Portman Ridge(PTMN) - 2022 Q3 - Quarterly Report

General Information This section provides foundational details about Portman Ridge Finance Corporation's regulatory filings, corporate structure, and cautionary statements regarding forward-looking information Filing Details and Registrant Information This section details Portman Ridge Finance Corporation's Form 10-Q filing, including corporate identity, NASDAQ listings, and non-accelerated filer status - Registrant: Portman Ridge Finance Corporation, a Delaware corporation[2] - The registrant is a non-accelerated filer[5] Securities Registered on NASDAQ | Title of each class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------------------ | :---------------- | :---------------------------------------- | | Common Stock, par value $0.01 per share | PTMN | The NASDAQ Global Select Market | Forward-Looking Statements and Disclosures This section outlines the company's forward-looking statement policy, emphasizing potential material differences in actual results due to various risks - Forward-looking statements are identified by terms such as 'may,' 'will,' 'should,' 'expects,' 'plans,' 'anticipates,' 'could,' 'intends,' 'target,' 'projects,' 'outlook,' 'believes,' 'estimates,' 'predicts,' 'potential' or 'continue' or the negative of these terms or other similar words[10] - Key factors that could cause actual results to differ include: future operating results, business prospects of portfolio companies, return or impact of current and future investments, contractual arrangements, dependence on general economy, financial condition of portfolio companies, expected financings, ability to operate as a BDC/RIC, liquidity, timing of cash flows, ability of the Adviser to locate/monitor investments, conflicts of interest with the Adviser, legal/tax/regulatory changes, impact of declining credit markets, interest rate fluctuations, valuation of illiquid investments, ability to recover unrealized losses, market conditions, effects of COVID-19, and timing/form/amount of dividend distributions[12] - Investors should not place undue reliance on forward-looking statements, and the company undertakes no obligation to update them[11] Part I. Financial Information This part presents the comprehensive financial statements and management's analysis of Portman Ridge Finance Corporation's financial performance and condition Item 1. Consolidated Financial Statements This section provides Portman Ridge Finance Corporation's unaudited consolidated financial statements, including balance sheets, statements of operations, and cash flows Consolidated Balance Sheets This section presents the company's financial position, detailing assets, liabilities, and net assets as of September 30, 2022, and December 31, 2021 Consolidated Balance Sheets (in thousands) | ASSETS (in thousands) | September 30, 2022 (Unaudited) | December 31, 2021 | | :-------------------------------------------------------- | :----------------------------- | :---------------- | | Investments at fair value | $571,656 | $549,985 | | Cash and cash equivalents | $16,871 | $28,919 | | Restricted cash | $22,183 | $39,421 | | Total Assets | $629,525 | $648,301 | | LIABILITIES (in thousands) | | | | 2018-2 Secured Notes (net) | $162,593 | $162,460 | | 4.875% Notes Due 2026 (net) | $105,301 | $104,892 | | Great Lakes Portman Ridge Funding LLC Revolving Credit Facility (net) | $95,908 | $79,839 | | Total Liabilities | $377,943 | $368,179 | | NET ASSETS (in thousands) | | | | Total Net Assets | $251,582 | $280,122 | | NET ASSET VALUE PER COMMON SHARE | $26.18 | $28.88 | - Total Assets decreased by approximately $18.78 million from $648.301 million at December 31, 2021, to $629.525 million at September 30, 2022[14] - Total Net Assets decreased by approximately $28.54 million from $280.122 million at December 31, 2021, to $251.582 million at September 30, 2022, leading to a decrease in Net Asset Value per Common Share from $28.88 to $26.18[14] Consolidated Statements of Operations This section outlines the company's financial performance, showing investment income, expenses, and net assets from operations for specified periods Consolidated Statements of Operations (in thousands, except share and per share amounts) | (in thousands, except share and per share amounts) | For the Three Months Ended September 30, 2022 | For the Three Months Ended September 30, 2021 | For the Nine Months Ended