# Bain Capital Specialty Finance, Inc.: Form 10-Q for the period ended Sep 30, 2023

- Company: [Bain Capital Specialty Finance, Inc.](/companies/bcsf.md) (CIK 1655050)
- Form: 10-Q
- Filed: 2023-11-06
- Accepted by EDGAR: Nov 6, 2023, 16:33 ET
- Period: 2023-09-30
- Accession: 0000950170-23-059452
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1655050/000095017023059452/bcsf-20230930.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1655050/000095017023059452/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2023-09-30.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Interest expense | 3 months, 2023-07-01 to 2023-09-30 | $20.8m | us-gaap:InterestExpense |
| Interest expense | 9 months, 2023-01-01 to 2023-09-30 | $60.8m | us-gaap:InterestExpense |
| Income tax | 9 months, 2023-01-01 to 2023-09-30 | $0 | us-gaap:IncomeTaxExpenseBenefit |
| Net income | 3 months, 2023-07-01 to 2023-09-30 | $33.9m | us-gaap:NetIncomeLoss |
| Net income | 9 months, 2023-01-01 to 2023-09-30 | $92.3m | us-gaap:NetIncomeLoss |
| Basic EPS | 3 months, 2023-07-01 to 2023-09-30 | $0.52 | us-gaap:EarningsPerShareBasic |
| Basic EPS | 9 months, 2023-01-01 to 2023-09-30 | $1.43 | us-gaap:EarningsPerShareBasic |
| Operating cash flow | 9 months, 2023-01-01 to 2023-09-30 | −$70.6m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Dividends paid | 9 months, 2023-01-01 to 2023-09-30 | $72.3m | us-gaap:PaymentsOfDividends |
| Cash and equivalents | at 2023-09-30 | $65.2m | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Total assets | at 2023-09-30 | $2.57bn | us-gaap:Assets |
| Total liabilities | at 2023-09-30 | $1.43bn | us-gaap:Liabilities |
| Long-term debt | at 2023-09-30 | $1.37bn | us-gaap:LongTermDebt |
| Shareholders' equity | at 2023-09-30 | $1.13bn | us-gaap:StockholdersEquity |

## Management's discussion and analysis

As filed, 78,469 characters.

The following discussion and other parts of this report contain forward-looking information that involves risks and uncertainties. The discussion and analysis contained in this section refers to our financial condition, results of operations and cash flows. The information contained in this section should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. Please see “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with this discussion and analysis. Our actual results could differ materially from those anticipated by such forward-looking information due to factors discussed under “Forward-Looking Statements” appearing elsewhere in this report.

### Overview

Bain Capital Specialty Finance, Inc. (the “Company”, “we”, “our” and “us”) is an externally managed specialty finance company focused on lending to middle market companies. We have elected to be regulated as a business development company (a “BDC”) under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “1940 Act”). We are managed by BCSF Advisors, LP (our “Advisor” or “BCSF Advisors”), a subsidiary of Bain Capital Credit, LP (“Bain Capital Credit”). Our Advisor is registered as an investment adviser with the SEC under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). Our Advisor also provides the administrative services necessary for us to operate (in such capacity, our “Administrator” or “BCSF Advisors”). Since we commenced operations on October 13, 2016 through September 30, 2023, we have invested approximately $6,878.1 million in aggregate principal amount of debt and equity investments prior to any subsequent exits or repayments. We seek to generate current income and, to a lesser extent, capital appreciation through direct originations of secured debt, including first lien, first lien/last-out, unitranche and second lien debt, investments in strategic joint ventures, equity investments and, to a lesser extent, corporate bonds.

On November 19, 2018, we closed our initial public offering (the “IPO”) issuing 7,500,000 shares of our common stock at a public offering price of $20.25 per share. Shares of common stock of the Company began trading on the New York Stock Exchange under the symbol “BCSF” on November 15, 2018.

Our primary focus is capitalizing on opportunities within our Senior Direct Lending strategy, which seeks to provide risk-adjusted returns and current income to our stockholders by investing primarily in middle-market companies with between $10.0 million and $150.0 million in annual earnings before interest, taxes, depreciation and amortization (“EBITDA”). However, we may, from time to time, invest in larger or smaller companies. We generally seek to retain effective voting control in respect of the loans or particular classes of securities in which we invest through maintaining affirmative voting positions or negotiating consent rights that allow us to retain a blocking position. We focus on senior investments with a first or second lien on collateral and strong structures and documentation intended to protect the lender. We may also invest in mezzanine debt and other junior securities, including common and preferred equity, on an opportunistic basis, and in secondary purchases of assets or portfolios but such investments are not the principal focus of our investment strategy. In addition, we may invest, from time to time, in distressed debt, debtor-in-possession loans, structured products, structurally subordinate loans, investments with deferred interest features, zero-coupon securities and defaulted securities.

We generate revenues primarily through receipt of interest income from the investments we hold. In addition, we generate income from various loan origination and other fees, dividends on direct equity investments and capital gains on the sales of investments. The companies in which we invest use our capital for a variety of reasons, including to support organic growth, to fund changes of control, to fund acquisitions, to make capital investments and for refinancing and recapitalizations.

#### Investments

Our level of investment activity may vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle-market companies, the level of merger and acquisition activity for such companies, the level of investment and capital expenditures of such companies, the general economic environment, the amount of capital we have available to us and the competitive environment for the type of investments we make.

As a BDC, we may not acquire any assets other than “qualifying assets” specified in the 1940 Act, unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” Pursuant to rules adopted by the SEC, “eligible portfolio companies” include certain companies that do not have any securities listed on a national securities exchange and public companies whose securities are listed on a national securities exchange but whose market capitalization is less than $250 million.

