Bain Capital Specialty Finance(BCSF) - 2023 Q3 - Quarterly Report

Form 10-Q Filing Information This section details the company's Form 10-Q filing for Q3 2023, including its filer status and common stock outstanding Filing Details This section highlights the company's quarterly report filing for September 30, 2023, its filer status, and common stock outstanding - The filing is a Quarterly Report on Form 10-Q for the period ended September 30, 2023[2] - Bain Capital Specialty Finance, Inc. is classified as a large accelerated filer[2] Common Stock Outstanding | As of Date | Shares Outstanding | | :------------- | :----------------- | | November 6, 2023 | 64,562,265.27 | Table of Contents This section provides an organized list of all chapters and sub-sections within the report for easy navigation Forward-Looking Statements This section cautions investors that the report contains forward-looking statements subject to risks, and actual results may differ materially Disclaimer on Forward-Looking Information This section highlights that the report contains forward-looking statements based on current expectations, which involve known and unknown risks - Statements in the report that are not historical facts are forward-looking and involve known and unknown risks and uncertainties[4] - Actual events or results may differ materially from those reflected in forward-looking statements due to various risks and uncertainties, including those identified in the 'Risk Factors' section of the Annual Report on Form 10-K[4] - The safe harbor provisions of Section 21E of the Securities Exchange Act of 1934 do not apply to the forward-looking statements in this report because the company is an investment company[5] PART I. FINANCIAL INFORMATION This part presents the company's unaudited consolidated financial statements and management's discussion and analysis for the period Item 1. Consolidated Financial Statements This section presents the unaudited consolidated financial statements, including statements of assets and liabilities, operations, changes in net assets, cash flows, and schedules of investments Consolidated Statements of Assets and Liabilities This section presents the company's financial position, showing a slight decrease in total assets and an increase in total net assets and net asset value per share Consolidated Statements of Assets and Liabilities (in thousands) | Metric | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :----------------------------------------- | :----------------------- | :----------- | | Total Assets | $2,566,475 | $2,592,434 | | Total Liabilities | $1,433,956 | $1,476,043 | | Total Net Assets | $1,132,519 | $1,116,391 | | Net asset value per share | $17.54 | $17.29 | - Investments at fair value, including non-controlled/non-affiliate, non-controlled/affiliate, and controlled affiliate investments, constitute the largest portion of assets[9] - Debt is the largest liability, followed by distributions payable and interest payable[9] Consolidated Statements of Operations This section details a significant increase in total investment income and net investment income, partially offset by higher interest and debt financing expenses Consolidated Statements of Operations (in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Total investment income | $72,390 | $58,809 | $222,842 | $157,184 | | Total expenses, net of fee waivers | $36,102 | $28,712 | $113,792 | $78,669 | | Net investment income | $35,648 | $30,097 | $106,718 | $78,515 | | Net increase in net assets from operations | $33,856 | $11,051 | $92,312 | $61,961 | | Basic and diluted net investment income per common share | $0.55 | $0.47 | $1.65 | $1.22 | - Interest from investments significantly increased across all investment categories for both periods year-over-year[10] - Net realized losses on non-controlled/non-affiliate investments were substantial for the three and nine months ended September 30, 2023, compared to smaller losses in 2022[10] Consolidated Statements of Changes in Net Assets This section shows an increase in net assets, driven by net investment income and unrealized appreciation, partially offset by stockholder distributions Consolidated Statements of Changes in Net Assets (in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Net investment income | $35,648 | $30,097 | $106,718 | $78,515 | | Net realized gain (loss) | $(51,767) | $17,968 | $(69,566) | $22,748 | | Net change in unrealized appreciation | $49,975 | $(37,014) | $55,160 | $(39,302) | | Net increase in net assets from operations | $33,856 | $11,051 | $92,312 | $61,961 | | Distributions from distributable earnings | $(27,116) | $(21,951) | $(76,184) | $(65,853) | | Net assets at end of period | $1,132,519 | $1,096,114 | $1,132,519 | $1,096,114 | | Net asset value per common share | $17.54 | $16.98 | $17.54 | $16.98 | - Net assets at the end