors, including all of the directors who are not “interested persons” of the Company, as defined in Section 2(a)(19) of the 1940 Act (each, an “Independent Director”), unanimously approved a new investment advisory agreement (the “Advisory Agreement”) and recommended that the Advisory Agreement be submitted to our stockholders for approval, which our stockholders approved at the Special Meeting of Stockholders held on August 28, 2019.
In connection with the Investcorp Transaction, on June 26, 2019, our board of directors, including all of the directors who are not “interested persons” of the Company, as defined in Section 2(a)(19) of the 1940 Act (each, an “Independent Director”), unanimously approved a new investment advisory agreement (the “Advisory Agreement”) and recommended that the Advisory Agreement be submitted to our stockholders for approval, which our stockholders approved at the Special Meeting of Stockholders held on August 28, 2019.
(“CM SPV”), our wholly owned subsidiary, entered into a $102.0 million term secured financing facility (the “Term Financing”), due December 5, 2021 with UBS AG, 81 London Branch (together with its affiliates “UBS”). The Term Financing was collateralized by a portion of the debt investments in our portfolio.
(“CM SPV”), our wholly owned subsidiary, entered into a $102.0 million term secured financing facility (the “Term Financing”), due December 5, 2021 with UBS AG, London Branch (together with its affiliates “UBS”). The Term Financing was collateralized by a portion of the debt investments in our portfolio.
As of June 30, 2022, and June 30, 2021, our weighted average total yield on investments at amortized cost (which includes interest income and amortization of fees and discounts) was 9.37% and 7.62%, respectively.
As of June 30, 2023, and June 30, 2022, our weighted average total yield on investments at amortized cost (which includes interest income and amortization of fees and discounts) was 11.32% and 9.37%, respectively.
The following is a description of the conditions associated with each investment rating: Investment Rating 1 Investments that are performing above expectations, and whose risks remain favorable compared to the expected risk at the time of the original investment.
This investment rating system uses a five-level numeric rating scale. The following is a description of the conditions associated with each investment rating: Investment Rating 1 Investments that are performing above expectations, and whose risks remain favorable compared to the expected risk at the time of the original investment.
Our investment portfolio may contain loans that are in the form of lines of credit or revolving credit facilities, which require us to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of June 30, 2022, we had nine such investments with aggregate unfunded commitments of $13,899,529.
Our investment portfolio may contain loans that are in the form of lines of credit or revolving credit facilities, which require us to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements. As of June 30, 2023, we had eleven such investments with aggregate unfunded commitments of $5,990,579.
At June 30, 2021, our average and largest portfolio company investment at fair value was $6.8 million and $13.0 million, respectively. As of June 30, 2022, and June 30, 2021, our weighted average total yield of debt and income producing securities at amortized cost (which includes interest income and amortization of fees and discounts) was 10.09% 85 and 8.10%, respectively.
At June 30, 2022, our average and largest portfolio company investment at fair value was $6.7 million and $13.2 million, respectively. As of June 30, 2023, and June 30, 2022, our weighted average total yield of debt and income producing securities at amortized cost (which includes interest income and amortization of fees and discounts) was 12.46% and 10.09%, respectively.
Off-Balance Sheet Arrangements We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. As of June 30, 2022, our off-balance sheet arrangements consisted of $13.9 million in unfunded commitments to eight of our portfolio companies.
Off-Balance Sheet Arrangements We may be a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financial needs of our portfolio companies. As of June 30, 2023, our off-balance sheet arrangements consisted of $6.0 million in unfunded commitments to ten of our portfolio companies.
We cannot assure stockholders that they will receive any distributions or distributions at a particular level. 92 In accordance with certain applicable Treasury regulations and a revenue procedure issued by the Internal Revenue Service, a RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder elects to receive his or her entire distribution in either cash or stock of the RIC, subject to a limitation that the aggregate amount of cash to be distributed to all stockholders must be at least 20% (10% for distributions made on or after November 1, 2021, and on or before June 30, 2022) of the aggregate declared distribution.