As a BDC, we may also invest up to 30% of our portfolio opportunistically in “non-qualifying” portfolio investments, such as investments in non-U.S. companies.

#### Revenues

We primarily generate revenue in the form of interest income on debt investments and distributions on equity investments and, to a lesser extent, capital gains, if any, on equity securities that we may acquire in portfolio companies. Some of our investments may provide for deferred interest payments or payment-in-kind (“PIK”) interest. The principal amount of the debt investments and any accrued but unpaid interest generally becomes due at the maturity date. In addition, we may generate revenue in the form of commitment, origination, structuring or diligence fees, fees for providing managerial assistance and consulting fees. Loan origination fees, original issue discount and market discount or premium are capitalized, and we accrete or amortize such amounts into or against income over the life of the loan. We record contractual prepayment premiums on loans and debt securities as interest income.

Our debt investment portfolio consists of primarily floating rate loans. As of September 30, 2023 and December 31, 2022, 94.2% and 94.5%, respectively, of our debt investments, based on fair value, bore interest at floating rates, which may be subject to interest rate floors. Variable-rate investments subject to a floor generally reset periodically to the applicable floor, only if the floor exceeds the index. Trends in base interest rates, such as SOFR, may affect our net investment income over the long term. In addition, our results may vary from period to period depending on the interest rates of new investments made during the period compared to investments that were sold or repaid during the period; these results reflect the characteristics of the particular portfolio companies that we invested in or exited during the period and not necessarily any trends in our business or macroeconomic trends.

Dividend income on preferred equity investments is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity investments is recorded on the record date for private portfolio companies and on the ex-dividend date for publicly traded portfolio companies.

#### Expenses

Our primary operating expenses include the payment of fees to our Advisor under the Amended Advisory Agreement, our allocable portion of overhead expenses under the administration agreement (the “Administration Agreement”) and other operating costs, including those described below. The Base Management Fee and Incentive Fee compensate our Advisor for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other out-of-pocket costs and expenses of our operations and transactions, including:

- our operational and organizational cost;
- the costs of any public offerings of our common stock and other securities, including registration and listing fees;
- costs of calculating our net asset value (including the cost and expenses of any third-party valuation services);
- fees and expenses payable to third parties relating to evaluating, making and disposing of investments, including our Advisor’s or its affiliates’ travel expenses, research costs and out-of-pocket fees and expenses associated with performing due diligence and reviews of prospective investments, monitoring our investments and, if necessary, enforcing our rights;
- interest payable on debt and other borrowing costs, if any, incurred to finance our investments;
- costs of effecting sales and repurchases of our common stock and other securities;
- distributions on our common stock;
- transfer agent and custody fees and expenses;
- the allocated costs incurred by the Administrator in providing managerial assistance to those portfolio companies that request it;
- other expenses incurred by BCSF Advisors or us in connection with administering our business, including payments made to third-party providers of goods or services;
- brokerage fees and commissions;
- federal and state registration fees;
- U.S. federal, state and local taxes;
- Independent Director fees and expenses;
- costs associated with our reporting and compliance obligations under the 1940 Act and applicable U.S. federal and state securities laws;
- costs of any reports, proxy statements or other notices to our stockholders, including printing costs;
- costs of holding stockholder meetings;
- our fidelity bond;
- directors’ and officers’ errors and omissions liability insurance, and any other insurance premiums;
- litigation, indemnification and other non-recurring or extraordinary expenses;
- direct costs and expenses of administration and operation, including printing, mailing, long distance telephone, staff, audit, compliance, tax and legal costs;
- fees and expenses associated with marketing efforts;
- dues, fees and charges of any trade association of which we are a member; and
- all other expenses reasonably incurred by us or the Administrator in connection with administering our business.

To the extent that expenses to be borne by us are paid by BCSF Advisors, we will generally reimburse BCSF Advisors for such expenses. To the extent the Administrator outsources any of its functions, the Company will pay the fees associated with such functions on a direct basis without profit to the Administrator. We will also reimburse the Administrator for its costs and expenses and our allocable portion of overhead incurred by it in performing its obligations under the Administration Agreement, including certain rent and compensation paid to or compensatory distributions received by our officers (including our Chief Compliance Officer and Chief Financial Officer) and any of their respective staff who provide services to us, operations staff who provide services to us, internal audit staff, if any, to the extent internal audit performs a role in our Sarbanes-Oxley internal control assessment and fees paid to third-party providers for goods or services. Our allocable portion of overhead will be determined by the Administrator, which expects to use various methodologies such as allocation based on the percentage of time certain individuals devote, on an estimated basis, to our business and affairs, and will be subject to oversight by our Board of Directors (our “Board”). We incurred expenses related to the Administrator of $0.4 million and $0.0 million for the three months ended September 30, 2023 and 2022, respectively, which is included in other general and administrative expenses on the consolidated statements of operations. We incurred expenses related to the Administrator of $0.8 million and $0.0 million for the nine months ended September 30, 2023 and 2022, respectively, which is included in other general and administrative expenses on the consolidated statements of operations. The sub-administrator is paid its compensation for performing its sub-administrative services under the sub-administration agreement. We incurred expenses related to the sub-administrator of $0.1 million and $0.2 million for the three months ended September 30, 2023 and 2022, respectively, which is included in other general and administrative expenses on the consolidated statements of operations. The sub-administrator is paid its compensation for performing its sub-administrative services under the sub-administration agreement. We incurred expenses related to the sub-administrator of $0.4 million and $0.5 million for the nine months ended September 30, 2023 and 2022, respectively, which is included in other general and administrative expenses on the consolidated statements of operations. BCSF Advisors will not be reimbursed to the extent that such reimbursements would cause any distributions to our stockholders to constitute a return of capital. All of the foregoing expenses are ultimately borne by our stockholders.

