Regulatory and Legal Risks - Changes in laws and regulations, particularly those stemming from Dodd-Frank, could materially adversely affect the company's operations and financial condition [262]. - The U.S. Risk Retention Rules, effective December 24, 2016, may increase financing costs and impact the company's ability to complete future securitization transactions [266]. - The Economic Growth, Regulatory Relief, and Consumer Protection Act significantly recalibrated regulatory thresholds, which could negatively impact the company's operations and cash flows [267]. - Increased regulatory attention on non-bank credit extension may impose additional costs and adversely affect the company's financial condition [268]. - The Inflation Reduction Act of 2022 introduced a 15% book minimum tax on larger corporations, which may have uncertain impacts on the company and its stockholders [364]. Cybersecurity and Operational Risks - Cybersecurity risks pose a significant threat to the company's operations and could lead to operational disruptions and negatively affect financial performance [280]. - The company is highly dependent on information systems, and any cyber incidents could materially affect the value of its securities and ability to pay distributions [279]. Financial and Market Risks - The Federal Open Market Committee raised the target range for the federal funds rate eleven times since March 2022, currently at 5.25% to 5.50% [288]. - Rising interest rates could increase the cost of borrowings and reduce returns to stockholders, potentially leading to lower dividend payments [287]. - The company is dependent on bank relationships, and recent strains in the banking system may adversely impact its financial condition and results of operations [289]. - Borrowings under credit facilities and senior unsecured notes increase investment volatility and risk, potentially affecting cash available for debt servicing and stockholder distributions [345][346]. - The company is subject to risks associated with liquid credit investments, including liquidity, price volatility, and interest rate risk, which may impact net asset value (NAV) [348]. - The company has not taken actions to alter its existing interest rate sensitivity, which could expose it to significant changes in market interest rates [464]. - Interest rate sensitivity indicates that a 200 basis point decrease in interest rates could lead to a net decrease of $14.5 million in net investment income [466]. Investment Risks - The majority of the company's portfolio investments are classified as Level 3 under ASC Topic 820, indicating that valuations are based on unobservable inputs and significant management judgment [258]. - The company intends to use an independent valuation firm to review the fair value of certain instruments at least annually, which may lead to fluctuations in valuations over short periods [259]. - Investments are typically in highly leveraged companies, which may have limited financial resources and could lead to partial or total loss of investments [294]. - The company may invest in companies not subject to public reporting requirements, complicating the assessment of prior performance and increasing investment risk [292]. - The company may face significant net unrealized depreciation in its portfolio due to declines in prices and liquidity in the corporate debt markets [310]. - Prepayment of loans in the investment portfolio may reduce achievable yields if returned capital cannot be reinvested in transactions with equal or greater expected yields [312]. - The debt investments are typically below investment grade, indicating predominantly speculative characteristics and resulting in above-average risk and volatility [296]. - Defaults by portfolio companies could harm operating results and lead to potential termination of loans and foreclosure on assets [297]. - A failure of portfolio companies to meet debt obligations could materially adversely affect the company's business, financial condition, and cash flows [315]. - The company may incur contingent liabilities related to representations about portfolio companies, which could adversely affect its financial condition [311]. - The company may make follow-on investments to maintain or increase its position in portfolio companies, but failure to do so could impair portfolio value [322]. - The company may invest in subordinated loans, which carry a higher risk of default due to potential adverse changes in the financial condition of portfolio companies [328]. - Unsecured loans made by the company may not benefit from collateral, increasing the risk of loss if portfolio companies face liquidation [331]. - The company may face contingent liabilities related to private securities investments, which could result in funding obligations if representations made during sales turn out to be inaccurate [334]. - The company may not realize gains from equity investments, and any gains may not offset other losses experienced [343]. Environmental and Geopolitical Risks - Investments may expose the company to environmental risks, potentially leading to liabilities for removal or remediation costs [316]. - Global economic and political conditions, including the conflict in Ukraine, may adversely affect the company's business and financial condition [371]. - The company does not currently have portfolio investments with direct exposure to the Middle East, China, Taiwan, Russia, or Ukraine, mitigating potential geopolitical risks [373]. - Political, social, and economic uncertainties, including those related to the COVID-19 pandemic, create risks that could adversely impact the company's investments and operations [374]. - The interconnectedness of global economies means that events in one region can increasingly impact issuers in other markets, including established markets like the U.S. [374]. Dividend and Shareholder Risks - The company may declare a large portion of dividends in shares instead of cash, affecting stockholders' tax liabilities [365]. - The company may issue additional shares, leading to potential dilution of existing stockholders' interests [359]. - There is no public market for the company's common stock, which may limit liquidity for stockholders [349]. Economic Impact Risks - The COVID-19 pandemic has caused significant disruptions in the U.S. credit markets, leading to increased defaults and volatility, which could adversely impact the company's loan origination and investment returns [376]. - Loan delinquencies and non-accruals may increase if public health uncertainties and market disruptions persist, potentially leading to higher costs and reduced income [378]. - Increased public scrutiny related to environmental, social, and governance (ESG) activities poses risks to the company's brand and operational costs [380].
Kayne Anderson BDC, Inc.(KBDC) - 2023 Q4 - Annual Report