September 30, 2022 | For the Nine Months Ended September 30, 2021 | | :------------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Total investment income | $19,009 | $22,911 | $50,997 | $62,761 | | Total expenses | $10,617 | $9,193 | $29,175 | $29,120 | | NET INVESTMENT INCOME | $8,392 | $13,718 | $21,822 | $33,641 | | Net realized gain (loss) on investments | $(9,087) | $(3,931) | $(28,631) | $(11,373) | | Net unrealized gain (loss) on investments | $(2,968) | $(642) | $(712) | $7,593 | | NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS | $(4,205) | $9,145 | $(8,580) | $28,026 | | Basic and Diluted EPS | $(0.44) | $1.00 | $(0.89) | $3.41 | | Net Investment Income Per Common Share | $0.87 | $1.50 | $2.26 | $4.10 | - Net Investment Income decreased significantly for both the three-month period (from $13.718 million to $8.392 million) and the nine-month period (from $33.641 million to $21.822 million) year-over-year[18] - The company experienced a net decrease in net assets from operations for the three and nine months ended September 30, 2022, primarily due to substantial net realized losses and net unrealized depreciation on investments[18] Consolidated Statements of Changes in Net Assets This section details the changes in the company's net assets, reflecting operational results, distributions, and capital share transactions over time Consolidated Statements of Changes in Net Assets (in thousands, except share and per share amounts) | (in thousands, except share and per share amounts) | For the Nine Months Ended September 30, 2022 | For the Nine Months Ended September 30, 2021 | | :------------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net investment income | $21,822 | $33,641 | | Net realized gains (losses) from investment transactions | $(28,631) | $(11,373) | | Net change in unrealized appreciation (depreciation) on investments | $(712) | $7,593 | | Net increase (decrease) in net assets resulting from operations | $(8,580) | $28,026 | | Stockholder distributions | $(18,223) | $(14,573) | | Net increase (decrease) in net assets resulting from capital share transactions | $(1,737) | $41,331 | | Net assets at end of period | $251,582 | $271,048 | | Net asset value per common share | $26.18 | $29.71 | - Net assets decreased by $28.54 million for the nine months ended September 30, 2022, primarily driven by net decrease from operations and stockholder distributions, contrasting with a net increase of $54.78 million in the prior year[22] - Capital share transactions resulted in a net decrease of $1.737 million in 2022, compared to a significant net increase of $41.331 million in 2021, reflecting changes in stock issuance and repurchases[22] Consolidated Statements of Cash Flows This section presents the company's cash inflows and outflows from operating, investing, and financing activities for the nine months ended September 30, 2022 and 2021 Consolidated Statements of Cash Flows (in thousands, except share and per share amounts) | (in thousands, except share and per share amounts) | For the Nine Months Ended September 30, 2022 | For the Nine Months Ended September 30, 2021 | | :------------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net cash (used in) provided by operating activities | $(25,021) | $47,777 | | Net cash (used in) provided by financing activities | $(4,265) | $(81,089) | | CHANGE IN CASH AND RESTRICTED CASH | $(29,286) | $(33,313) | | CASH AND RESTRICTED CASH, END OF PERIOD | $39,054 | $49,591 | - Operating activities shifted from providing $47.777 million in cash in 2021 to using $25.021 million in 2022, primarily due to increased purchases of investments and net realized losses[26] - Financing activities used less cash in 2022 ($4.265 million) compared to 2021 ($81.089 million), largely due to significant debt repayments and repurchases in the prior year[26] Consolidated Schedules of Investments This section provides a detailed breakdown of the company's investment portfolio by security type and fair value at specified reporting dates Consolidated Schedules of Investments (in thousands) | Security Type (in thousands) | September 30, 2022 Fair Value | December 31, 2021 Fair Value | | :--------------------------- | :---------------------------- | :--------------------------- | | Senior Secured Loan | $415,819 | $364,701 | | Junior Secured Loan | $61,535 | $70,549 | | Equity Securities | $24,487 | $22,586 | | CLO Fund