### Leverage

We may borrow money from time to time. However, our ability to incur indebtedness (including by issuing preferred stock), is limited by applicable regulations such that our asset coverage, as defined in the 1940 Act, must equal at least 150%. In determining whether to borrow money, we will analyze the maturity, covenant package and rate structure of the proposed borrowings as well as the risks of such borrowings compared to our investment outlook. As of September 30, 2023, the Company’s asset coverage was 182.2%.

### Investment Decision Process

The Advisor’s investment process can be broken into four processes: (1) Sourcing and Idea Generation, (2) Investment Diligence & Recommendation, (3) Credit Committee Approval and Portfolio Construction and (4) Portfolio & Risk Management.

#### Sourcing and Idea Generation

The investment decision-making process begins with sourcing ideas. Bain Capital Credit’s Private Credit Group interacts with a broad and deep set of global sourcing contacts, enabling the group to generate a large set of middle-market investment opportunities. . Further enhancing the sourcing capability of the core Private Credit Group are Bain Capital Credit’s industry groups, Trading Desk, and the Bain Capital Special Situations team. The team has extensive contacts with private equity firms. Relationships with banks, a variety of advisors and intermediaries and a handful of unique independent sponsors compose the remainder of the relationships. Through these sourcing efforts the Private Credit Group has built a sustainable deal funnel, which has generated hundreds of opportunities to review annually.

#### Investment Diligence & Recommendation

Our Advisor utilizes Bain Capital Credit’s bottom-up approach to investing, and it starts with the due diligence. The Private Credit Group works with the close support of Bain Capital Credit’s industry groups on performing due diligence. This process typically begins with a detailed review of the offering memorandum as well as Bain Capital Credit’s own independent diligence efforts, including in-house materials and expertise, third-party independent research and interviews, and hands-on field checks where appropriate. For deals that progress beyond an initial stage, the team will schedule one or more meetings with company management, facilities visits and also meetings with the sponsor in order to ask more detailed questions and to better understand the sponsor’s view of the business and plans for it going forward. The team’s diligence work is summarized in investment memorandums and accompanying credit packs. Work product also includes full models and covenant analysis. The approval process itself is iterative, involving multiple levels of discussion and approval.

#### Credit Committee Approval and Portfolio Construction

Given Bain Capital Credit’s broad and diverse range of investment strategies, we tailor our investment decision-making process by strategy to provide a robust and comprehensive discussion of both individual investments and the applicable portfolio(s) under consideration. We believe that this flexible approach provides a rigorous investment decision-making process that allows us to be nimble across a variety of market environments while still maintaining high credit underwriting standards.

Our investments require approval from at least the Private Credit Investment Committee, which includes three Partners in the Private Credit Group as standing members: Michael Ewald, Mike Boyle, and Carolyn Hastings. Ad hoc members may also be included in the Private Credit Investment Committee for certain types of investments.

#### Portfolio & Risk Management

Our Advisor utilizes Bain Capital Credit’s Private Credit Group for the daily monitoring of its respective credits after an investment has been made. Our Advisor believes that the ongoing monitoring of financial performance and market developments of portfolio investments is critical to successful investment management. Accordingly, our Advisor is actively involved in an on-going portfolio review process and attends board meetings. To the extent a portfolio investment is not meeting our Advisor’s expectations, our Advisor takes corrective action when it deems appropriate, which may include raising interest rates, gaining a more influential role on its board, taking warrants and, where appropriate, restructuring the balance sheet to take control of the company. Our Advisor will utilize the Bain Capital Credit Risk and Oversight Committee. The Risk and Oversight Committee is responsible for monitoring and reviewing risk management, including portfolio risk, counterparty risk and firm-wide risk issues. In addition to the methods noted above, there are a number of proprietary methods and tools used through all levels of Bain Capital Credit to manage portfolio risk.

### Portfolio and Investment Activity

During the three months ended September 30, 2023, we invested $114.2 million, including PIK, in 59 portfolio companies, and had $102.8 million in aggregate amount of principal repayments and sales, resulting in a net increase in investments of $11.4 million for the period. Of the $114.2 million invested during the three months ended September 30, 2023, $47.2 million was related to drawdowns on delayed draw term loans and revolvers of our portfolio companies.

During the three months ended September 30, 2022, we invested $433.0 million, including PIK, in 59 portfolio companies, and had $396.5 million in aggregate amount of principal repayments and sales, resulting in a net increase in investments of $36.5 million for the period. Of the $433.0 million invested during the three months ended September 30, 2022, $53.9 million was related to drawdowns on delayed draw term loans and revolvers of our portfolio companies.

During the nine months ended September 30, 2023, we invested $630.8 million, including PIK, in 91 portfolio companies, and had $616.2 million in aggregate amount of principal repayments and sales, resulting in a net increase in investments of $14.6 million for the period. Of the $630.8 million invested during the nine months ended September 30, 2023, $160.1 million was related to drawdowns on delayed draw term loans and revolvers of our portfolio companies.

During the nine months ended September 30, 2022, we invested $1,292.2 million, including PIK, in 94 portfolio companies, and had $1,249.9 million in aggregate amount of principal repayments and sales, resulting in a net increase in investments of $42.3 million for the period. Of the $1,292.2 million invested during the nine months ended September 30, 2022, $123.8 million was related to drawdowns on delayed draw term loans and revolvers of our portfolio companies.