of the period increased from $1.116 billion at the beginning of the nine months to $1.132 billion[13] Consolidated Statements of Cash Flows This section indicates a shift to net cash inflow from operating activities and a net cash outflow from financing due to debt repayments and distributions Consolidated Statements of Cash Flows (in thousands) | Metric | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------------- | :-------------------------- | :-------------------------- | | Net cash provided by (used in) operating activities | $70,578 | $(379,883) | | Net cash provided by (used in) financing activities | $(89,310) | $235,543 | | Net decrease in cash, foreign cash, restricted cash and cash equivalents | $(18,732) | $(144,340) | | Cash, foreign cash, restricted cash and cash equivalents, end of period | $105,406 | $58,829 | - Purchases of investments decreased significantly from $1.202 billion in 2022 to $646.1 million in 2023[16] - Borrowings on debt decreased from $727.7 million in 2022 to $328.0 million in 2023, while repayments on debt also decreased[16] Consolidated Schedules of Investments This section details the investment portfolio by type, region, and industry, including financial information for unconsolidated joint ventures ISLP and SLP Investment Portfolio Composition by Type (Fair Value, in thousands) | Investment Type | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------------------- | :----------- | :----------- | | First Lien Senior Secured Loan | $1,531,270 | $1,630,877 | | Second Lien Senior Secured Loan | $85,286 | $93,950 | | Subordinated Debt | $45,430 | $43,922 | | Structured Products | $23,069 | $22,763 | | Preferred Equity | $105,601 | $80,945 | | Equity Interest | $229,791 | $210,689 | | Warrants | $504 | $524 | | Subordinated Note Investment Vehicles | $302,974 | $237,974 | | Preferred Equity Interest Investment Vehicles | $(990) | $(644) | | Equity Interest Investment Vehicles | $67,263 | $65,977 | | Total Investments | $2,390,198 | $2,386,977 | Investment Portfolio Composition by Geographic Region (Fair Value, in thousands) | Geographic Region | Sep 30, 2023 | Dec 31, 2022 | | :---------------- | :----------- | :----------- | | USA | $2,054,594 | $2,076,143 | | Cayman Islands | $134,326 | $118,535 | | United Kingdom | $58,011 | $52,633 | | Australia | $32,044 | $51,947 | | Germany | $22,466 | $17,882 | | Ireland | $19,045 | $17,779 | | Belgium | $51,122 | $18,779 | | Luxembourg | $10,913 | $7,285 | | Canada | $7,133 | $18,754 | | Guernsey | $394 | $6,687 | | Sweden | $150 | $158 | | Israel | N/A | $344 | | Netherlands | N/A | $51 | | Total | $2,390,198 | $2,386,977 | Investment Portfolio Composition by Industry (Fair Value, in thousands) | Industry | Sep 30, 2023 | Dec 31, 2022 | | :---------------------------------------- | :----------- | :----------- | | Investment Vehicles | $369,247 | $303,307 | | Aerospace & Defense | $334,556 | $364,629 | | High Tech Industries | $244,939 | $268,283 | | Services: Business | $165,967 | $169,053 | | Transportation: Cargo | $124,956 | $137,154 | | Consumer Goods: Non-Durable | $124,440 | $124,239 | | Transportation: Consumer | $107,808 | $92,216 | | Healthcare & Pharmaceuticals | $107,428 | $98,450 | | Construction & Building | $79,119 | $118,977 | | Automotive | $77,835 | $89,633 | | Telecommunications | $77,322 | $52,386 | | Energy: Oil & Gas | $75,588 | $76,789 | | FIRE: Finance | $59,519 | $43,140 | | FIRE: Insurance | $57,346 | $58,558 | | Environmental Industries | $41,369 | $28,623 | | Hotel, Gaming & Leisure | $39,084 | $27,605 | | Beverage, Food & Tobacco | $33,545 | $14,616 | | Wholesale | $32,966 | $36,133 | | Capital Equipment | $31,256 | $30,379 | | Media: Diversified & Production | $28,272 | $32,854 | | Media: Advertising, Printing & Publishing | $27,842 | $28,193 | | Chemicals, Plastics & Rubber | $16,220 | $12,451 | | Containers, Packaging & Glass | $15,899 | $15,862 | | Services: Consumer | $14,515 | $17,778 | | Retail | $10,108 | $50,479 | | Consumer goods: Wholesale | $5,726 | $6,834 | | Banking, Finance, Insurance & Real Estate | $5,583 | $4,265 | | Media: Broadcasting & Subscription | $2,818 | $2,835 | | Media: Publishing | $1,365 | $168 | | Total | $2,390,198 | $2,386,977 | International Senior Loan Program, LLC (ISLP) ISLP is an unconsolidated joint venture with Pantheon, primarily investing in non-US first lien senior secured loans - ISLP is an unconsolidated joint venture with Pantheon, investing primarily in non-US first lien senior secured loans[145] ISLP Portfolio Summary (Fair Value, in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------------- | :----------- | :----------- | | Total investments | $661,558 | $707,683 | | Weighted average yield on investments | 11.1% | 9.3% | | Number of borrowers | 37 | 38 | | Unfunded commitments | $12,564 | $14,212 | - The ISLP Credit Facility's maturity