Securities | $24,623 | $31,632 | | Joint Ventures | $45,141 | $60,474 | | Total Investments | $571,656 | $547,573 | - The total investment portfolio at fair value increased by approximately $24.08 million from $547.573 million at December 31, 2021, to $571.656 million at September 30, 2022[37][60] - Senior Secured Loans increased by $51.118 million, while Junior Secured Loans and CLO Fund Securities decreased by $9.014 million and $7.009 million, respectively[37][60] Consolidated Financial Highlights This section summarizes key financial metrics, including per share data, returns, and ratios, for the nine months ended September 30, 2022 and 2021 Consolidated Financial Highlights (Per Share Data and Ratios) | Per Share Data | 2022 (Nine Months Ended Sep 30) | 2021 (Nine Months Ended Sep 30) | | :----------------------------- | :------------------------------ | :------------------------------ | | Net asset value, at beginning of period | $28.88 | $28.77 | | Net investment income | $2.26 | $4.09 | | Net realized gains (losses) from investments | $(2.97) | $(1.38) | | Net change in unrealized (depreciation) appreciation on investments | $(0.07) | $0.92 | | Net (decrease) increase in net assets resulting from operations | $(0.89) | $3.41 | | Net asset value, end of period | $26.18 | $29.71 | | Total net asset value return | (1.6)% | 9.4% | | Total market return | (8.0)% | 47.7% | | Ratio/Supplemental Data | | | | Portfolio turnover rate | 25.0% | 41.8% | | Asset coverage ratio | 167% | 178% | | Ratio of net investment income to average net assets (annualized) | 11.0% | 18.4% | | Ratio of total expenses to average net assets (annualized) | 14.7% | 16.0% | - Net asset value per share decreased from $28.88 to $26.18, resulting in a negative total net asset value return of (1.6)% for the nine months ended September 30, 2022, compared to a positive 9.4% return in the prior year[65] - The asset coverage ratio decreased from 178% to 167% year-over-year, while the portfolio turnover rate also decreased from 41.8% to 25.0%[65] Notes to Consolidated Financial Statements This section provides detailed explanations and disclosures supporting the consolidated financial statements, covering accounting policies, investments, and debt Note 1. Organization This note describes Portman Ridge Finance Corporation's structure as a BDC and RIC, its investment strategy, and significant corporate events - Portman Ridge Finance Corporation operates as an externally managed, non-diversified closed-end investment company, regulated as a Business Development Company (BDC) and a Regulated Investment Company (RIC)[70][72] - The company's asset coverage requirement for senior securities changed from 200% to 150% effective March 29, 2019, following Board approval under the Small Business Credit Availability Act (SBCA)[73] - Key acquisitions include Garrison Capital Inc. (GARS) on October 28, 2020, and Harvest Capital Credit Corporation (HCAP) on June 9, 2021, which significantly expanded the company's portfolio[80][81] - A 1-for-10 reverse stock split became effective on August 26, 2021, retroactively adjusting all share and per share values presented[87][90] Note 2. Significant Accounting Policies This note outlines the key accounting principles and methodologies applied in preparing the consolidated financial statements, including investment valuation - The financial statements are prepared on the accrual basis in conformity with U.S. GAAP for interim financial information, following ASC topic 946 – Financial Services – Investment Companies[91] - The Board has designated the Adviser as its 'valuation designee' responsible for fair value determinations of all investments, with the Board retaining ultimate oversight[100] - The company utilizes independent valuation firms for third-party valuations of material illiquid securities at least once every 12 months[101] - Recent accounting pronouncements include ASU 2020-04 (Reference Rate Reform) and ASU 2022-03 (Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions), with the latter effective for fiscal years beginning after December 15, 2023, and not expected to have a material impact[97][98] Note 3. Earnings (Losses) Per Share This note details the calculation of basic and diluted net increase (decrease) in net assets per share for the reported periods Earnings (Losses) Per Share (in thousands) | ($ in thousands) | For the Three Months Ended September 30, 