The following table shows the composition of the investment portfolio and associated yield data as of September 30, 2023 (dollars in thousands):

|  | As of September 30, 2023 Amortized Cost | Percentage of Total Portfolio | Fair Value | Percentage of Total Portfolio | Weighted Average Yield (1) at Amortized Cost | Market Value |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| First Lien Senior Secured Loans | $1,573,347 | 66.3% | $1,531,270 | 64.0% | 12.2% | 12.4% |
| Second Lien Senior Secured Loans | 87,884 | 3.7 | 85,286 | 3.6 | 14.4 | 14.8 |
| Subordinated Debt | 44,915 | 1.9 | 45,430 | 1.9 | 13.8 | 13.6 |
| Structured Products | 24,050 | 1.0 | 23,069 | 1.0 | 20.3 | 21.1 |
| Preferred Equity | 69,270 | 2.9 | 105,601 | 4.4 | 10.0 | 8.0 |
| Equity Interests | 209,518 | 8.8 | 229,791 | 9.6 | 14.0 | 14.1 |
| Warrants | 480 | 0.0 | 504 | 0.0 | N/A | N/A |
| Subordinated Notes in Investment Vehicles (2) | 302,973 | 12.7 | 302,974 | 12.7 | 12.2 | 12.2 |
| Preferred Equity Interests in Investment Vehicles (2) | 10 | 0.0 | (990) | 0.0 | N/A | N/A |
| Equity Interests in Investment Vehicles (2) | 64,959 | 2.7 | 67,263 | 2.8 | 27.4 | 26.5 |
| Total | $2,377,406 | 100.0% | $2,390,198 | 100.0% | 12.9% | 13.1% |

(1) The weighted average yield is computed as (a) the annual stated interest rate or yield earned on the relevant accruing debt and other income producing securities plus amortization of fees and discounts on the performing debt and other income producing investments, divided by (b) the total relevant investments at amortized cost. The weighted average yield does not represent the total return to our stockholders.

(2) Represents debt and equity investment in ISLP and SLP.

The following table shows the composition of the investment portfolio and associated yield data as of December 31, 2022 (dollars in thousands):

|  | As of December 31, 2022 Amortized Cost | Percentage of Total Portfolio | Fair Value | Percentage of Total Portfolio | Weighted Average Yield (1) at Amortized Cost | Market Value |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| First Lien Senior Secured Loans | $1,703,591 | 70.4% | $1,630,877 | 68.3% | 10.9% | 11.2% |
| Second Lien Senior Secured Loans | 98,120 | 4.1 | 93,950 | 3.9 | 13.7 | 14.3 |
| Subordinated Debt | 43,752 | 1.8 | 43,922 | 1.8 | 11.6 | 11.6 |
| Structured Products | 24,050 | 1.0 | 22,763 | 1.0 | 19.8 | 20.9 |
| Preferred Equity | 57,106 | 2.4 | 80,945 | 3.4 | 10.0 | 8.6 |
| Equity Interests | 189,896 | 7.8 | 210,689 | 8.8 | 10.6 | 10.7 |
| Warrants | 480 | 0.0 | 524 | 0.0 | N/A | N/A |
| Subordinated Notes in Investment Vehicles (2) | 237,974 | 9.8 | 237,974 | 10.0 | 11.4 | 11.4 |
| Preferred Equity Interests in Investment Vehicles (2) | 10 | 0.0 | (644) | 0.0 | N/A | N/A |
| Equity Interests in Investment Vehicles (2) | 64,959 | 2.7 | 65,977 | 2.8 | 17.9 | 17.6 |
| Total | $2,419,938 | 100.0% | $2,386,977 | 100.0% | 11.4% | 11.6% |

(1) The weighted average yield is computed as (a) the annual stated interest rate or yield earned on the relevant accruing debt and other income producing securities plus amortization of fees and discounts on the performing debt and other income producing investments, divided by (b) the total relevant investments at amortized cost. The weighted average yield does not represent the total return to our stockholders.

(2) Represents debt and equity investment in ISLP and SLP.

The following table presents certain selected information regarding our investment portfolio as of September 30, 2023:

|  | As of September 30, 2023 |
| --- | ---: |
| Number of portfolio companies | 143 |
| Percentage of debt bearing a floating rate (1) | 94.2% |
| Percentage of debt bearing a fixed rate (1) | 5.8% |

(1) Measured on a fair value basis. Subordinated Notes in Investment Vehicles are included in floating rate.

The following table presents certain selected information regarding our investment portfolio as of December 31, 2022:

|  | As of December 31, 2022 |
| --- | ---: |
| Number of portfolio companies | 132 |
| Percentage of debt bearing a floating rate (1) | 94.5% |
| Percentage of debt bearing a fixed rate (1) | 5.5% |

(1) Measured on a fair value basis. Subordinated Notes in Investment Vehicles are included in floating rate.

The following table shows the amortized cost and fair value of our performing and non-accrual investments as of September 30, 2023 (dollars in thousands):

|  | As of September 30, 2023 Amortized Cost | Percentage at Amortized Cost | Fair Value | Percentage at Fair Value |
| --- | ---: | ---: | ---: | ---: |
| Performing | $2,341,424 | 98.5% | $2,365,566 | 99.0% |
| Non-accrual | 35,982 | 1.5 | 24,632 | 1.0 |
| Total | $2,377,406 | 100.0% | $2,390,198 | 100.0% |

The following table shows the amortized cost and fair value of our performing and non-accrual investments as of December 31, 2022 (dollars in thousands):

|  | As of December 31, 2022 Amortized Cost | Percentage at Amortized Cost | Fair Value | Percentage at Fair Value |
| --- | ---: | ---: | ---: | ---: |
| Performing | $2,348,395 | 97.0% | $2,348,571 | 98.4% |
| Non-accrual | 71,543 | 3.0 | 38,406 | 1.6 |
| Total | $2,419,938 | 100.0% | $2,386,977 | 100.0% |

Loans or debt securities are placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Accrued interest generally is reversed when a loan or debt security is placed on non-accrual status. Interest payments received on non-accrual loans or debt securities may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans and debt securities are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current. We may make exceptions to this treatment if the loan has sufficient collateral value and is in the process of collection. As of September 30, 2023, there were four loans from three issuers placed on non-accrual in the Company’s portfolio. As of December 31, 2022, there were five loans from three issuers placed on non-accrual in the Company’s portfolio.