was extended to February 9, 2027, and the interest rate was changed to SOFR plus 246 basis points[150] Bain Capital Senior Loan Program, LLC (SLP) SLP is an unconsolidated joint venture with Amberstone, primarily investing in senior secured first lien loans of U.S. borrowers - SLP is an unconsolidated joint venture with Amberstone, focusing on senior secured first lien loans of U.S. borrowers[184] SLP Portfolio Summary (Fair Value, in thousands) | Metric | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------------- | :----------- | :----------- | | Total investments | $826,495 | $546,654 | | Weighted average yield on investments | 11.8% | 10.6% | | Number of borrowers | 60 | 48 | | Unfunded commitments | $1,628 | $1,838 | - SLP completed a $400.0 million term debt securitization (2023-1 CLO Transaction) and entered into a new $140.0 million senior secured revolving credit facility (MM_23_3 Credit Facility) with NatWest Markets PLC[191][193] Notes to Consolidated Financial Statements The notes provide critical context and detail for the consolidated financial statements, covering organization, accounting policies, investments, and debt Note 1. Organization BCSF was formed in 2015, commenced investment operations in 2016, and operates as a BDC and RIC, externally managed by BCSF Advisors, LP - BCSF was formed on October 5, 2015, and commenced investment operations on October 13, 2016[88] - The company operates as a Business Development Company (BDC) under the 1940 Act and a Regulated Investment Company (RIC) for tax purposes[88] - BCSF is externally managed by BCSF Advisors, LP, focusing on senior investments in middle-market companies ($10.0 million-$150.0 million EBITDA) with a primary goal of risk-adjusted returns and current income[88][90] Note 2. Summary of Significant Accounting Policies This note outlines the company's accounting policies, including US GAAP presentation, consolidation, valuation, revenue recognition, and non-accrual loans - The consolidated financial statements are prepared in accordance with US GAAP, following ASC Topic 946 for investment companies[92] - Investments are valued at fair value, with market quotations used when available, and unquoted investments valued using discounted cash flow models, comparable company multiples, and other factors, subject to Board oversight[97][98][99] - Loans are placed on non-accrual status when principal or interest collection is doubtful, with accrued interest generally reversed; as of September 30, 2023, four loans from three issuers were on non-accrual status[110] - The company has elected to be treated as a RIC for U.S. federal income tax purposes, generally not subject to corporate-level taxes on distributed income[123] Note 3. Investments This note details the investment portfolio composition by type, region, and industry, and provides financial information for unconsolidated joint ventures ISLP and SLP Investment Portfolio Composition by Type (Fair Value, in thousands) | Investment Type | Sep 30, 2023 | Dec 31, 2022 | | :-------------------------------------------- | :----------- | :----------- | | First Lien Senior Secured Loan | $1,531,270 | $1,630,877 | | Second Lien Senior Secured Loan | $85,286 | $93,950 | | Subordinated Debt | $45,430 | $43,922 | | Structured Products | $23,069 | $22,763 | | Preferred Equity | $105,601 | $80,945 | | Equity Interest | $229,791 | $210,689 | | Warrants | $504 | $524 | | Subordinated Note Investment Vehicles | $302,974 | $237,974 | | Preferred Equity Interest Investment Vehicles | $(990) | $(644) | | Equity Interest Investment Vehicles | $67,263 | $65,977 | | Total Investments | $2,390,198 | $2,386,977 | - ISLP, a joint venture with Pantheon, had $661.6 million in debt and equity investments at fair value as of September 30, 2023, with a weighted average yield of 11.1%[149][153] - SLP, a joint venture with Amberstone, had $826.5 million in total investments at fair value as of September 30, 2023, with a weighted average yield of 11.8%; SLP completed a $400.0 million CLO transaction and secured a new $140.0 million credit facility[195][191][193] Note 4. Fair Value Measurements This note details fair value measurements of investments using the ASC 820 hierarchy, including Level 3 asset reconciliation and estimated fair value of debt Fair Value Measurements of Investments by Level (in thousands) | Investment Type | Level 1 | Level 2 | Level 3 | Measured at Net Asset Value | Total | | :-------------------------------------------- | :------ | :--------- | :---------- | :-------------------------- | :---------- | | First Lien Senior Secured Loan | $— | $26,689 | $1,504,581 | $— | $1,531,270 | | Second Lien Senior Secured Loan | $— | $— | $85,286 | $— | $85,286 | | Subordinated Debt | $— | $— | $45,430 | $— | $45,430 | | Structured Products | $— | $— | $23,069 | $— | $23,069 | | Preferred Equity | $— | $— | $105,601 | $— | $105,601 | | Equity Interest | $— | $— | $229,791 | $— | $229,791 | | Warrants | $— | $— | $504 | $— | $504 | | Subordinated Note Investment Vehicles | $— | $— | $302,974 | $— | $302,974 | | Preferred Equity Interest Investment Vehicles | $— | $— | $— | $(990) | $(990) | | Equity Interest Investment Vehicles | $— | $— | $— | $67,263 | $67,263 | | Total Investments | $— | $26,689 | $2,297,236 | $66,273 | $2,390,198 | - The majority of investments are classified as Level 3, indicating significant unobservable inputs in their valuation[216] Estimated Fair Value of Debt Not Carried at Fair Value (in thousands) | Debt Type | Level | Sep 30, 2023 | Dec 31, 2022 | | :----------------------- | :---- | :----------- | :----------- | | 2019-1 Debt | 2 | $340,585 | $330,634 | | March 2026 Notes | 2 | $267,750 | $259,769 | | October 2026 Notes | 2 | $258,956 | $247,873 | | Sumitomo Credit Facility | 3 | $426,000 | $443,000 | | Total Debt | | $1,293,291 | $1,281,276 | Note 5. Related Party Transactions This note details agreements with the Advisor, including Base Management and Incentive Fees, administration, co-investment policies, and related party shareholdings - The company pays its Advisor a Base Management Fee of 1.5% (or 1.0% for assets attributable to leverage below 200% asset coverage) of gross assets (excluding cash and cash equivalents)[236] Management Fees (in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :-------------- | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Management fees | $9,140 | $8,853 | $27,166 | $25,673 | - The Incentive Fee has two parts: income-based (calculated quarterly with a three-year lookback and cap) and capital gains-based (determined annually)[238][241][249] Incentive Fees (in thousands) | Metric | 3 Months Ended Sep 30, 2023 | 3 Months Ended Sep 30, 2022 | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------ | :-------------------------- | :-------------------------- | :-------------------------- | :-------------------------- | | Incentive fee | $3,011 | $2,976 | $18,129 | $10,356 | - The Advisor and its affiliates held 13,325,619.96 shares of the company's common stock as of September 30, 2023[258] Note 6. Debt This note details the company's outstanding debt obligations, including principal amounts, interest rates, maturity dates, and asset coverage ratio compliance - The company's asset coverage ratio was 182.2% as of September 30, 2023, exceeding the 150% requirement[266] Outstanding Borrowings (in thousands) | Debt Type | Total Aggregate Principal Amount Committed | Principal Amount Outstanding (Sep 30, 2023) | Carrying Value (Sep 30, 2023) | | :----------------------- | :----------------------------------------- | :------------------------------------------ | :---------------------------- | | 2019-1 Debt | $352,500 | $352,500 | $351,196 | | March 2026 Notes | $300,000 | $300,000 | $297,237 | | October 2026 Notes | $300,000 | $300,000 | $295,837 | | Sumitomo Credit Facility | $665,000 | $426,000 | $426,000 | | Total Debt | $1,617,500 | $1,378,500 | $1,370,270 | Contractual Maturities of Debt Obligations (in thousands) | Debt Type | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :----------------------- | :---------- | :--------------- | :--------- | :--------- | :---------------- | | 2019-1 Debt | $352,500 | $— | $— | $— | $352,500 | | March 2026 Notes | $300,000 | $— | $300,000 | $— | $— | | October 2026 Notes | $300,000 | $— | $— | $300,000 | $— | | Sumitomo Credit Facility | $426,000 | $— | $— | $426,000 | $— | | Total Debt Obligations | $1,378,500 | $— | $300,000 | $726,000 | $352,500 | Note 7. Derivatives The company uses forward currency exchange contracts to manage foreign currency risk, with average notional exposure of $199.5 million for the three months ended September 30, 2023 - The company uses forward currency exchange contracts to reduce exposure to foreign currency exchange rate fluctuations[120][320] Average U.S. Dollar Notional Exposure to Forward Currency Exchange Contracts (in millions) | Period | Average U.S. Dollar Notional Exposure | | :----------------------------------- | :------------------------------------ | | 3 months ended Sep 30, 2023 | $199.5 | | 9 months ended Sep 30, 2023 | $192.1 | | 3 months ended Sep 30, 2022 | $160.6 | | 9 months ended Sep 30, 2022 | $139.9 | - The company is exposed to counterparty credit risk, which is managed through credit monitoring, master netting arrangements, and collateral requirements[324] Note 8. Distributions This note summarizes the distributions declared for the nine months ended September 30, 2023 and 2022, totaling $76.2 million or $1.18 per share for 2023 Distributions Declared (9 Months Ended Sep 30, 2023, in thousands, except per share) | Date Declared | Record Date | Payment Date | Amount Per Share | Total Distributions | | :--------------- | :------------- | :------------- | :--------------- | :------------------ | | February 28, 2023 | March 31, 2023 | April 28, 2023 | $0.38 | $24,534 | | May 9, 2023 | June 30, 2023 | July 31, 2023 | $0.38 | $24,534 | | August 8, 2023 | Sep 29, 2023 | Oct 31, 2023 | $0.42 | $27,116 | | Total | | | $1.18 | $76,184 | Distributions Declared (9 Months Ended Sep 30, 2022, in thousands, except per share) | Date Declared | Record Date | Payment Date | Amount Per Share | Total Distributions | | :--------------- | :------------- | :------------- | :--------------- | :------------------ | | February 23, 2022 | March 31, 2022 | April 29, 2022 | $0.34 | $21,951 | | May 5, 2022 | June 30, 2022 | July 29, 2022 | $0.34 | $21,951 | | August 3, 2022 | Sep 30, 2022 | Oct 28, 2022 | $0.34 | $21,951 | | Total | | | $1.02 | $65,853 | Note 9. Common Stock/Capital The company has authorized 100 billion common shares and 10 billion preferred shares, completed an IPO in 2018, and conducted a rights offering in 2020 - The company has authorized 100 billion shares of common stock and 10 billion shares of preferred stock[340] - The IPO in November 2018 issued 7.5 million shares at $20.25 per share, generating $147.3 million in proceeds before expenses[342] - As of September 30, 2023, no shares have been repurchased under the $50 million authorization approved in May 2019[344][451] - A transferable subscription rights offering in June 2020 resulted in the issuance of 12,912,453 shares, generating $129.6 million in net proceeds before expenses[345] Note 10. Commitments and Contingencies This note details unfunded commitments totaling $283.8 million as of September 30, 2023, and confirms no material legal proceedings Unfunded Commitments (in thousands) | As of Date | Unfunded Commitments | | :--------------- | :------------------- | | September 30, 2023 | $283,830 | | December 31, 2022 | $303,665 | - Unfunded commitments are generally subject to borrowers meeting certain criteria, such as compliance with covenants and operational metrics[352] - The company is not currently subject to any material legal proceedings or threatened legal proceedings[357] Note 11. Financial Highlights This note summarizes key financial highlights for the nine months ended September 30, 2023 and 2022, including per share data and financial ratios Per Share Data | Metric | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :----------------------------------------- | :-------------------------- | :-------------------------- | | Net asset value at beginning of period | $17.29 | $17.04 | | Net investment income | $1.65 | $1.22 | | Net realized gain (loss) | $(1.07) | $0.35 | | Net change in unrealized appreciation | $0.85 | $(0.61) | | Net increase in net assets from operations | $1.43 | $0.96 | | Shareholder distributions from income | $(1.18) | $(1.02) | | Net asset value at end of period | $17.54 | $16.98 | | Per share market value at end of period | $15.31 | $12.00 | Ratios and Supplemental Data | Metric | 9 Months Ended Sep 30, 2023 | 9 Months Ended Sep 30, 2022 | | :------------------------------------------------------------------ | :-------------------------- | :-------------------------- | | Total return based on market value | 40.24% | (15.03)% | | Total return based on net asset value | 8.46% | 5.69% | | Ratio of net investment income to average net assets | 13.34% | 9.80% | | Ratio of total expenses to average net assets | 13.23% | 9.19% | | Ratio of interest and debt financing expenses to average net assets | 7.25% | 4.36% | | Portfolio turnover | 25.69% | 36.14% | Note 12. Subsequent Events The company's management evaluated events through November 6, 2023, and identified no material items requiring disclosure or adjustment - No material subsequent events were identified through November 6, 2023, requiring disclosure or adjustment to the financial statements[361] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition, operations, and cash flows, highlighting investment strategy and performance Overview Bain Capital Specialty Finance, Inc. is an externally managed BDC focused on senior direct lending to middle-market companies, generating revenue primarily from interest income - The company is an externally managed specialty finance company regulated as a BDC, focusing on lending to middle-market companies[364] - Primary focus is on Senior Direct Lending, targeting middle-market companies with $10.0 million to $150.0 million in annual EBITDA[366] - Revenues are primarily generated from interest income on debt investments, distributions on equity investments, and various loan origination and other fees[367] Investments Investment activity is influenced by market conditions, with the company maintaining at least 70% of total assets as 'qualifying assets' and opportunistically investing up to 30% in 'non-qualifying' assets - Investment activity is