Blackstone Secured Lending Fund(US:BXSL)2023-05-09 16:00FORM 10-Q Quarterly Report PART I FINANCIAL INFORMATION This section presents unaudited consolidated financial statements and management's discussion and analysis Item 1. Financial Statements This chapter provides unaudited consolidated financial statements, schedules, and comprehensive notes Consolidated Statements of Assets and Liabilities The company's total net assets slightly increased due to a larger decrease in liabilities than in assets Financial Position Summary | Metric | March 31, 2023 ($ thousands) | December 31, 2022 ($ thousands) | |:---|:---|:---| | Total investments at fair value | 9,626,202 | 9,617,248 | | Cash and cash equivalents | 103,025 | 131,272 | | Total assets | 9,847,992 | 9,908,995 | | Debt (net) | 5,451,854 | 5,527,715 | | Total liabilities | 5,657,496 | 5,750,029 | | Total net assets | 4,190,496 | 4,158,966 | | Net asset value per share | 26.10 | 25.93 | Consolidated Statements of Operations Higher interest income drove a significant increase in total investment income and net assets from operations Quarterly Operating Results | Metric | Three Months Ended March 31, 2023 ($ thousands) | Three Months Ended March 31, 2022 ($ thousands) | |:---|:---|:---| | Total investment income | 264,938 | 185,597 | | Net expenses | 113,141 | 81,508 | | Net investment income before excise tax | 151,797 | 104,089 | | Excise tax expense | 2,622 | 1,386 | | Net investment income after excise tax | 149,175 | 102,703 | | Net unrealized appreciation (depreciation) | (14,544) | (1,412) | | Net realized gain (loss) | 4,167 | 5,949 | | Net increase (decrease) in net assets from operations | 138,798 | 107,240 | | Net investment income per share (basic and diluted) | 0.93 | 0.61 | | Earnings per share (basic and diluted) | 0.86 | 0.63 | Consolidated Statements of Changes in Net Assets Net investment income drove an increase in net assets, partially offset by distributions and unrealized depreciation Quarterly Changes in Net Assets | Metric | Three Months Ended March 31, 2023 ($ thousands) | Three Months Ended March 31, 2022 ($ thousands) | |:---|:---|:---| | Balance, beginning of period | 4,158,966 | 4,447,479 | | Reinvestment of dividends | 5,132 | 11,469 | | Net investment income | 149,175 | 102,703 | | Net realized gain (loss) on investments | 4,167 | 5,949 | | Net change in unrealized appreciation (depreciation) | (14,544) | (1,412) | | Dividends declared and payable | (112,400) | (132,318) | | Balance, end of period | 4,190,496 | 4,433,870 | Consolidated Statements of Cash Flows Operating activities provided significant cash in Q1 2023, a reversal from the prior year, while financing activities used cash Quarterly Cash Flow Summary | Metric | Three Months Ended March 31, 2023 ($ thousands) | Three Months Ended March 31, 2022 ($ thousands) | |:---|:---|:---| | Net cash provided by (used in) operating activities | 155,864 | (19,171) | | Net cash provided by (used in) financing activities | (186,761) | 57,221 | | Net increase (decrease) in cash and cash equivalents | (30,897) | 38,050 | | Cash and cash equivalents, beginning of period | 131,272 | 102,879 | | Cash and cash equivalents, end of period | 103,025 | 140,929 | - Supplemental information for Q1 2023 includes $88,513 thousand in interest paid, $112,400 thousand in distribution payable, and $5,132 thousand in reinvestment of distributions169 Consolidated Schedules of Investments The investment portfolio primarily consists of first lien debt with floating interest rates and significant unfunded commitments Investment Portfolio (March 31, 2023) | Investment Type | Cost ($ thousands) | Fair Value ($ thousands) | % of Net Assets | |:---|:---|:---|:---| | First Lien Debt | 9,508,358 | 9,425,003 | 225.05% | | Second Lien Debt | 49,200 | 46,678 | 1.12% | | Equity Investments | 111,548 | 154,521 | 2.44% | | Total Investment Portfolio | 9,669,106 | 9,626,202 | 229.85% | Investment Portfolio (December 31, 2022) | Investment Type | Cost ($ thousands) | Fair Value ($ thousands) | % of Net Assets | |:---|:---|:---|:---| | First Lien Debt | 9,497,570 | 9,419,963 | 226.49% | | Second Lien Debt | 48,753 | 46,336 | 1.11% | | Equity Investments | 111,549 | 150,949 | 2.30% | | Total Investment Portfolio | 9,657,872 | 9,617,248 | 231.26% | Unfunded Commitments (March 31, 2023) | Unfunded Commitments | Unfunded Commitment ($ thousands) | Fair Value ($ thousands) | |:---|:---|:---| | Total unfunded commitments | 598,825 | (3,549) | Unfunded Commitments (December 31, 2022) | Unfunded Commitments | Unfunded Commitment ($ thousands) | Fair Value ($ thousands) | |:---|:---|:---| | Total unfunded commitments | 690,256 | (3,057) | - As of March 31, 2023, 99.9% of performing debt investments bore interest at a floating rate, consistent with December 31, 2022 figures369 Notes to Consolidated Financial Statements This section details accounting policies, agreements, and financial instruments in the consolidated statements - The consolidated financial statements are prepared in accordance with GAAP for interim financial information and ASC Topic 946242272 - Management makes estimates and assumptions, particularly for investment valuation, which involve a high degree of judgment and complexity243274430 - The Company consolidates its wholly-owned investment company subsidiaries: BGSL Jackson Hole Funding LLC, BGSL Breckenridge Funding LLC, BGSL Big Sky Funding LLC, and BGSL Investments LLC245 Note 1. Organization The Company is an externally managed, non-diversified, closed-end investment company regulated as a BDC - The Company is a Delaware statutory trust, externally managed by Blackstone Credit BDC Advisors LLC, and regulated as a Business Development Company (BDC)240270 - The Company commenced its loan origination and investment activities on November 20, 2018241 - The Company priced its initial public offering (IPO) on October 28, 2021, and its shares began trading on the NYSE271 Note 2. Significant Accounting Policies This note outlines key accounting policies for financial statements, including valuation and revenue recognition Use of Estimates Financial statement preparation requires management estimates, particularly for the fair value of investments - The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions274 - Assumptions and estimates regarding the valuation of investments involve a higher degree of judgment and complexity274430 Consolidation The Company consolidates its wholly-owned investment