The following table shows the amortized cost and fair value of the investment portfolio, cash and cash equivalents and foreign cash as of September 30, 2023 (dollars in thousands):

|  | As of September 30, 2023 Amortized Cost | Percentage of Total | Fair Value | Percentage of Total |
| --- | ---: | ---: | ---: | ---: |
| First Lien Senior Secured Loan | $1,573,347 | 63.5% | $1,531,270 | 61.5% |
| Second Lien Senior Secured Loan | 87,884 | 3.5 | 85,286 | 3.4 |
| Subordinated Debt | 44,915 | 1.8 | 45,430 | 1.8 |
| Structured Products | 24,050 | 1.0 | 23,069 | 0.9 |
| Preferred Equity | 69,270 | 2.8 | 105,601 | 4.2 |
| Equity Interest | 209,518 | 8.4 | 229,791 | 9.2 |
| Warrants | 480 | 0.0 | 504 | 0.0 |
| Subordinated Notes in Investment Vehicles (1) | 302,973 | 12.2 | 302,974 | 12.1 |
| Preferred Equity Interest Investment Vehicles (1) | 10 | 0.0 | (990) | 0.0 |
| Equity Interest in Investment Vehicles (1) | 64,959 | 2.6 | 67,263 | 2.7 |
| Cash and cash equivalents | 65,212 | 2.6 | 65,212 | 2.6 |
| Foreign Cash | 15,089 | 0.6 | 14,286 | 0.6 |
| Restricted cash and cash equivalents | 25,908 | 1.0 | 25,908 | 1.0 |
| Total | $2,483,615 | 100.0% | $2,495,604 | 100.0% |

(1) Represents debt and equity investment in ISLP and SLP

The following table shows the amortized cost and fair value of the investment portfolio, cash and cash equivalents and foreign cash as of December 31, 2022 (dollars in thousands):

|  | As of December 31, 2022 Amortized Cost | Percentage of Total | Fair Value | Percentage of Total |
| --- | ---: | ---: | ---: | ---: |
| First Lien Senior Secured Loans | $1,703,591 | 66.9% | $1,630,877 | 65.0% |
| Second Lien Senior Secured Loans | 98,120 | 3.9 | 93,950 | 3.7 |
| Subordinated Debt | 43,752 | 1.7 | 43,922 | 1.7 |
| Structured Products | 24,050 | 0.9 | 22,763 | 0.9 |
| Preferred Equity | 57,106 | 2.2 | 80,945 | 3.2 |
| Equity Interests | 189,896 | 7.4 | 210,689 | 8.4 |
| Warrants | 480 | 0.0 | 524 | 0.0 |
| Subordinated Notes in Investment Vehicles (1) | 237,974 | 9.3 | 237,974 | 9.5 |
| Preferred Equity Interests in Investment Vehicles (1) | 10 | 0.0 | (644) | 0.0 |
| Equity Interests in Investment Vehicles (1) | 64,959 | 2.5 | 65,977 | 2.6 |
| Cash and cash equivalents | 30,205 | 1.2 | 30,205 | 1.2 |
| Foreign cash | 34,528 | 1.4 | 29,575 | 1.2 |
| Restricted cash and cash equivalents | 65,950 | 2.6 | 65,950 | 2.6 |
| Total | $2,550,621 | 100.0% | $2,512,707 | 100.0% |

(1) Represents debt and equity investment in ISLP and SLP

Our Advisor monitors our portfolio companies on an ongoing basis. It monitors the financial trends of each portfolio company to determine if they are meeting their respective business plans and to assess the appropriate course of action for each company. The Advisor has several methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:

- assessment of success in adhering to the portfolio company’s business plan and compliance with covenants;
- periodic or regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor to discuss financial position, requirements and accomplishments;
- comparisons to our other portfolio companies in the industry, if any;
- attendance at and participation in board meetings or presentations by portfolio companies; and
- review of monthly and quarterly financial statements and financial projections of portfolio companies.

Our Advisor rates the investments in our portfolio at least quarterly and it is possible that the rating of a portfolio investment may be reduced or increased over time. For investments rated 3 or 4, our Advisor enhances its level of scrutiny over the monitoring of such portfolio company. Our internal performance ratings do not constitute any rating of investments by a nationally recognized statistical rating organization or represent or reflect any third-party assessment of any of our investments.

- An investment is rated 1 if, in the opinion of our Advisor, it is performing above underwriting expectations, and the business trends and risk factors are generally favorable, which may include the performance of the portfolio company or the likelihood of a potential exit.
- An investment is rated 2 if, in the opinion of our Advisor, it is performing as expected at the time of our underwriting and there are generally no concerns about the portfolio company’s performance or ability to meet covenant requirements, interest payments or principal amortization, if applicable. All new investments or acquired investments in new portfolio companies are initially given a rating of 2.
- An investment is rated 3 if, in the opinion of our Advisor, the investment is performing below underwriting expectations and there may be concerns about the portfolio company’s performance or trends in the industry, including as a result of factors such as declining performance, non-compliance with debt covenants or delinquency in loan payments (but generally not more than 180 days past due).
- An investment is rated 4 if, in the opinion of our Advisor, the investment is performing materially below underwriting expectations. For debt investments, most of or all of the debt covenants are out of compliance and payments are substantially delinquent. Investments rated 4 are not anticipated to be repaid in full, if applicable, and there is significant risk that we may realize a substantial loss on our investment.