influenced by factors such as debt and equity capital availability, M&A activity, economic environment, and competitive landscape[368] - As a BDC, at least 70% of total assets must be 'qualifying assets,' primarily investments in 'eligible portfolio companies'[369] - Up to 30% of the portfolio can be invested opportunistically in 'non-qualifying' assets, such as non-U.S. companies[370] Revenues The company's revenues primarily consist of interest income from debt investments and distributions from equity investments, with 94.2% of the debt portfolio bearing floating rates - Primary revenue sources are interest income on debt investments (including PIK interest) and distributions on equity investments[370] Debt Investments by Interest Rate Type (Fair Value) | As of Date | Floating Rate | Fixed Rate | | :--------------- | :------------ | :--------- | | September 30, 2023 | 94.2% | 5.8% | | December 31, 2022 | 94.5% | 5.5% | - Trends in base interest rates, such as SOFR, can affect net investment income over the long term[371] Expenses Operating expenses include fees paid to the Advisor (Base Management and Incentive Fees), allocable overhead under the Administration Agreement, and other operational costs borne by stockholders - Primary operating expenses include fees to the Advisor (Base Management Fee and Incentive Fee) and allocable overhead under the Administration Agreement[372] - The company bears all other out-of-pocket costs and expenses of its operations and transactions, including operational and organizational costs, public offering costs, valuation fees, interest on debt, and distributions[372] - Expenses related to the Administrator were $0.8 million for the nine months ended September 30, 2023, and $0.4 million for the sub-administrator[375] Leverage The company's ability to incur indebtedness is limited by the 1940 Act, requiring an asset coverage ratio of at least 150%, which was 182.2% as of September 30, 2023 - The company's ability to incur indebtedness is limited by the 1940 Act, requiring an asset coverage ratio of at least 150%[377] Asset Coverage Ratio | As of Date | Asset Coverage Ratio | | :--------------- | :------------------- | | September 30, 2023 | 182.2% | Investment Decision Process The Advisor's investment process involves sourcing, rigorous diligence, Credit Committee approval, and ongoing portfolio and risk management - The investment process includes sourcing and idea generation, investment diligence and recommendation, Credit Committee approval and portfolio construction, and portfolio and risk management[378] - Diligence involves detailed review of offering memorandums, independent research, interviews, and site visits, summarized in investment memorandums and credit packs[379] - Investments require approval from at least the Private Credit Investment Committee, and ongoing monitoring includes financial performance, market developments, and board participation[380][381] Portfolio and Investment Activity During the nine months ended September 30, 2023, the company invested $630.8 million and had $616.2 million in repayments, with a weighted average yield of 12.9% Investment Activity (in millions) | Period | Investments | Principal Repayments and Sales | Net Increase in Investments | | :----------------------------------- | :---------- | :----------------------------- | :-------------------------- | | 3 months ended Sep 30, 2023 | $114.2 | $102.8 | $11.4 | | 3 months ended Sep 30, 2022 | $433.0 | $396.5 | $36.5 | | 9 months ended Sep 30, 2023 | $630.8 | $616.2 | $14.6 | | 9 months ended Sep 30, 2022 | $1,292.2 | $1,249.9 | $42.3 | Weighted Average Yield of Investment Portfolio (at Amortized Cost) | As of Date | Weighted Average Yield | | :--------------- | :--------------------- | | September 30, 2023 | 12.9% | | December 31, 2022 | 11.4% | Investment Performance Rating (Fair Value, in thousands) | Rating | Sep 30, 2023 Fair Value | Sep 30, 2023 % of Total | Dec 31, 2022 Fair Value | Dec 31, 2022 % of Total | | :----- | :---------------------- | :---------------------- | :---------------------- | :---------------------- | | 1 | $2,415 | 0.1% | $2,499 | 0.1% | | 2 | $2,263,004 | 94.7% | $2,163,990 | 90.7% | | 3 | $98,824 | 4.1% | $182,082 | 7.6% | | 4 | $25,955 | 1.1% | $38,406 | 1.6% | | Total | $2,390,198 | 100.0% | $2,386,977 | 100.0% | Performing and Non-Accrual Investments (Amortized Cost, in thousands) | Status | Sep 30, 2023 | Sep 30, 2023 % | Dec 31, 2022 | Dec 31, 2022 % | | :---------- | :----------- | :------------- | :----------- | :------------- | | Performing | $2,341,424 | 98.5% | $2,348,395 | 97.0% |\ | Non-accrual | $35,982 | 1.5% | $71,543 | 3.0% | | Total | $2,377,406 | 100.0% | $2,419,938 | 100.0% | Results of Operations The company reported a net increase in net assets from operations of $92.3 million for the nine months ended September 30, 