company subsidiaries as per ASC 946 - The Company consolidated the results of its wholly-owned subsidiaries: BGSL Jackson Hole Funding LLC, BGSL Breckenridge Funding LLC, BGSL Big Sky Funding LLC, and BGSL Investments LLC245 - As provided under ASC 946, the Company will not consolidate its investment in a company other than an investment company subsidiary or a controlled operating company275 Cash and Cash Equivalents Cash and cash equivalents include demand deposits and highly liquid investments with short original maturities - Cash and cash equivalents consist of demand deposits and highly liquid investments with original maturities of three months or less246 - Deposits with financial institutions may at times exceed the Federal Deposit Insurance Corporation insured limit246 Investments Investments are recorded at fair value using a hierarchy that prioritizes observable market prices - Investments are recorded at fair value in accordance with ASC 820 and Rule 2a-5 under the 1940 Act277 - The fair value hierarchy prioritizes unadjusted quoted prices in active markets (Level 1), followed by observable inputs (Level 2), and unobservable inputs (Level 3)250 - For illiquid debt investments, fair value is determined using a market interest rate yield analysis279 - Enterprise value (EV) analysis is generally performed for equity investments, control debt investments, and credit-impaired non-control debt investments304305 Derivative Instruments All derivative instruments are recognized at fair value, with changes recorded as current period gains or losses - The Company recognizes all derivative instruments as assets or liabilities at fair value in its consolidated financial statements281 - Derivative contracts are not designated in hedge accounting relationships, and all changes in fair value are recognized through current period gains or losses281 - Derivative instruments are subject to various risks including market, credit, liquidity, and operational risks432 Forward Purchase Agreement Forward purchase agreements are recognized and subsequently re-measured at fair value - Forward purchase agreements are recognized at fair value through current period gains or losses on the contract entry date309 - All forward purchase agreements are carried as assets when fair value is positive and as liabilities when fair value is negative309 Receivables/Payables From Investments Sold/Purchased This covers amounts for investment transactions that have not settled by the reporting date - Receivables/payables from investments sold/purchased consist of amounts for transactions that have not settled at the reporting date252 Foreign Currency Transactions Foreign currency amounts are translated into U.S. dollars using period-end or transaction-date exchange rates - Investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars based upon currency exchange rates effective on the last business day of the period310 - Purchases, sales, borrowings, and expenses in foreign currencies are translated based upon currency exchange rates prevailing on the transaction dates310 - Net changes in fair values from foreign exchange rate fluctuations are included in the Consolidated Statements of Operations254 Revenue Recognition Revenue is recognized from interest, dividends, and various fees, with non-accrual status for doubtful loans Interest Income Interest income is accrued, including accretion of discounts and amortization of premiums - Interest income is recorded on an accrual basis and includes accretion of discounts and amortization of premiums283 - Upon prepayment, any prepayment premiums and unamortized fees are recorded as interest income in the current period284 - For Q1 2023 and Q1 2022, the Company recorded $0.4 million and $1.0 million, respectively, in non-recurring interest income284 PIK Income Payment-in-kind (PIK) interest is accrued as income and increases the loan principal - PIK represents interest that is accrued and recorded as interest income at contractual rates, increasing the loan principal285 - If PIK is not expected to be realized, the investment is placed on non-accrual status285 Dividend Income Dividend income is accrued for preferred equity and recorded on the record or ex-dividend date for common equity - Dividend income on preferred equity securities is recorded on the accrual basis to the extent it is expected to be collected314 - Dividend income on common equity securities is recorded on the record date for private companies or the ex-dividend date for public companies314 Fee Income The Company recognizes various fees, such as structuring and syndication fees, as income when earned - The Company may receive various fees such as structuring, consent, waiver, and syndication fees315 - Such fees are recognized as income when earned or the services are rendered315 Non-Accrual Income Loans are placed on non-accrual status when principal or interest collection is doubtful - Loans are generally placed on non-accrual status when there is reasonable doubt about full collection286 - Accrued interest is generally reversed when a loan is placed on non-accrual status286 - Interest payments received on non-accrual loans may be recognized as income or applied to principal based on management's judgment286 Organization Expenses and Offering Expenses Public equity offering expenses are recorded as a reduction of capital, while shelf renewal costs are expensed - Expenses related to public equity offerings are recorded as a reduction of capital upon completion287 - The costs associated with any renewals of a shelf registration statement will be expensed as incurred287 Deferred Financing Costs and Debt Issuance Costs Borrowing costs are deferred and amortized into interest expense over the debt instrument's life - Deferred financing and debt issuance costs represent fees and other direct incremental costs incurred for borrowings288 - These expenses are deferred and amortized into interest expense over the life of the related debt instrument288 - Costs for revolving credit facilities are separate assets, while costs for installment debt are netted against the outstanding debt balance288 Income Taxes As a RIC, the Company generally avoids corporate-level U.S. federal income taxes by distributing taxable income - The Company has elected to be treated as a RIC, generally avoiding corporate-level U.S. federal income taxes on distributed income289 - To maintain RIC status, the Company must distribute at least 90% of