The following table shows the composition of our portfolio on the 1 to 4 rating scale as of September 30, 2023 (dollars in thousands):

| Investment Performance Rating | As of September 30, 2023 Fair Value | Percentage of Total | Number of Companies (1) | Percentage of Total |
| ---: | ---: | ---: | ---: | ---: |
| 1 | $2,415 | 0.1% | 2 | 1.4% |
| 2 | 2,263,004 | 94.7 | 129 | 90.2 |
| 3 | 98,824 | 4.1 | 8 | 5.6 |
| 4 | 25,955 | 1.1 | 4 | 2.8 |
| Total | $2,390,198 | 100.0% | 143 | 100.0% |

(1) Number of investment rated companies may not agree to total portfolio companies due to investments across investment types and structures.

The following table shows the composition of our portfolio on the 1 to 4 rating scale as of December 31, 2022 (dollars in thousands):

| Investment Performance Rating | As of December 31, 2022 Fair Value | Percentage of Total | Number of Companies(1) | Percentage of Total |
| ---: | ---: | ---: | ---: | ---: |
| 1 | $2,499 | 0.1% | 3 | 2.3% |
| 2 | 2,163,990 | 90.7 | 117 | 88.6 |
| 3 | 182,082 | 7.6 | 9 | 6.8 |
| 4 | 38,406 | 1.6 | 3 | 2.3 |
| Total | $2,386,977 | 100.0% | 132 | 100.0% |

(1) Number of investment rated companies may not agree to total portfolio companies due to investments across investment types and structures.

### Results of Operations

Our operating results for the three months ended September 30, 2023 and 2022 were as follows (dollars in thousands):

|  | For the Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Total investment income | $72,390 | $58,809 |
| Total expenses, net of fee waivers | 36,102 | 28,712 |
| Net investment income before taxes | 36,288 | 30,097 |
| Less: Income taxes, including excise tax | 640 | — |
| Net investment income | 35,648 | 30,097 |
| Net realized gain (loss) | (51,767) | 17,968 |
| Net change in unrealized appreciation | 49,975 | (37,014) |
| Net increase in net assets resulting from operations | $33,856 | $11,051 |

124

Our operating results for the nine months ended September 30, 2023 and 2022 were as follows (dollars in thousands):

|  | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Total investment income | $222,842 | $157,184 |
| Total expenses, net of fee waivers | 113,792 | 78,669 |
| Net investment income before taxes | 109,050 | 78,515 |
| Less: Income taxes, including excise tax | 2,332 | — |
| 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 resulting from operations | $92,312 | $61,961 |

Net increase in net assets resulting from operations can vary from period to period as a result of various factors, including additional financing, new investment commitments, the recognition of realized gains and losses and changes in unrealized appreciation and depreciation on the investment portfolio. Due to these factors, comparisons may not be meaningful.

### Investment Income

The composition of our investment income for the three months ended September 30, 2023 and 2022 was as follows (dollars in thousands):

|  | For the Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Interest income | $57,233 | $43,817 |
| Dividend income | 8,568 | 6,339 |
| PIK income | 5,581 | 4,324 |
| Other income | 1,008 | 4,329 |
| Total investment income | $72,390 | $58,809 |

Interest income from investments, which includes interest and accretion of discounts and fees, increased to $57.2 million for the three months ended September 30, 2023 from $43.8 million for the three months ended September 30, 2022, primarily due to rising base rates and a modest increase in the size of our portfolio. Our investment portfolio at amortized cost increased to $2,377.4 million as of September 30, 2023 compared to $2,356.1 million as of September 30, 2022. Dividend income increased to $8.6 million for the three months ended September 30, 2023 from $6.3 million for the three months ended September 30, 2022, primarily due to an increase in dividend income from our equity interests in ISLP, SLP, and 2018-1 Issuer. Other income decreased to approximately $1.0 million for the three months ended September 30, 2023 from $4.3 million for the three months ended September 30, 2022, primarily due to a decrease in commitment fees earned on certain investments. As of September 30, 2023, the weighted average yield of our investment portfolio increased to 12.9% from 10.2% as of September 30, 2022, at amortized cost.

The composition of our investment income for the nine months ended September 30, 2023 and 2022 was as follows (dollars in thousands):

|  | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Interest income | $172,283 | $117,734 |
| Dividend income | 25,689 | 16,310 |
| PIK income | 16,692 | 10,656 |
| Other income | 8,178 | 12,484 |
| Total investment income | $222,842 | $157,184 |

125

Interest income from investments, which includes interest and accretion of discounts and fees, increased to $172.3 million for the nine months ended September 30, 2023 from $117.7 million for the nine months ended September 30, 2022, primarily due to rising base rates and modest increase in the size of our portfolio. Our investment portfolio at amortized cost increased to $2,377.4 million as of September 30, 2023 compared to $2,356.1 million as of September 30, 2022. Dividend income increased to $25.7 million for the nine months ended September 30, 2023 from $16.3 million for the nine months ended September 30, 2022, primarily due to an increase in dividend income from our equity interests in ISLP, SLP, and 2018-1 Issuer. Other income decreased to approximately $8.2 million for the nine months ended September 30, 2023 from $12.5 million for the nine months ended September 30, 2022, primarily due to a decrease in commitment and syndication fees earned on certain investments.