2022 | For the Three Months Ended September 30, 2021 | For the Nine Months Ended September 30, 2022 | For the Nine Months Ended September 30, 2021 | | :----------------------------------------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net increase (decrease) in net assets resulting from operations | $(4,205) | $9,145 | $(8,580) | $28,026 | | Weighted average number of common and common stock equivalent shares outstanding | 9,602,712 | 9,131,456 | 9,644,870 | 8,213,661 | | Net increase (decrease) in net assets per basic common shares and diluted shares | $(0.44) | $1.00 | $(0.89) | $3.41 | - For the three months ended September 30, 2022, net assets per basic and diluted share decreased by $0.44, a significant decline from an increase of $1.00 in the same period of 2021[131] - For the nine months ended September 30, 2022, net assets per basic and diluted share decreased by $0.89, compared to an increase of $3.41 in the prior year, reflecting a negative shift in operational performance[131] Note 4. Investments This note provides a comprehensive breakdown of the investment portfolio, including security types, industry concentration, and fair value measurements Investments by Security Type (in thousands) | Security Type (in thousands) | September 30, 2022 Fair Value | December 31, 2021 Fair Value | | :--------------------------- | :---------------------------- | :--------------------------- | | Senior Secured Loan | $415,819 | $364,701 | | Junior Secured Loan | $61,535 | $70,549 | | Equity Securities | $24,487 | $22,586 | | CLO Fund Securities | $24,623 | $31,632 | | Joint Ventures | $45,141 | $60,474 | | Total Investments | $571,656 | $547,573 | - The weighted average contractual interest rate on the interest-earning Debt Securities Portfolio increased from approximately 8.1% at December 31, 2021, to 10.0% at September 30, 2022[325] - As of September 30, 2022, 89.3% of the Debt Securities Portfolio were floating rate with a spread to an interest rate index, and 74.8% of these floating rate loans contained LIBOR floors ranging between 0.50% and 2.00%[427] - A significant portion of the company's investments are classified as Level III (unobservable inputs), totaling $478.236 million at September 30, 2022, reflecting the illiquid nature of BDC investments[175][178] Note 5. Related Party Transactions This note describes transactions with related parties, including advisory and administration fees, and co-investment arrangements - The Adviser receives a Base Management Fee of 1.50% of average gross assets (excluding cash and cash equivalents) and an Incentive Fee with a 7.00% hurdle rate, consisting of an Income-Based Fee (17.50% of pre-incentive fee net investment income) and a Capital Gains Fee (17.50% of cumulative realized capital gains, net of losses and depreciation)[199] Related Party Fees (in thousands) | Fees (in thousands) | For the Three Months Ended September 30, 2022 | For the Three Months Ended September 30, 2021 | For the Nine Months Ended September 30, 2022 | For the Nine Months Ended September 30, 2021 | | :------------------------------ | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Management fees | $2,082 | $2,065 | $6,305 | $5,772 | | Performance-based incentive fees | $1,780 | $1,939 | $4,627 | $6,333 | | Administrative services expense | $862 | $760 | $2,531 | $2,092 | - The SEC granted exemptive relief on October 23, 2018, allowing BDCs managed by the Adviser to co-invest with other affiliated funds in certain private placement transactions, subject to Board approval and fairness conditions[216][217] - For the nine months ended September 30, 2022, the Company purchased $4.0 million in total investments from a fund managed by an affiliate of the Investment Advisor under Rule 17a-7 of the 1940 Act[218] Note 6. Borrowings This note details the company's debt obligations, including secured notes and revolving credit facilities, their terms, and covenant compliance Debt Obligations (in thousands) | Debt Obligations (in thousands) | September 30, 2022 | December 31, 2021 | | :------------------------------------------------------------------------ | :----------------- | :---------------- | | 2018-2 Secured Notes (net) | $162,593 | $162,460 | | 4.875% Notes Due 2026 (net) | $105,301 | $104,892 | | Great Lakes Portman Ridge Funding LLC Revolving Credit Facility (net) | $95,908 | $79,839 | | Total | $363,802 | $347,191 | | Weighted average