Department of Treasury (“Treasury”) regulations and a revenue procedure issued by the Internal Revenue Service, a RIC may treat a distribution of its own stock as fulfilling its RIC distribution requirements if each stockholder elects to receive his or her entire distribution in either cash or stock of the RIC, subject to a limitation that the aggregate amount of cash to be distributed to all stockholders must be at least 20% (10% for distributions made on or after November 1, 2021, and on or before June 30, 2023) of the aggregate declared distribution.
As of June 30, 2020, $707,796 of such Income-Based Fees are currently payable to the Adviser and $707,796 of Income-Based Fees incurred by us were generated from deferred interest (i.e. PIK and certain discount accretion) and are not payable until such amounts are received in cash.
As of June 30, 2021, $647,885 of Income-Based Fees are currently payable to the Adviser and were generated from deferred interest (i.e. PIK and certain discount accretion) and are not payable until such amounts are received in cash.
Comparison of the years ended June 30, 2021 and June 30, 2020 Investment income Investment income, attributable primarily to dividends, interest and fees on our debt investments, for the year ended June 30, 2021 decreased to $26.7 million from $34.5 million for the year ended June 30, 2020, primarily due to a decrease in assets under management.
Comparison of the years ended June 30, 2022 and June 30, 2021 Investment income Investment income, attributable primarily to dividends, interest and fees on our debt investments, for the year ended June 30, 2022 decreased to $24.4 million from $26.7 million for the year ended June 30, 2021, primarily due to a decrease in assets under management and decrease in payment-in-kind income from non-accrual investments.
On November 19, 2021, the Company repaid the Term Financing in full in accordance with the terms of the Term Financing. As of June 30, 2022 and June 30, 2021, there were $0 and $102.0 million in borrowings outstanding under the Term Financing, respectively.
On November 19, 2021, the Company repaid the Term Financing in full in accordance with the terms of the Term Financing and the agreement was terminated. As of June 30, 2023 and June 30, 2022, there were no borrowings outstanding under the Term Financing, respectively.
In addition, we may be limited in our ability to make distributions due to the asset coverage test for borrowings applicable to us as a BDC under the 1940 Act and due to provisions in the agreements governing our borrowing or financial arrangements.
In addition, we may be limited in our ability to make distributions due to the asset coverage test for borrowings applicable to us as a BDC under the 1940 Act and due to provisions in the agreements governing our borrowing or financial arrangements. We cannot assure stockholders that they will receive any distributions or distributions at a particular level.
Interest on the 2026 Notes is payable semi-annually on April 1 and October 1 of each year, commencing October 1, 2021. We may from time to time repurchase 2026 Notes in accordance with the 1940 Act and the rules promulgated thereunder. As of June 30, 2022, the outstanding principal balance of the 2026 Notes was approximately $65 million.
Interest on the 2026 Notes is payable semi-annually on April 1 and October 1 of each year, commencing October 1, 2021. We may from time to time repurchase 2026 Notes in accordance with the 1940 Act and the rules promulgated thereunder.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeVariable-rate instruments 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.
Biggest changeVariable-rate instruments 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 or SOFR, as applicable, only if the floor exceeds the index.
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. 95
It also 74 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. 75
Item 7A. Quantitative and Qualitative Disclosure about Market Risk We are subject to financial market risks, including changes in interest rates. At June 30, 2022, 91.9% of our debt investments bore interest based on floating rates, such as LIBOR, SOFR, the Euro Interbank Offered Rate, the Federal Funds Rate or the Prime Rate.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk We are subject to financial market risks, including changes in interest rates. At June 30, 2023, 99.6% of our debt investments bore interest based on floating rates, such as LIBOR, SOFR, the Euro Interbank Offered Rate, the Federal Funds Rate or the Prime Rate.
Based on our in-place portfolio with certain interest rate floors and our financing at June 30, 2022, a 1.00% increase in interest rates would decrease our net interest income by approximately 9.8% and a 2.00% increase in interest rates would increase our net interest income by approximately 19.9%.
Based on our in-place portfolio with certain interest rate floors and our financing at June 30, 2023, a 1.00% increase in interest rates would increase our net interest income by approximately 5.4% and a 2.00% increase in interest rates would increase our net interest income by approximately 13.4%.

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