its investment company taxable income annually290 - The Company is subject to a 4% nondeductible federal excise tax on undistributed income if certain distribution requirements are not met319 - For Q1 2023 and Q1 2022, the Company incurred $2.6 million and $1.4 million, respectively, of U.S. federal excise tax291 Distributions The Company intends to make quarterly distributions to shareholders, subject to Board discretion - The Company intends to make quarterly distributions to its shareholders, recorded on the record date292 - All distributions are paid at the discretion of the Board and depend on earnings, financial condition, and regulatory compliance292 Recent Accounting Pronouncements The FASB issued guidance on Reference Rate Reform, providing optional expedients for contracts affected by LIBOR discontinuation - The FASB issued ASU No. 2020-04 and ASU No. 2021-01 on Reference Rate Reform, providing optional expedients for contracts affected by reference rate reform293 - ASU 2022-06 deferred the sunset date of this guidance to December 31, 2024293 - The Company is currently evaluating the impact of these ASUs on its consolidated financial statements293 Note 3. Agreements and Related Party Transactions This note details agreements with related parties, including management and incentive fee structures - The Company has an Investment Advisory Agreement with Blackstone Credit BDC Advisors LLC and an Administration Agreement with Blackstone Alternative Credit Advisors LP270322363 - The Investment Advisory Agreement was most recently renewed on May 2, 2023, for a one-year period323 - The Adviser voluntarily waived management and incentive fees above 0.75% and 15.0% respectively, for a two-year 'Waiver Period' post-IPO295327352353361 Investment Advisory Agreement The agreement governs the Adviser's management of the Company and includes a two-year post-IPO fee waiver - The Company entered into an amended and restated investment advisory agreement on October 18, 2021, with the Adviser294 - The Adviser implemented a waiver to extend the Company's pre-IPO fee structure for two years, maintaining management fees at 0.75% and incentive fees at 15.0%295 - The Investment Advisory Agreement was most recently renewed and approved by the Board on May 2, 2023323 Base Management Fees The management fee is 1.0% annually of average gross assets, voluntarily waived to 0.75% during the Waiver Period - The management fee is payable quarterly at an annual rate of 1.0% of the average value of the Company's gross assets296 - The Adviser voluntarily waived the management fee in excess of 0.75% during the Waiver Period, with waived amounts not subject to recoupment352353 Quarterly Management Fees | Metric | Three Months Ended March 31, 2023 ($ thousands) | Three Months Ended March 31, 2022 ($ thousands) | |:---|:---|:---| | Base management fees | 24,696 | 25,636 | | Management fees waived | (6,174) | (6,409) | | Payable to Adviser | 18,522 | 18,595 | Incentive Fees Incentive fees consist of independent income-based and capital gains-based components, subject to voluntary waivers - The incentive fees consist of two components: one based on income and the other on capital gains354 - The income-based fee is calculated quarterly based on net investment income over the 'Trailing Twelve Quarters', exceeding a 1.5% hurdle rate298299354355 - The capital gains fee is determined annually on a cumulative basis, equal to 17.5% (or 15% during waiver) of realized gains net of losses and depreciation333360361 Income Based Incentive Fees The income-based fee is calculated on pre-incentive fee net investment income over a hurdle and subject to a cap - The income-based incentive fee is 15% (or 17.5% post-waiver) of pre-incentive fee net investment income that exceeds the Catch-up Amount330 - The fee is subject to an 'Incentive Fee Cap' based on the 'Cumulative Net Return' during the relevant Trailing Twelve Quarters302331 Quarterly Income Based Incentive Fees | Metric | Three Months Ended March 31, 2023 ($ thousands) | Three Months Ended March 31, 2022 ($ thousands) | |:---|:---|:---| | Income based incentive fees | 30,393 | 21,284 | | Incentive fees waived | (4,342) | (3,040) | | Payable to Adviser | 26,051 | 24,773 | Capital Gains Incentive Fees The capital gains fee is 17.5% of cumulative realized gains, net of losses and unrealized depreciation, payable annually - The capital gains incentive fee is 17.5% of realized capital gains (or 15.0% during the Waiver Period) on a cumulative basis, net of all realized losses and unrealized depreciation333361 - The accrual for Q1 2023 was $(1.6) million, primarily due to net realized and unrealized losses, a reversal from the $0.7 million accrued in Q1 2022102362 Quarterly Capital Gains Incentive Fees | Metric | Three Months Ended March 31, 2023 ($ thousands) | Three Months Ended March 31, 2022 ($ thousands) | |:---|:---|:---| | Capital gains incentive fees | (1,556) | 681 | Administration Agreement The agreement outlines the Administrator's role in providing services, for which the Company reimburses costs - The Company entered into an Administration Agreement with the Administrator on October 1, 2018, which was most recently renewed on May 2, 2023363 - The Administrator provides administrative and compliance services, and the Company reimburses its costs, expenses, and allocable overhead337363 - The Administrator elected to forgo reimbursement for rent and other occupancy costs for Q1 2023 and Q1 2022337 Quarterly Administrative Expenses | Metric | Three Months Ended March 31, 2023 ($ thousands) | Three Months Ended March 31, 2022 ($ thousands) | |:---|:---|:---| | Administrative service expenses incurred | 378 | 840 | | Unpaid and included in Due to affiliates | 300 | 1,200 | Sub-Administration and Custody Agreement The Administrator has a Sub-Administration Agreement with State Street Bank and Trust Company, which also serves as Custodian - The Administrator entered into a sub-administration agreement with State Street Bank and Trust Company, which provides various accounting and administrative services365 - The Sub-Administrator also serves as the Company's custodian365 Expense Support and Conditional Reimbursement Agreement The Expense Support Agreement terminated in October 2021, with no outstanding reimbursement obligations as of March 31, 2023 - The Expense Support and Conditional Reimbursement Agreement allowed the Adviser to elect to pay certain expenses of the Company340 - The