### Operating Expenses

The composition of our operating expenses for the three months ended September 30, 2023 and 2022 were as follows (dollars in thousands):

|  | For the Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Interest and debt financing expenses | $20,775 | $14,381 |
| Base management fee | 9,140 | 8,853 |
| Incentive fee | 3,011 | 2,976 |
| Professional fees | 760 | 968 |
| Directors fees | 182 | 177 |
| Other general and administrative expenses | 2,234 | 1,357 |
| Total expenses, net of fee waivers | $36,102 | $28,712 |

The composition of our operating expenses for the nine months ended September 30, 2023 and 2022 were as follows (dollars in thousands):

|  | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Interest and debt financing expenses | $60,784 | $36,051 |
| Base management fee | 27,166 | 25,673 |
| Incentive fee | 18,129 | 10,356 |
| Professional fees | 1,792 | 1,804 |
| Directors fees | 535 | 531 |
| Other general and administrative expenses | 5,386 | 4,254 |
| Total expenses, net of fee waivers | $113,792 | $78,669 |

### Interest and Debt Financing Expenses

Interest and debt financing expenses on our borrowings totaled approximately $20.8 million and $14.4 million for the three months ended September 30, 2023 and 2022, respectively. Interest and debt financing expense for the three months ended September 30, 2023 as compared to September 30, 2022 increased primarily due to a rise in base rates of the variable rate debt and the increased usage of our Sumitomo Credit Facility. Interest and debt financing expenses on our borrowings totaled approximately $60.8 million and $36.1 million for the nine months ended September 30, 2023 and 2022, respectively. Interest and debt financing expense for the nine months ended September 30, 2023 as compared to September 30, 2022 increased primarily due to a rise in base rates of the variable rate debt and the increased usage of our Sumitomo Credit Facility. The weighted average principal debt balance outstanding for the three months ended September 30, 2023 was $1,445.3 million compared to $1,402.8 million for the three months ended September 30, 2022. The weighted average principal debt balance outstanding for the nine months ended September 30, 2023 was $1,466.4 million compared to $1,313.0 million for the nine months ended September 30, 2022.

The combined weighted average interest rate (excluding deferred upfront financing costs and unused fees) of the aggregate borrowings outstanding for the nine months ended September 30, 2023 and year ended December 31, 2022 were 5.2% and 3.5%, respectively.

### Management Fee

Management fee (net of waivers) increased to $9.1 million for the three months ended September 30, 2023 from $8.9 million for the three months ended September 30, 2022. Management fee (gross of waivers) increased to $9.1 million for the three months ended September 30, 2023 from $8.9 million for the three months ended September 30, 2022, primarily due to an increase in total assets throughout the three months ended September 30, 2023 compared to the three months ended September 30, 2022. Management fee waived for the three months ended September 30, 2023 and 2022, were $0.0 million and $0.0 million, respectively.

Management fees (net of waivers) increased to $27.2 million for the nine months ended September 30, 2023 from $25.7 million for the nine months ended September 30, 2022. Management fees (gross of waivers) increased to $27.2 million for the nine months ended September 30, 2023 compared to $25.7 million for the nine months ended September 30, 2022, primarily due to an increase in total assets throughout the nine months ended September 30, 2023 compared to the nine months ended September 30, 2022. Management fees waived for the nine months ended September 30, 2023 and 2022 were $0.0 million and $0.0 million, respectively.

### Incentive Fee

Incentive fee (net of waivers) was $3.0 million for the three months ended September 30, 2023 and $3.0 million for the three months ended September 30, 2022. Incentive fee waivers related to pre-incentive fee net investment income consisted of voluntary waivers of $0.0 million for the three months ended September 30, 2023 and $0.0 million for the three months ended September 30, 2022. For the three months ended September 30, 2023 there were no incentive fees related to the GAAP Incentive Fee. Incentive fee (net of waivers) increased to $18.1 million for the nine months ended September 30, 2023 from $10.4 million for the nine months ended September 30, 2022 as a result of higher pre-incentive net investment income. Incentive fee waivers related to pre-incentive fee net investment income consisted of voluntary waivers of $0.0 million for the nine months ended September 30, 2023 and $0.0 million for the nine months ended September 30, 2022. For the nine months ended September 30, 2023 there were no incentive fees related to the GAAP Incentive Fee.

### Professional Fees and Other General and Administrative Expenses

Professional fees and other general and administrative expenses were $3.0 million for the three months ended September 30, 2023 compared to $2.3 million for the three months ended September 30, 2022, primarily due to an increase in costs associated with servicing our investment portfolio.

Professional fees and other general and administrative expenses increased to $7.2 million for the nine months ended September 30, 2023 from $6.1 million for the nine months ended September 30, 2022, primarily due to an increase in costs associated with servicing our investment portfolio.