2023, driven by increased investment income despite higher expenses Summary of Operating Results (9 Months Ended Sep 30, in thousands) | Metric | 2023 | 2022 | | :----------------------------------------- | :---------- | :---------- | | Total investment income | $222,842 | $157,184 | | Total expenses, net of fee waivers | $113,792 | $78,669 | | Net investment income | $106,718 | $78,515 | | Net realized gain (loss) | $(69,566) | $22,748 | | Net change in unrealized appreciation | $55,160 | $(39,302) | | Net increase in net assets from operations | $92,312 | $61,961 | - Interest income from investments increased to $172.3 million for the nine months ended September 30, 2023, from $117.7 million in 2022, primarily due to rising base rates and portfolio growth[417] - Interest and debt financing expenses increased to $60.8 million for the nine months ended September 30, 2023, from $36.1 million in 2022, due to rising base rates and increased usage of the Sumitomo Credit Facility[421] - Net realized losses on investments were ($61.8 million) for the nine months ended September 30, 2023, compared to ($2.3 million) in 2022[436] - Foreign currency impact contributed a net increase of $1.5 million to net assets from operations for the nine months ended September 30, 2023, compared to $2.8 million in 2022[442] Financial Condition, Liquidity and Capital Resources The company's liquidity is primarily from equity issuances, credit facilities, and operations, with cash decreasing to $105.4 million as of September 30, 2023 - Liquidity is primarily derived from equity issuances, credit facilities, and cash flows from operations[445] Cash, Foreign Cash, Restricted Cash, and Cash Equivalents (in millions) | As of Date | Amount | | :--------------- | :----- | | September 30, 2023 | $105.4 | | December 31, 2022 | $125.7 | - For the nine months ended September 30, 2023, operating activities provided $70.6 million in cash, while financing activities used $89.3 million[447][448] - The company had $224.2 million of availability on its Sumitomo Credit Facility as of September 30, 2023[447] Equity The company completed its IPO in November 2018, issued shares through a rights offering in 2020, and has a $50 million share repurchase authorization with no repurchases made - The IPO in November 2018 issued 7.5 million shares, generating $145.4 million in net proceeds after expenses[449] - As of September 30, 2023, no shares have been repurchased under the $50 million authorization approved in May 2019[451] - A transferable subscription rights offering in June 2020 resulted in the issuance of 12,912,453 shares, generating $129.6 million in net proceeds before expenses[452] Debt The company's outstanding debt as of September 30, 2023, totaled $1.378 billion in principal amount, with a carrying value of $1.370 billion Outstanding Borrowings (in thousands) | Debt Type | Principal Amount Outstanding (Sep 30, 2023) | Carrying Value (Sep 30, 2023) | | :----------------------- | :------------------------------------------ | :---------------------------- | | 2019-1 Debt | $352,500 | $351,196 | | March 2026 Notes | $300,000 | $297,237 | | October 2026 Notes | $300,000 | $295,837 | | Sumitomo Credit Facility | $426,000 | $426,000 | | Total Debt | $1,378,500 | $1,370,270 | Distribution Policy The company intends to distribute quarterly dividends to stockholders to qualify as a RIC, with total distributions of $76.2 million for the nine months ended September 30, 2023 - The company intends to distribute quarterly dividends to stockholders from legally available assets[459] - To maintain RIC tax treatment, the company must distribute at least 90% of its net ordinary income and net short-term capital gains[460] Total Distributions Declared (9 Months Ended Sep 30, in thousands, except per share) | Period | Amount Per Share | Total Distributions | | :----- | :--------------- | :------------------ | | 2023 | $1.18 | $76,184 | | 2022 | $1.02 | $65,853 | - An expense of $1.9 million for U.S. federal excise tax was recorded for the nine months ended September 30, 2023[460] Significant Accounting Estimates and Critical Accounting Policies This section reiterates adherence to US GAAP, emphasizing estimates, revenue recognition, and the detailed valuation process for portfolio investments - Financial statements are prepared in accordance with US GAAP, requiring estimates and assumptions that affect reported amounts[466][467] - Revenue recognition policies cover interest income (accrual basis, including PIK), dividend income (accrual or record date), and various fees[468][469][470] - Portfolio investments are valued at fair value; unquoted investments use discounted cash flow models, comparable company multiples, and other factors, with oversight from the Board and independent valuation firms[473][474][475] Contractual Obligations The company's contractual