Expense Support Agreement terminated by its own terms on October 28, 2021341 - As of March 31, 2023 and 2022, there were no amounts subject to the Reimbursement Payment obligation341 Note 4. Investments This note details the investment portfolio's composition by type, industry, and geography - The Company's investment portfolio primarily consists of first lien debt, followed by equity and second lien debt367 - As of March 31, 2023, 99.9% of performing debt investments bore interest at a floating rate, consistent with December 31, 2022369 - As of March 31, 2023, one borrower was on non-accrual status, compared to none as of December 31, 2022345 Investment Portfolio Composition The portfolio is predominantly composed of first lien debt, with smaller allocations to equity and second lien debt Portfolio Composition (March 31, 2023) | Investment Type | Cost ($ thousands) | Fair Value ($ thousands) | % of Total Investments at Fair Value | |:---|:---|:---|:---| | First lien debt | 9,508,358 | 9,425,003 | 97.91 % | | Second lien debt | 49,200 | 46,678 | 0.48 | | Equity investments | 111,548 | 154,521 | 1.61 | | Total | 9,669,106 | 9,626,202 | 100.00 % | Portfolio Composition (December 31, 2022) | Investment Type | Cost ($ thousands) | Fair Value ($ thousands) | % of Total Investments at Fair Value | |:---|:---|:---|:---| | First lien debt | 9,497,570 | 9,419,963 | 97.95 % | | Second lien debt | 48,753 | 46,336 | 0.48 | | Equity investments | 111,549 | 150,949 | 1.57 | | Total | 9,657,872 | 9,617,248 | 100.00 % | Industry Composition The portfolio is diversified across industries, with Health Care, Software, and Professional Services as top concentrations Industry Diversification | Industry | March 31, 2023 (% of Fair Value) | December 31, 2022 (% of Fair Value) | |:---|:---|:---| | Health Care Providers & Services | 11.78 % | 11.66 % | | Software | 14.77 % | 14.72 % | | Professional Services | 8.84 % | 8.76 % | | Insurance | 7.67 % | 8.10 % | | Commercial Services & Supplies | 7.67 % | 7.69 % | | Diversified Financial Services | 1.35 % | 1.36 % | | Diversified Telecommunication Services | 1.34 % | 1.13 % | | Electrical Equipment | 1.68 % | 1.70 % | | Electronic Equipment, Instruments & Components | 1.08 % | 1.10 % | | Energy Equipment & Services | 0.49 % | 0.57 % | | Health Care Equipment & Supplies | 0.59 % | 0.58 % | | Health Care Technology | 3.90 % | 3.92 % | | Industrial Conglomerates | 0.09 % | 0.09 % | | Internet & Direct Marketing Retail | 3.31 % | 3.32 % | | IT Services | 2.90 % | 2.84 % | | Machinery | 0.05 % | 0.05 % | | Marine | 0.26 % | 0.26 % | | Media | 0.07 % | 0.07 % | | Oil, Gas & Consumable Fuels | 1.19 % | 1.18 % | | Paper & Forest Products | 0.08 % | 0.08 % | | Pharmaceuticals | 0.02 % | 0.02 % | | Real Estate Management & Development | 0.74 % | 0.74 % | | Road & Rail | 0.16 % | 0.17 % | | Specialty Retail | 1.77 % | 1.77 % | | Technology Hardware, Storage & Peripherals | 0.87 % | 0.84 % | | Trading Companies & Distributors | 1.02 % | 1.01 % | | Transportation Infrastructure | 3.71 % | 3.64 % | | Total | 100.00 % | 100.00 % | Geographic Composition The majority of investments are in the United States, followed by Canada and Europe Geographic Diversification (March 31, 2023) | Region | Cost ($ thousands) | Fair Value ($ thousands) | % of Total Investments at Fair Value | |:---|:---|:---|:---| | United States | 8,983,241 | 8,929,026 | 92.76 % | | Canada | 470,555 | 486,555 | 5.05 | | Europe | 215,310 | 210,621 | 2.19 | | Total | 9,669,106 | 9,626,202 | 100.00 % | Geographic Diversification (December 31, 2022) | Region | Cost ($ thousands) | Fair Value ($ thousands) | % of Total Investments at Fair Value | |:---|:---|:---|:---| | United States | 8,934,926 | 8,893,051 | 92.47 % | | Canada | 510,599 | 520,368 | 5.41 | | Europe | 212,347 | 203,829 | 2.12 | | Total | 9,657,872 | 9,617,248 | 100.00 % | Note 5. Fair Value Measurements This note details the fair value hierarchy of financial instruments, categorizing them based on input observability - The fair value hierarchy categorizes financial instruments into Level 1 (quoted prices), Level 2 (observable inputs), and Level 3 (unobservable inputs)250 - As of March 31, 2023, the majority of investments were classified as Level 3 ($9,426,489 thousand)370 - The fair value of the Company's SPV Financing Facilities and Revolving Credit Facility approximates their carrying value due to variable interest rates375 Fair Value Hierarchy Most of the Company's investments, particularly first lien debt, were categorized as Level 3 Fair Value Hierarchy (March 31, 2023) | Investment Type | Level 1 ($ thousands) | Level 2 ($ thousands) | Level 3 ($ thousands) | Total ($ thousands) | |:---|:---|:---|:---|:---| | First lien debt | — | 199,713 | 9,225,290 | 9,425,003 | | Second lien debt | — | — | 46,678 | 46,678 | | Equity investments | — | — | 154,521 | 154,521 | | Total | — | 199,713 | 9,426,489 | 9,626,202 | Fair Value Hierarchy (December 31, 2022) | Investment Type | Level 1 ($ thousands) | Level 2 ($ thousands) | Level 3 ($ thousands) | Total ($ thousands) | |:---|:---|:---|:---|:---| | First lien debt | — | 144,452 | 9,275,511 | 9,419,963 | | Second lien debt | — | — | 46,336 | 46,336 | | Equity investments | — | — | 150,949 | 150,949 | | Total | — | 144,452 | 9,472,796 | 9,617,248 | - Transfers into or out of Level 3 were primarily due to decreased or increased price transparency371 Changes in Level 3 Fair Value Level 3 fair value changed due to purchases, repayments, and unrealized appreciation/depreciation Level 3 Fair Value Changes (Q1 2023) | Metric | First Lien Debt ($ thousands) | Second Lien Debt ($ thousands) | Equity Investments ($ thousands) | Total Investments ($ thousands) | |:---|:---|:---|:---|:---| | Fair value, beginning of period | 9,275,511 | 46,336 | 150,949 | 9,472,796 | | Purchases of investments | 114,229 | 411 | — | 114,640 | | Proceeds from principal repayments and sales | (71,040) | — | — | (71,040) | | Accretion of discount/amortization of premium | 8,407 | 36 | — | 8,443 | | Net realized gain (loss) | 46 | — | — | 46 | | Net change in unrealized appreciation (depreciation) | (14,862) | (105) | 3,572 | (11,395) | | Transfers into Level 3 | 4,938 | — | — | 4,938 | | Transfers out of Level 3 | (91,939) | — | — | (91,939) | | Fair value, end of period | 9,225,290 | 46,678 | 154,521 | 9,426,489 | Level 3 Fair Value Changes (Q1 2022) | Metric | First Lien Debt ($ thousands) | Second Lien Debt ($ thousands) | Equity Investments ($ thousands) | Total Investments ($ thousands) | |:---|:---|:---|:---|:---| | Fair value, beginning of period | 9,288,184 | 42,880 | 170,265 | 9,501,329 | | Purchases of investments | 253,310 | 265 | 7,264 | 260,839 | | Proceeds from principal repayments and sales | (35,031) | — | (10,687) | (45,718) | | Accretion of discount/amortization of premium | 9,212 | 19 | — | 9,231 | | Net realized gain (loss) | (62) | — | 5,920 | 5,858 | | Net change in unrealized appreciation (depreciation) | 428 | 79 | 2,384 | 2,891 | | Transfers into Level 3 | 25,772 | — | — | 25,772 | | Transfers out of Level 3 | — | — | — | — | | Fair value, end of period | 9,541,813 | 43,243 | 175,146 | 9,760,202 | Quantitative Information on Level 3 Inputs This section details significant unobservable inputs for Level 3 instruments, including discount rates and performance multiples Level 3 Unobservable Inputs (March 31, 2023) | Investment Type | Fair Value ($ thousands) | Valuation Technique | Unobservable Input | Range Low | Range High | Weighted Average | |:---|:---|:---|:---|:---|:---|:---| | Investments in first lien debt | 9,219,940 | Yield analysis | Discount rate | 6.39 % | 20.62 % | 10.03 % | | | 5,350 | Market quotations | Broker quoted price | 96.50 % | 96.50 % | 96.50 % | | Investments in second lien debt | 46,678 | Yield analysis | Discount rate | 10.15 % | 13.98 % | 12.53 % | | Investments in equity | 105,862 | Market approach | Performance multiple | 5.70x | 39.66x | 12.66x | | | 25,566 | Option model | Expected volatility | 30.00 % | 50.00 % | 41.80 % | | | 23,093 | Yield analysis | Discount rate | 11.67 % | 13.55 % | 12.88 % | Level 3 Unobservable Inputs (December 31, 2022) | Investment Type | Fair Value ($ thousands) | Valuation Technique | Unobservable Input | Range Low | Range High | Weighted Average | |:---|:---|:---|:---|:---|:---|:---| | Investments in first lien debt | 9,037,133 | Yield analysis | Discount rate | 6.83 % | 19.84 % | 10.13 % | | | 238,378 | Market quotations | Broker quoted price | 82.00 % | 96.75 % | 94.19 % | | Investments in second lien debt | 46,336 | Yield analysis | Discount rate | 10.43 % | 14.25 % | 12.60 % | | Investments in equity | 105,782 | Market approach | Performance multiple | 5.50x | 29.00x | 13.41x | | | 22,481 | Option pricing model| Expected volatility | 30.00 % | 50.00 % | 43.46 % | | | 22,686 | Yield analysis | Discount rate | 11.31 % | 13.75 % | 12.74 % | - Significant increases in discount rates or decreases in quoted prices/performance multiples would result in a significantly lower fair value measurement350 Financial Instruments Not Carried at Fair Value The fair value of financing facilities approximates their carrying value due to variable interest rates - The fair value of the Company's SPV Financing Facilities and Revolving Credit Facility approximates their carrying value as they have variable interest rates375 - These financial instruments would be categorized as Level 3 within the hierarchy375376 - The carrying amounts of the Company's other assets and liabilities also approximate fair value and are categorized as Level 3376 Note 6. Borrowings This note details the Company's various secured and unsecured borrowing arrangements and covenants - The Company is allowed to borrow amounts such that its asset coverage is at least 150% after such borrowing377 - The Company was in compliance with all covenants of its financing facilities and unsecured notes as of March 31, 2023, and December 31, 2022389401412 Asset Coverage | Metric | March 31, 2023 | December 31, 2022 | |:---|:---|:---| | Asset coverage ratio | 176.4% | 174.8% | | Senior securities outstanding | $5,484.6 million | $5,563.0 million | SPV Financing Facilities The Company's subsidiaries have secured financing facilities collateralized by their portfolio investments - Jackson Hole Funding, Breckenridge Funding, and Big Sky Funding have entered into secured financing facilities378 - The obligations of each SPV are secured by a first priority security interest in all of the applicable SPV's portfolio investments and cash, and are non-recourse to the Company400 - Each SPV Financing Facility contains customary events of default379 Jackson Hole Funding Facility The facility has a maximum commitment of $400 million, expandable to $900 million, and matures in May 2025 - The Jackson Hole Funding Facility has a maximum commitment amount of $400 million, with an accordion feature allowing up to $900 million403 - Advances bear interest at SOFR plus 2.375% to 2.525% per annum, and a commitment fee of 0.60% on the unused amount381 - The borrowing period expires on November 16, 2023, and the facility matures on May 16, 2025403 Breckenridge Funding Facility The facility bears interest at three-month Term SOFR plus 1.70%-2.30% and matures in December 2026 - Advances under the Breckenridge Funding Facility bear interest at three-month Term SOFR plus 1.70%, 2.05% or 2.30% per annum382 - Commitment fees are 0.70% or 0.35% per annum based on the unused facility amount382 - The borrowing period expires on December 21, 2024, and the facility matures on December 21, 2026405 Big Sky Funding Facility The facility's advances bear interest at one-month Term SOFR plus 1.80% and it matures in September 2026 - Advances under the Big Sky Funding Facility bear interest at one-month Term SOFR plus 1.80% per annum (until September 2024) and 2.10%-2.45% (thereafter)383 - The facility requires a minimum utilization of 80% of financing commitments383 - The borrowing period expires on March 30, 2026, and the facility matures on September 30, 2026408 Revolving Credit Facility The facility allows borrowings in multiple currencies, secured by Company assets, and terminates in June 2026 - The Revolving Credit Facility provides for borrowings in U.S. dollars and certain foreign currencies, secured by a first priority security interest in substantially all of the Company's assets384385 - Loans bear interest at a base rate option plus 0.75%-0.875%, or an applicable benchmark rate plus 1.75%-1.875%410 - The Company pays an unused fee of 0.375% per annum on the daily unused amount410 - The facility terminates on June 28, 2026, and requires maintaining a 150% asset coverage ratio384411 Unsecured Notes The Company has issued several series of unsecured notes with varying maturities and interest rates - The Company issued unsecured notes (2023, 2026, New 2026, 2027, and 2028 Notes) with various maturities and interest rates413 - These notes are