stated interest rate | 5.0% | 3.2% | | Weighted average maturity | 5.2 years | 5.4 years | - The 4.875% Notes Due 2026 were issued in 2021, with $108.0 million aggregate principal outstanding, maturing on April 30, 2026, and bearing interest at 4.875% annually. The company was in compliance with all debt covenants[220][222][231][377] - The Revolving Credit Facility was amended on April 29, 2022, replacing three-month LIBOR with SOFR as the benchmark interest rate, reducing the margin to 2.80%, and extending the reinvestment period to April 29, 2025, and the scheduled termination date to April 29, 2026[242] - As of September 30, 2022, the company's asset coverage ratio was 167%, compliant with the minimum 150% required for a BDC[375] Note 7. Distributable Taxable Income This note explains the company's RIC status, its policy on distributing taxable income, and reconciliation of GAAP net assets to taxable income - As a RIC, the company aims to distribute substantially all of its taxable income and gains to stockholders to avoid federal income tax at the corporate level[260] Distributable Taxable Income (in thousands) | ($ in thousands) | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | | :-------------------------------------------------------- | :----------------------------------- | :----------------------------------- | | Net (decrease) increase in net assets resulting from operations | $(8,580) | $28,026 | | Taxable income before deductions for distributions | $22,092 | $20,482 | | Taxable income per weighted average basic and diluted shares | $2.29 | $2.49 | - The company had a net capital loss carryforward of $416.3 million at September 30, 2022, which is not subject to expiration, to offset future net capital gains[266] - Taxable subsidiaries' activity resulted in a provision for income taxes of $1.1 million for the nine months ended September 30, 2022, with no deferred tax assets and $2.9 million in deferred tax liabilities[267] Note 8. Commitments and Contingencies This note outlines the company's off-balance sheet arrangements, including unfunded commitments and ongoing legal proceedings - As of September 30, 2022, the company had $54.4 million in unfunded commitments to extend credit to portfolio companies, an increase from $47.9 million at December 31, 2021[269][273] - A significant portion of these commitments includes a $21.7 million unfunded commitment to the Great Lakes II Joint Venture[270][273] - The company is involved in the Delaware Actions, putative stockholder class action lawsuits concerning the HCAP merger, and intends to vigorously defend itself, with the outcome and potential losses currently indeterminable[271][442] Note 9. Stockholders' Equity This note details changes in stockholders' equity, including net income, distributions, capital share transactions, and stock repurchase programs Stockholders' Equity (in thousands) | (in thousands) | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | | :------------------------------------------------------- | :----------------------------------- | :----------------------------------- | | Balance, January 1 | $280,122 | $216,264 | | Net investment income | $21,822 | $33,641 | | Net realized (losses) from investment transactions and extinguishment of debt | $(28,631) | $(11,373) | | Net change in unrealized appreciation on investments | $(712) | $7,593 | | Distributions to Stockholders | $(18,223) | $(14,573) | | Reinvested Dividends | $888 | $444 | | Stock-repurchase | $(3,004) | $(1,827) | | Private placement and other | $379 | $42,714 | | Balance, September 30 | $251,582 | $271,048 | - The Board authorized a renewed stock repurchase program of up to $10 million in March 2022, effective until March 31, 2023. For the nine months ended September 30, 2022, the company repurchased 129,617 shares for approximately $3.0 million[276][278] - The total number of common shares outstanding decreased from 9,699,695 at December 31, 2021, to 9,608,913 at September 30, 2022[277] Note 10. Acquisitions of Garrison Capital Inc. and Harvest Capital Credit Corporation This note describes the acquisitions of Garrison Capital Inc. and Harvest Capital Credit Corporation, including purchase consideration and acquired assets - The GARS acquisition (October 28, 2020) involved cash and company common stock, with a total purchase consideration of $64.033 million and a purchase discount of $(40.422) million[279][281] - The