Investment Valuation and Strategy - 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 [216]. - The company intends to use an independent valuation firm to review the fair value of certain instruments at least once annually, which may lead to fluctuations in valuations over short periods [217]. - The company may need to alter its investment strategy due to changes in regulations governing its operations, which could adversely affect its results and investment value [221]. - The company incurs significant costs related to compliance with the Exchange Act and Sarbanes-Oxley Act, which may strain its resources [230]. - The company relies on due diligence processes that may not uncover all relevant facts, exposing it to investment risks [246]. - The company may invest in portfolio companies with second priority liens on collateral, which may not be sufficient to satisfy debt obligations if liquidation occurs [261]. - The company may face limitations on rights regarding collateral due to intercreditor agreements with senior debt holders [263]. - The company is required to value investments at market or fair value, considering factors such as enterprise value and financial performance [265]. - Quick liquidation of investments may result in realizing significantly less than previously recorded values [266]. - The company may be restricted from selling investments due to contractual obligations or market conditions [268]. Regulatory and Economic Risks - Changes in laws and regulations, particularly those stemming from Dodd-Frank, could materially adversely affect the company's operations and financial condition [219]. - The U.S. Federal Reserve's unprecedented actions since the 2008-2009 financial crisis and the COVID-19 pandemic may lead to greater market risks due to limited government intervention in future market disruptions [220]. - New credit risk retention requirements in the U.S. and Europe may increase the company's cost of funds or prevent future securitization transactions [222]. - The Economic Growth, Regulatory Relief, and Consumer Protection Act has recalibrated regulatory thresholds, which could negatively impact the company's operations and financial condition [224]. - Increased regulatory attention on non-bank credit extension could impose additional costs and intensify regulatory supervision, adversely affecting the company's business [225]. - Global economic and political conditions, including conflicts and trade tensions, may significantly impact the company's business and financial condition [325]. Financial Performance and Market Conditions - Rising interest rates could adversely affect the value of the company's investments and make it more difficult for portfolio companies to make loan payments [242]. - The current inflationary environment has led to increased borrowing costs, potentially reducing returns to stockholders [243]. - The U.S. Federal Reserve has raised interest rates sharply, remaining near their highest levels in over twenty years, which could impact the company's financial condition [244]. - Strain on the banking system may adversely affect the company's business and its portfolio companies' access to cash and credit facilities [245]. - The company invests in highly leveraged companies, which may lead to significant risks and potential loss of investments [250]. - Investments in below investment grade securities, often referred to as "junk bonds," carry a high level of risk and volatility [252]. - The company is subject to risks associated with unitranche secured loans, which combine senior and junior debt characteristics [253]. - Defaults by portfolio companies could harm the company's operating results and lead to additional expenses for recovery efforts [259]. - Illiquidity and price declines in investments could adversely affect the company's business and net asset value (NAV) through increased net unrealized depreciation [264]. - The company's share price may be volatile and could trade at a discount to net asset value, impacting marketability post-IPO [304]. - Significant volatility in the market price and trading volume of securities may occur, which is not necessarily related to the company's operating performance [311]. Shareholder Considerations - The company has authorized a share repurchase program for up to $100 million within one year of the IPO, which may influence the market price of its common stock [239]. - The company intends to make periodic distributions to stockholders, but cannot assure a specified level of cash distributions or year-to-year increases [314]. - The company may issue additional shares, which could dilute existing stockholders' interests [317]. - Under the 1940 Act, the company is generally prohibited from issuing shares below NAV per share, which may disadvantage it compared to certain public companies [319]. - The company may declare a large portion of dividends in shares instead of cash, which could have tax implications for stockholders [322]. - The company does not currently anticipate issuing preferred stock, which could affect the value of common stock [323]. Environmental and Social Risks - Environmental risks associated with portfolio companies could lead to substantial liabilities affecting investment performance [275]. - The company faces risks related to environmental, social, and governance (ESG) activities, which could impact brand value and operational costs [336]. Interest Rate Sensitivity - Interest rate sensitivity affects net investment income, with potential material adverse effects from significant changes in market interest rates [454]. - A hypothetical 200 basis points increase in interest rates could result in a net investment income increase of $23.4 million, while a decrease of the same magnitude could lead to a decrease of $39.1 million [456]. - The company may use hedging instruments to mitigate interest rate fluctuations, but this could limit benefits from lower interest rates on fixed-rate investments [457].
Kayne Anderson BDC, Inc.(KBDC) - 2024 Q4 - Annual Report