general unsecured obligations, effectively junior to secured debt and structurally junior to subsidiary indebtedness2416418436438 - The Unsecured Notes contain covenants requiring compliance with the asset coverage requirements of the 1940 Act413 2023 Notes The $400 million notes mature in July 2023 and bear interest at 3.650% annually - The Company issued $400 million aggregate principal amount of 3.650% notes due 2023415 - The 2023 Notes mature on July 14, 2023, and bear interest at a rate of 3.650% per year2 - They are general unsecured obligations and may be redeemed at the Company's option2 2026 Notes The $800 million notes mature in January 2026 and bear interest at 3.625% annually - The Company issued $800 million aggregate principal amount of 3.625% notes due 2026435 - The 2026 Notes mature on January 15, 2026, and bear interest at a rate of 3.625% per year416 - They are general unsecured obligations and may be redeemed at the Company's option416 New 2026 Notes The $700 million notes mature in September 2026 and bear interest at 2.750% annually - The Company issued $700 million aggregate principal amount of 2.750% notes due 2026391436 - The New 2026 Notes mature on September 16, 2026, and bear interest at a rate of 2.750% per year436 - They are general unsecured obligations and may be redeemed at the Company's option436 2027 Notes The $650 million notes mature in February 2027 and bear interest at 2.125% annually - The Company issued $650 million aggregate principal amount of 2.125% notes due 2027437 - The 2027 Notes mature on February 15, 2027, and bear interest at a rate of 2.125% per year418 - They are general unsecured obligations and may be redeemed at the Company's option418 2028 Notes The $650 million notes mature in September 2028 and bear interest at 2.850% annually - The Company issued $650 million aggregate principal amount of 2.850% notes due 2028393438 - The 2028 Notes mature on September 30, 2028, and bear interest at a rate of 2.850% per year438 - They are general unsecured obligations and may be redeemed at the Company's option438 Outstanding Debt Obligations As of March 31, 2023, total outstanding principal was $5,484.6 million with $1,065.4 million available Debt Summary (March 31, 2023) | Facility/Notes | Aggregate Committed Principal ($ thousands) | Outstanding Principal ($ thousands) | Carrying Value ($ thousands) | Unamortized Debt Issuance Costs ($ thousands) | Unused Portion (1) ($ thousands) | Amount (2) Available ($ thousands) | |:---|:---|:---|:---|:---|:---|:---| | Jackson Hole Funding (3) Facility | 400,000 | 360,019 | 360,019 | — | 39,981 | 39,981 | | Breckenridge Funding Facility | 825,000 | 809,500 | 809,500 | — | 15,500 | 15,500 | | Big Sky Funding Facility | 500,000 | 499,606 | 499,606 | — | 394 | 394 | | (4) Revolving Credit Facility | 1,625,000 | 615,469 | 615,469 | — | 1,009,531 | 1,009,531 | | 2023 Notes | 400,000 | 400,000 | 399,381 | 619 | — | — | | 2026 Notes | 800,000 | 800,000 | 795,001 | 4,999 | — | — | | New 2026 Notes | 700,000 | 700,000 | 693,868 | 6,132 | — | — | | 2027 Notes | 650,000 | 650,000 | 639,346 | 10,654 | — | — | | 2028 Notes | 650,000 | 650,000 | 639,664 | 10,336 | — | — | | Total | 6,550,000 | 5,484,594 | 5,451,854 | 32,740 | 1,065,406 | 1,065,406 | - As of March 31, 2023, the Revolving Credit Facility had borrowings denominated in Canadian Dollars (CAD) 274.9 million, Euros (EUR) 97.9 million, and British Pounds (GBP) 65.4 million439 Note 7. Commitments and Contingencies This note outlines the Company's unfunded loan commitments and other potential liabilities - As of March 31, 2023, the Company had unfunded delayed draw term loans and revolvers totaling $598.8 million110473 - As of March 31, 2023, the Company estimates that $2.4 million of investments were committed but not yet funded35495 - At March 31, 2023, management is not aware of any pending or threatened litigation454496 Note 8. Net Assets This note details changes in net assets, including shares issued, distributions, and share repurchase plans - The Company has the authority to issue an unlimited number of shares at $0.001 par value per share433 - The Company priced its IPO on October 28, 2021, issuing 9,180,000 common shares at $26.15 per share458 - The Company has adopted an 'opt out' dividend reinvestment plan (DRIP), where cash dividends are automatically reinvested23469 Shares Issued The Company issued 9.18 million shares during its IPO, with no new shares issued in Q1 2023 outside of the DRIP - On October 28, 2021, the Company priced its IPO, issuing 9,180,000 common shares at $26.15 per share, resulting in $230.6 million net cash proceeds458 - On November 4, 2021, underwriters exercised their option to purchase an additional 1,377,000 shares, generating $33.8 million net cash proceeds458 - There have been no shares issued for Q1 2023 and Q1 2022, other than through the dividend reinvestment program20468 Distributions The Company declared a distribution of $0.7000 per share in Q1 2023, totaling $112.4 million Distributions Declared (Q1 2023) | Date Declared | Record Date | Payment Date | Per Share Amount | Total Amount ($ thousands) | |:---|:---|:---|:---|:---| | February 27, 2023 | March 31, 2023| April 27, 2023| 0.7000 | 112,400 | | Total | | | 0.7000 | 112,400 | Distributions Declared (Q1 2022) | Date Declared | Record Date | Payment Date | Per Share Amount | Total Amount ($ thousands) | Note | |:---|:---|:---|:---|:---|:---| | October 18, 2021| January 18, 2022| May 13, 2022 | 0.1000 | 16,927 | (1) | | October 18, 2021| March 16, 2022| May 13, 2022 | 0.1500 | 25,454 | (1) | | February 23, 2022| March 31, 2022| May 13, 2022 | 0.5300 | 89,937 | | | Total | | | 0.7800 | 132,318 | | - (1) Represents a special distribution21 Dividend Reinvestment Plan (DRIP) The DRIP automatically reinvests cash dividends into additional shares for non-opting-out shareholders - The Company has adopted a dividend reinvestment plan (DRIP) where cash dividends are automatically reinvested for shareholders who do not opt out23 - The number of shares issued is determined by dividing the cash dividend amount by the market price per common share on the payment date23461 - Shareholders receiving distributions in shares are subject to the same U.S. federal, state, and local tax consequences as if they received cash462469 DRIP Activity (Q1 2023) | Payment Date | DRIP Shares Value ($ thousands) | DRIP Shares Issued | |:---|:---|:---| | January 31, 2023| 5,132 | 208,510 | | Total | 