HCAP acquisition (June 9, 2021) also involved cash and company common stock, with a total purchase consideration of $58.632 million and a purchase discount of $(3.809) million[282][287] - In connection with the HCAP acquisition, the company assumed $28.75 million in HCAP Notes, which were subsequently redeemed in full on July 23, 2021[288][290] Note 11. Subsequent Events This note discloses material events occurring after the reporting period, specifically a declared cash distribution to common stockholders - On November 8, 2022, the Board declared a cash distribution of $0.67 per share of common stock, payable on December 13, 2022, to stockholders of record as of November 24, 2022[291] - Management has determined that no other material subsequent events occurred after September 30, 2022, that would require adjustment to, or disclosure in, the unaudited consolidated financial statements[292] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the company's financial performance, liquidity, capital resources, and critical accounting policies General Overview This section provides an overview of Portman Ridge Finance Corporation's investment objective, BDC status, and significant corporate transactions - Portman Ridge Finance Corporation is an externally managed BDC, regulated under the 1940 Act, with Sierra Crest Investment Management LLC serving as its investment adviser[295] - The company's investment objective is to generate current income and capital appreciation primarily from secured term loans, mezzanine debt, and selected equity investments in privately-held middle-market companies (EBITDA $10 million-$50 million, total debt $25 million-$150 million)[297] - The company maintains RIC status for U.S. federal income tax purposes, intending to distribute substantially all net ordinary taxable income and capital gains to stockholders[300] - Significant corporate events include the Externalization of management in April 2019, the acquisition of Garrison Capital Inc. (GARS) in October 2020, and the acquisition of Harvest Capital Credit Corporation (HCAP) in June 2021, followed by a 1-for-10 reverse stock split in August 2021[302][304][306][312] Portfolio and Investment Activity This section details the company's investment portfolio composition, activity, and changes in fair value for various security types Portfolio and Investment Activity (in thousands) | Security Type (in thousands) | Fair Value at December 31, 2021 | Purchases / originations / draws (2022) | Pay-downs / pay-offs / sales (2022) | Increase (decrease) in fair value (2022) | Fair Value at September 30, 2022 | | :--------------------------- | :------------------------------ | :-------------------------------------- | :---------------------------------- | :--------------------------------------- | :------------------------------- | | Senior Secured Loan | $364,701 | $179,217 | $(125,901) | $(5,088) | $415,819 | | Junior Secured Loan | $70,549 | - | $(8,036) | - | $61,535 | | Equity Securities | $22,586 | $7,763 | $(8,036) | $903 | $24,487 | | CLO Fund Securities | $31,632 | - | $(5,571) | $7,140 | $24,623 | | Joint Ventures | $60,474 | $1,700 | $(10,400) | $(6,107) | $45,141 | | Total Portfolio | $547,573 | $188,680 | $(147,833) | $(712) | $571,656 | - The total investment portfolio increased by $24.083 million from December 31, 2021, to September 30, 2022, driven by $188.680 million in purchases/originations/draws and offset by $147.833 million in pay-downs/sales[318] - The weighted average contractual interest rate on the interest-earning Debt Securities Portfolio increased from approximately 8.1% at December 31, 2021, to 10.0% at September 30, 2022[325] - As of September 30, 2022, three investments were on non-accrual status, a decrease from seven at December 31, 2021[326] Results of Operations This section analyzes the company's financial performance, including investment income, expenses, and net assets from operations for the reported periods Results of Operations (in thousands) | (in thousands) | For the Three Months Ended September 30, 2022 | For the Three Months Ended September 30, 2021 | For the Nine Months Ended September 30, 2022 | For the Nine Months Ended September 30, 2021 | | :-------------------------------------------- | :-------------------------------------------- | :-------------------------------------------- | :------------------------------------------- | :------------------------------------------- | | Total