obligations include agreements with its Advisor for management and incentive fees, and an Administration Agreement for administrative services - Contractual obligations include the Amended Advisory Agreement for management and incentive fees, and the Administration Agreement for administrative services[477][479] Contractual Maturities of Debt Obligations (in thousands) | Debt Type | Total | Less than 1 year | 1-3 years | 3-5 years | More than 5 years | | :----------------------- | :---------- | :--------------- | :--------- | :--------- | :---------------- | | 2019-1 Debt | $352,500 | $— | $— | $— | $352,500 | | March 2026 Notes | $300,000 | $— | $300,000 | $— | $— | | October 2026 Notes | $300,000 | $— | $— | $300,000 | $— | | Sumitomo Credit Facility | $426,000 | $— | $— | $426,000 | $— | | Total Debt Obligations | $1,378,500 | $— | $300,000 | $726,000 | $352,500 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is exposed to financial market risks, primarily interest rate and foreign currency fluctuations, with a hypothetical 100 basis point interest rate increase yielding an $8.3 million net investment income increase - The company is subject to financial market risks, including changes in interest rates and foreign currency exchange rates[483][485] Annualized Impact of Hypothetical Base Rate Changes (in thousands) | Change in Interest Rates | Increase (Decrease) in Interest Income | Increase (Decrease) in Interest Expense | Net Increase (Decrease) in Net Investment Income | | :----------------------- | :------------------------------------- | :-------------------------------------- | :----------------------------------------------- | | Down 100 basis points | $(17,532) | $(7,785) | $(8,285) | | Up 100 basis points | $17,532 | $7,785 | $8,285 | - The company may use hedging techniques, such as forward contracts, to minimize foreign exchange risks[485] Item 4. Controls and Procedures As of September 30, 2023, management concluded that disclosure controls and procedures are effective, with no material changes in internal controls over financial reporting - As of September 30, 2023, disclosure controls and procedures were evaluated as effective to provide reasonable assurance of timely and accurate information reporting[486] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended September 30, 2023[487] PART II. OTHER INFORMATION This part covers legal proceedings, risk factors, equity sales, and other disclosures not included in the financial information section Item 1. Legal Proceedings The company is not currently subject to any material legal proceedings, nor are any threatened against it - The company is not currently subject to any material legal proceedings, nor are any threatened[489] Item 1A. Risk Factors This section highlights that the company's business is dependent on bank relationships, and recent banking system volatility may adversely impact its operations - The company's business is dependent on bank relationships, and recent strain on the banking system may adversely impact its operations[491] - The company is proactively monitoring the financial health of its bank relationships due to recent volatility in the banking industry[491] Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities During the three months ended September 30, 2023, the company did not engage in any unregistered sales of equity securities, dividend reinvestment plan issuances, or common stock purchases - No unregistered sales of equity securities, dividend reinvestment plan issuances, or common stock purchases occurred during the three months ended September 30, 2023[492] Item 3. Default Upon Senior Securities This item is not applicable to the company Item 4. Mine Safety Disclosures This item is not applicable to the company Item 5. Other Information During the fiscal quarter ended September 30, 2023, none of the company's directors or executive officers adopted or terminated any Rule 10b5-1 trading plans - No Rule 10b5-1 trading plans were adopted or terminated by directors or executive officers during the fiscal quarter ended September 30, 2023[493] Item 6. Exhibits, Financial Statement Schedules This section lists all exhibits and financial statement schedules included or incorporated by reference in the Quarterly Report on Form 10-Q - The report includes a comprehensive list of exhibits and financial statement schedules, as required by Item 601 of Regulation S-K[495] Signatures This section contains the authorized signatures of the company's Chief Executive Officer and Chief Financial Officer for the report Authorized Signatures The report is duly signed on November 6, 2023, by Michael A. Ewald, Chief Executive Officer, and Sally F. Dornaus, Chief Financial Officer - The report was signed on November 6, 2023, by Michael A. Ewald, Chief Executive Officer, and Sally F. Dornaus, Chief Financial Officer[502]