5,132 | 208,510 | DRIP Activity (Q1 2022) | Payment Date | DRIP Shares Value ($ thousands) | DRIP Shares Issued | |:---|:---|:---| | January 31, 2022| 11,469 | 417,379 | | Total | 11,469 | 417,379 | Share Repurchase Plan A new $250 million share repurchase plan was authorized in February 2023, with no shares repurchased in Q1 2023 - The Company's initial share repurchase plan for up to $262 million terminated in November 202227470 - In February 2023, the Board authorized a new share repurchase plan to repurchase up to $250 million of common shares below NAV32492 - For Q1 2023 and Q1 2022, the Company did not repurchase any of its shares under the Share Repurchase Plans33471484 Shareholder Transfer Restrictions Pre-IPO shareholders were subject to phased transfer restrictions, which fully lifted after July 1, 2022 - Shareholders who held common shares prior to the IPO were subject to transfer restrictions without the consent of the Adviser34 - Restrictions were phased, with all shares becoming transferable after July 1, 2022343646 - The Company's trustees and executive officers also agreed not to transfer their shares for 180 days after the IPO46 Note 9. Earnings Per Share Earnings per share increased to $0.86 in Q1 2023 from $0.63 in the prior year, driven by higher net assets from operations Quarterly Earnings Per Share | Metric | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | |:---|:---|:---| | Net increase (decrease) in net assets from operations | 138,798 | 107,240 | | Weighted average shares outstanding (basic and diluted) | 160,501,868 | 169,556,923 | | Earnings (loss) per common share (basic and diluted) | $0.86 | $0.63 | Note 10. Financial Highlights This note presents key financial highlights, including per share data, total returns, and key ratios Financial Highlights | Per Share Data (Three Months Ended March 31) | 2023 | 2022 | |:---|:---|:---| | Net asset value, beginning of period | $25.93 | $26.27 | | Net investment income | 0.93 | 0.61 | | Net unrealized and realized gain (loss) | (0.06) | 0.03 | | Net increase (decrease) in net assets from operations | 0.87 | 0.64 | | Distributions declared | (0.70) | (0.78) | | Total increase (decrease) in net assets | 0.17 | (0.14) | | Net asset value, end of period | $26.10 | $26.13 | | Shares outstanding, end of period | 160,571,371 | 169,691,412 | | Total return based on NAV | 3.36 % | 2.44 % | | Total return based on market value | 14.26 % | (15.67)%| | Ratio of net expenses to average net assets | 11.69 % | 7.39 % | | Ratio of net investment income to average net assets | 13.36 % | 9.15 % | | Portfolio turnover rate | 1.06 % | 1.34 % | | Net assets, end of period | $4,190,496| $4,433,870| | Asset coverage ratio | 176.4 % | 178.1 % | - Asset coverage per unit is the ratio of total assets (less liabilities excluding senior securities) to the aggregate amount of senior securities40 - The Subscription Facility was terminated on November 3, 202040 Note 11. Subsequent Events The Board declared a distribution of $0.70 per share on May 10, 2023, with no other material subsequent events identified - The Company's management evaluated subsequent events through the date of issuance of the consolidated financial statements52 - On May 10, 2023, the Board declared a distribution of $0.70 per share, payable on July 27, 202341 - There have been no other subsequent events that would require disclosure or recognition52 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of the Company's investment objectives, results, portfolio, and financial condition - The Company's investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation83429 - The Company generally invests at least 80% of its total assets in secured debt investments, primarily first lien senior secured and unitranche loans5455429 - The discussion contains forward-looking statements and involves numerous risks and uncertainties82 Overview and Investment Framework The Company operates as a BDC and RIC, aiming for current income and capital appreciation through secured debt investments - The Company is a non-diversified, closed-end management investment company regulated as a BDC and treated as a RIC43 - Investment objectives are to generate current income and, to a lesser extent, long-term capital appreciation83 - The Company invests at least 80% of its total assets in secured debt investments, focusing on private U.S. companies5455 Key Components of Our Results of Operations Operating results are influenced by investment activity, with revenues from interest and fees, and expenses from advisory and administrative costs - The level of investment activity varies depending on factors such as capital availability, M&A activity, and economic environment84 - Revenues are generated from interest income from debt securities, dividends, and various fees5785 - Expenses include investment advisory fees to the Adviser, allocable overhead to the Administrator, and other operational costs58 Revenues Revenues are primarily derived from interest on floating-rate debt securities, dividends, and various fees - The Company generates revenues in the form of interest income from debt securities and dividends85 - Debt investments typically have a term of five to eight years and bear interest at floating rates85 - Additional revenue is generated from various fees such as commitment, loan origination, and structuring fees57 Expenses The Company bears all operational costs, including advisory fees and administrative expenses - The Company bears all costs of its operations, including investment advisory fees to the Adviser58 - The Company also bears its allocable portion of compensation, overhead, and other expenses incurred by the Administrator58 - The Administrator has elected to forgo any reimbursement for rent and other occupancy costs for Q1 2023 and Q1 202288 Portfolio and Investment Activity In Q1 2023, the Company acquired $114.6 million in new investments, with the number of portfolio companies increasing to 181 Quarterly Investment Activity | Metric | Three Months Ended March 31, 2023 ($ thousands) | Three Months Ended March 31, 2022 ($ thousands) | |:---|:---|:---| | Total investments, beginning of period | 9,657,872 | 9,745,126 | | New investments purchased | 114,636 | 288,423 | | Investments sold or repaid | (109,051) | (133,142) | | Total investments, end of period | 9,669,106 | 9,916,379 | | Number of new investment commitments in new portfolio companies | 5 | 8 | | Average new investment commitment