investment income | $19,009 | $22,911 | $50,997 | $62,761 | | Total expenses | $10,617 | $9,193 | $29,175 | $29,120 | | NET INVESTMENT INCOME | $8,392 | $13,718 | $21,822 | $33,641 | | Net realized gain (loss) on investments | $(9,087) | $(3,931) | $(28,631) | $(11,373) | | Net unrealized gain (loss) on investments | $(2,968) | $(642) | $(712) | $7,593 | | Net increase (decrease) in net assets resulting from operations | $(4,205) | $9,145 | $(8,580) | $28,026 | - Total investment income decreased by $3.902 million (17.0%) for the three months and $11.764 million (18.7%) for the nine months ended September 30, 2022, compared to the prior year[349] - Net investment income decreased by $5.326 million (38.8%) for the three months and $11.819 million (35.1%) for the nine months ended September 30, 2022, year-over-year[349] - The company reported a net decrease in net assets from operations of $(4.205) million for the three months and $(8.580) million for the nine months ended September 30, 2022, a significant reversal from positive results in 2021[349] Financial Condition, Liquidity, and Capital Resources This section discusses the company's financial position, cash management, debt obligations, and capital availability Financial Condition, Liquidity, and Capital Resources (in thousands) | (in thousands) | September 30, 2022 | December 31, 2021 | | :------------------------- | :----------------- | :---------------- | | Cash and cash equivalents | $16,871 | $28,919 | | Restricted Cash | $22,183 | $39,421 | | Total Investments | $571,656 | $547,573 | | Total Debt Outstanding (par value) | $368,934 | $352,434 | | Asset coverage ratio | 167% | 178% | - The company's asset coverage ratio was 167% at September 30, 2022, remaining compliant with the 150% minimum required for a BDC[375] - Total outstanding borrowings (par value) increased by $16.5 million from $352.434 million at December 31, 2021, to $368.934 million at September 30, 2022[375] - The Board authorized a renewed $10 million stock repurchase program in March 2022, effective until March 31, 2023, with $6.996 million remaining under the program as of September 30, 2022[395][446] Critical Accounting Policies This section highlights the key accounting policies requiring significant judgment and estimation, particularly investment valuation and income recognition - The most significant estimate in financial statements is the valuation of investments and related unrealized appreciation/depreciation, with fair value determined in good faith by the Board[401][402] - Investments are classified into a three-level hierarchy (Level I, II, III) based on the transparency of inputs to fair value measurement, with a majority of the company's investments being Level III due to unobservable inputs[406] - Interest income is recognized on an accrual basis, but loans are placed on non-accrual status if 90 days or more past due or if collectibility is not expected. As of September 30, 2022, three investments were on non-accrual status[417] - Investment income on CLO equity investments is recorded using the effective interest method based on anticipated yield and estimated cash flows, differing from tax-basis income and cash distributions[419] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section assesses the company's exposure to market risks, focusing on interest rate fluctuations and their potential impact on net investment income - The company's principal market risks are fluctuations in interest rates and the valuations of its investment portfolio[424] - As of September 30, 2022, approximately 89.3% of the Debt Securities Portfolio consisted of floating-rate loans, with 74.8% of these having LIBOR floors ranging from 0.50% to 2.00%[427] Impact on Net Investment Income from a Change in Interest Rates (in thousands) | Impact on net investment income from a change in interest rates at: (in thousands) | 1% Increase | 2% Increase | 3% Increase | | :--------------------------------------------------------------------------------- | :---------- | :---------- | :---------- | | Increase in interest rate | $2,100 | $4,029 | $5,957 | | Decrease in interest rate | $1,340 | $(561) | $(2,493) | - The fair value of investments, especially those without readily available market quotations, is determined in good faith by the Board using a consistent valuation policy, often with assistance from independent valuation firms[433][434] Item 4. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure This section confirms the absence of any changes in or disagreements with accountants regarding accounting and financial disclosure matters - There have been no changes in and disagreements with accountants on accounting and financial disclosure[435] Item 5. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and the absence of material changes in internal control over financial reporting - The company's CEO and CFO concluded that the disclosure controls and procedures were effective as of September 30, 2022[436] - No material changes in internal control over financial reporting occurred during the quarter ended September 30, 2022[437] Part II. Other Information This part includes disclosures on legal proceedings, risk factors, equity sales, defaults, mine safety, and other miscellaneous information Item 1. Legal Proceedings This section discloses the company's involvement in putative stockholder class action lawsuits related to the HCAP merger - The company is a defendant in two putative stockholder class action lawsuits (the "Delaware Actions") alleging breaches of fiduciary duties related to the HCAP merger[440][441] - The company became responsible for claims against HCAP and its former officers/directors after the merger[441] - The outcome of the lawsuits and an estimate of reasonably possible losses are not determinable at this time, but the company maintains directors' and officers' insurance[442] Item 1A. Risk Factors This section states that there are no material changes to previously disclosed risk factors from the annual report - No material changes to risk factors were identified during fiscal 2021, beyond those in the Annual Report on Form 10-K for December 31, 2021[443] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on unregistered sales of equity securities through the DRIP and share repurchases under authorized programs - During the nine months ended September 30, 2022, the company issued 38,835 shares of common stock under its dividend reinvestment plan (DRIP) for approximately $888 thousand[444] Share Repurchase Program (in thousands) | Period | Total Number of Shares Purchased | Average Price Per Share | Dollar Value of Shares that May Yet Be Purchased Under the Program (Thousands) | | :------------------------- | :------------------------------- | :---------------------- | :----------------------------------------------------------------------------- | | March 11-March 31, 2021 | - | - | $10,000 | | April 1-June 30, 2021 | 15,718 | $24.20 | $9,620 | | July 1-September 30, 2021 | 59,659 | $24.24 | $8,174 | | October 1-December 31, 2021| - | - | $8,174 | | Total, December 31, 2021 | 75,377 | | | | March 17-March 31, 2022 | 22,990 | $23.72 | $9,455 | | April 1-April 30, 2022 | 39,014 | $23.75 | $8,528 | | May 1-May 31, 2022 | 42,426 | $22.73 | $7,564 | | June 1-June 30, 2022 | 25,187 | $22.53 | $6,996 | | July 1-September 30, 2022 | - | - | $6,996 | | Total, September 30, 2022 | 129,617 | | | | Total | 204,994 | | | - During the nine months ended September 30, 2022, the company repurchased 129,617 shares under its Renewed Stock Repurchase program at an aggregate cost of approximately $3.0 million[278][396] Item 3. Defaults Upon Senior Securities This section confirms that there were no defaults upon senior securities during the reporting period - There were no defaults upon senior securities[448] Item 4. Mine Safety Disclosures This section indicates that mine safety disclosures are not applicable to the company - Mine Safety Disclosures are not applicable[449] Item 5. Other Information This section states that no other material information requires reporting - No other information is reported[450] Item 6. Exhibits This section lists the exhibits filed as part of the report, including corporate governance documents and officer certifications - The exhibits include Certificates of Amendment to the Certificate of Incorporation (Form N-2, Form 8-K filings), Third Amended and Restated Bylaws, and certifications from the CEO and CFO (pursuant to Rule 13a-14(a) and 18 U.S.C. 1350)[453] Signatures This section contains the official signatures of the company's President, CEO, and CFO, certifying the report's submission - The report is signed by Edward Goldthorpe, President and Chief Executive Officer, and Jason Roos, Chief Financial Officer, on November 8, 2022[455]