amount | 21,649 | 41,779 | | Weighted average yield of new investment commitments | 12.58 % | 7.00 % | | Number of portfolio companies (end of period) | 181 | 176 | | Weighted average yield on debt and income producing investments, at amortized cost | 11.30 % | 10.64 % | | Weighted average yield on debt and income producing investments, at fair value | 11.40 % | 10.73 % | | Percentage of debt investments bearing a floating rate | 99.92 % | 99.90 % | | Percentage of assets on non-accrual | 0.14 % | 0.00 % | - For Q1 2023, the Company acquired $108.2 million aggregate principal amount of investments, all of which was first lien debt60 - As of March 31, 2023, the Company's portfolio companies had a weighted average annual revenue of $703.5 million and EBITDA of $178.9 million63 Results of Operations Total investment income increased significantly in Q1 2023 due to higher interest rates, leading to a rise in net assets from operations Quarterly Operating Results Summary | Metric | Three Months Ended March 31, 2023 ($ thousands) | Three Months Ended March 31, 2022 ($ thousands) | |:---|:---|:---| | Total investment income | 264,938 | 185,597 | | Net expenses | 113,141 | 81,508 | | Net investment income before excise tax | 151,797 | 104,089 | | Excise tax expense | 2,622 | 1,386 | | Net investment income after excise tax | 149,175 | 102,703 | | Net unrealized appreciation (depreciation) | (14,544) | (1,412) | | Net realized gain (loss) | 4,167 | 5,949 | | Net increase (decrease) in net assets from operations | 138,798 | 107,240 | - Net increase in net assets from operations can vary due to acquisitions, new commitments, realized gains/losses, and changes in unrealized appreciation/depreciation65 Investment Income Total investment income increased by 43% in Q1 2023, primarily due to higher reference interest rates Quarterly Investment Income | Metric | Three Months Ended March 31, 2023 ($ thousands) | Three Months Ended March 31, 2022 ($ thousands) | |:---|:---|:---| | Interest income | 254,221 | 170,989 | | Payment-in-kind interest income | 9,841 | 8,686 | | Dividend income | — | 5,908 | | Fee income | 876 | 14 | | Total investment income | 264,938 | 185,597 | - Total investment income increased by $79.3 million, or 43%, for Q1 2023 compared to the prior year, primarily due to increased reference interest rates66 - This increase was partially offset by a decrease in the size of the investment portfolio at fair value to $9,626.2 million at March 31, 202366 - Payment-in-kind interest income represented 3.7% and 4.7% of investment income for Q1 2023 and Q1 2022, respectively67 Expenses Total expenses increased in Q1 2023, driven by higher interest expense and income-based incentive fees Quarterly Expenses | Metric | Three Months Ended March 31, 2023 ($ thousands) | Three Months Ended March 31, 2022 ($ thousands) | |:---|:---|:---| | Interest expense | 66,728 | 40,301 | | Management fees | 24,696 | 25,636 | | Income based incentive fees | 30,393 | 21,284 | | Capital gains incentive fees | (1,556) | 681 | | Professional fees | 1,188 | 707 | | Board of Trustees' fees | 225 | 181 | | Administrative service expenses | 378 | 840 | | Other general and administrative | 1,605 | 1,327 | | Excise tax expense | 2,622 | 1,386 | | Total expenses (including excise tax expense) | 126,279 | 92,343 | | Management fees waived | (6,174) | (6,409) | | Incentive fees waived | (4,342) | (3,040) | | Net expenses (including excise tax expense) | 115,763 | 82,894 | - Rising interest rates have favorably impacted investment income but could negatively impact borrowers' free cash flow and credit quality97 Interest Expense Total interest expense increased by 66% in Q1 2023 due to increased borrowings and higher interest rates - Total interest expense increased to $66.7 million for Q1 2023, an increase of $26.4 million or 66%111 - This increase was driven by increased borrowings and a higher weighted average interest rate (4.68% in Q1 2023 vs. 2.79% in Q1 2022)111 - The average principal debt outstanding remained stable at approximately $5,619.0 million in Q1 2023111 Management Fees Management fees decreased by 4% in Q1 2023 due to a smaller average asset base, with voluntary waivers applied - Management fees decreased to $24.7 million for Q1 2023, a decrease of $0.9 million, or 4%70 - This decrease was primarily due to a decrease in average quarter-end gross assets70112 - Voluntary waivers by the Adviser resulted in $6.2 million and $6.4 million in waived management fees for Q1 2023 and Q1 2022, respectively70 Income Based Incentive Fees Income-based incentive fees increased in Q1 2023, driven by higher pre-incentive fee net investment income - Income-based incentive fees increased to $30.4 million for Q1 2023, from $21.3 million in the prior year101 - This increase was due to a rise in pre-incentive fee net investment income to $173.7 million in Q1 202372101 - The Adviser voluntarily waived incentive fees of $4.3 million and $3.0 million for Q1 2023 and Q1 2022, respectively101 Capital Gains Incentive Fees Capital gains incentive fees reversed to $(1.6) million in Q1 2023 due to net realized and unrealized losses - The Company accrued capital gains incentive fees of $(1.6) million for Q1 2023, compared to $0.7 million for the prior year102 - This change was primarily due to net realized and unrealized losses in Q1 2023102 - The reversal of previously accrued incentive fees was attributable to net realized and unrealized losses in the current year102 Other Expenses Total other expenses increased in Q1 2023, mainly driven by higher professional and administrative expenses - Total other expenses increased to $3.4 million for Q1 2023, from $3.1 million in the prior year103 - This increase was primarily driven by an increase in Professional fees and Other general and administrative expenses103 - The increase was partially offset by a decrease in Administrative service expenses103 Income Taxes, Including Excise Taxes As a RIC, the Company avoids corporate-level taxes by distributing income, but accrues a 4% excise tax on undistributed amounts - The Company elected to be treated as a RIC, generally relieving it from corporate-level U.S. federal income taxes114 - The Company accrues a nondeductible 4% U.S. federal excise tax on estimated excess taxable income not distributed104 - For Q1 2023 and Q1 2022, the Company accrued $2.6 million and $1.4 million, respectively, of U.S. federal excise tax75 [Net Unrealized Gain (Loss)](index