### Net Realized and Unrealized Gains and Losses

The following table summarizes our net realized and unrealized gains (losses) for the three months ended September 30, 2023 and 2022 (dollars in thousands):

|  | For the Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net realized gain on investments | $729 | $4,915 |
| Net realized loss on investments | (51,602) | (6,089) |
| Net realized gain on foreign currency transactions | — | 2,672 |
| Net realized loss on foreign currency transactions | (673) | (418) |
| Net realized gain on forward currency exchange contracts | 291 | 17,633 |
| Net realized loss on forward currency exchange contracts | (512) | — |
| Net realized loss on extinguishment of debt | — | (745) |
| Net realized gains (losses) | $(51,767) | $17,968 |
| Change in unrealized appreciation on investments | $68,734 | $14,185 |
| Change in unrealized depreciation on investments | (25,587) | (44,169) |
| Net change in unrealized appreciation on investments | 43,147 | (29,984) |
| Unrealized appreciation on foreign currency translation | (279) | (4,820) |
| Unrealized appreciation on forward currency exchange contracts | 7,107 | (2,210) |
| Net change in unrealized appreciation on foreign currency and forward currency exchange contracts | 6,828 | (7,030) |
| Net change in unrealized appreciation | $49,975 | $(37,014) |

For the three months ended September 30, 2023 and 2022, we had net realized losses on investments of ($50.9) million and ($1.2) million, respectively. For the three months ended September 30, 2023 and 2022, we had net realized gains (losses) on foreign currency transactions of ($0.7) million and $2.3 million, respectively. For the three months ended September 30, 2023 and 2022, we had net realized gains (losses) on forward currency contracts of ($0.2) million and $17.6 million, respectively.

For the three months ended September 30, 2023, we had $68.7 million in unrealized appreciation on 62 portfolio company investments, which was offset by $25.6 million in unrealized depreciation on 81 portfolio company investments. Unrealized depreciation for the three months ended September 30, 2023 resulted from a decrease in fair value, primarily due to a widening of credit spreads and negative valuation adjustments. Unrealized appreciation for the three months ended September 30, 2023 resulted from an increase in fair value, primarily due to positive valuation adjustments.

For the three months ended September 30, 2022, we had $14.2 million in unrealized appreciation on 47 portfolio company investments, which was offset by $44.2 million in unrealized depreciation on 83 portfolio company investments. Unrealized depreciation for the three months ended September 30, 2022 resulted from a decrease in fair value, primarily due to a widening of credit spreads and negative valuation adjustments. Unrealized appreciation was primarily due to positive valuation adjustments.

For the three months ended September 30, 2023 and 2022, we had unrealized appreciation on forward currency exchange contracts of $7.1 million and ($2.2) million, respectively. For the three months ended September 30, 2023, unrealized appreciation on forward currency exchange contracts was due to EUR, AUD, GBP, CAD and NOK forward contracts.

The following table summarizes our net realized and unrealized gains (losses) for the nine months ended September 30, 2023 and 2022 (dollars in thousands):

|  | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net realized gain on investments | $2,579 | $9,660 |
| Net realized loss on investments | (64,332) | (11,993) |
| Net realized gain on foreign currency transactions | - | 5,899 |
| Net realized loss on foreign currency transactions | (5,207) | (967) |
| Net realized gain on forward currency exchange contracts | 410 | 20,934 |
| Net realized loss on forward currency exchange contracts | (3,016) | (40) |
| Net realized loss on extinguishment of debt | - | (745) |
| Net realized gains (losses) | $(69,566) | $22,748 |
| Change in unrealized appreciation on investments | $77,649 | $58,433 |
| Change in unrealized depreciation on investments | (31,896) | (98,775) |
| Net change in unrealized appreciation on investments | 45,753 | (40,342) |
| Unrealized appreciation on foreign currency translation | 3,615 | (6,525) |
| Unrealized appreciation on forward currency exchange contracts | 5,792 | 7,565 |
| Net change in unrealized appreciation on foreign currency and forward currency exchange contracts | 9,407 | 1,040 |
| Net change in unrealized appreciation | $55,160 | $(39,302) |

For the nine months ended September 30, 2023 and 2022, we had net realized losses on investments of ($61.8) million and ($2.3) million, respectively. For the nine months ended September 30, 2023 and 2022, we had net realized gains (losses) on foreign currency transactions of ($5.2) million and $4.9 million, respectively. For the nine months ended September 30, 2023 and 2022, we had net realized gains (losses) on forward currency contracts of ($2.6) million and $20.9 million, respectively, primarily as a result of settling EUR, GBP and NOK forward contracts.

For the nine months ended September 30, 2023, we had $77.6 million in unrealized appreciation on 80 portfolio company investments, which was offset by ($31.9) million in unrealized depreciation on 68 portfolio company investments. Unrealized depreciation for the nine months ended September 30, 2023 resulted from a decrease in fair value, primarily due to a widening of credit spreads and negative valuation adjustments. Unrealized appreciation for the nine months ended September 30, 2023 resulted to an increase in fair value, primarily due to positive valuation adjustments.

For the nine months ended September 30, 2022, we had $58.4 million in unrealized appreciation on 38 portfolio company investments, which was offset by $98.8 million in unrealized depreciation on 98 portfolio company investments. Unrealized depreciation for the nine months ended September 30, 2022 resulted from a decrease in fair value, primarily due to a widening of credit spreads and negative valuation adjustments. Unrealized appreciation was primarily due to positive valuation adjustments.

For the nine months ended September 30, 2023 and 2022, we had unrealized appreciation on forward currency exchange contracts of $5.8 million and $7.6 million, respectively. For the nine months ended September 30, 2023, unrealized appreciation on forward currency exchange contracts was due to EUR, AUD, GBP, CAD and NOK forward contracts.

The following table summarizes the impact of foreign currency for the three months ended September 30, 2023 and 2022, (dollars in thousands):

|  | For the Three Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net change in unrealized appreciation on investments due to foreign currency | $(5,512) | $(6,034) |
| Net realized gain (loss) on investments due to foreign currency | 121 | (4,856) |
| Net change in unrealized appreciation on foreign currency translation | (279) | (4,820) |
| Net realized gain (loss) on foreign currency transactions | (673) | 2,254 |
| Net change in unrealized appreciation on forward currency exchange contracts | 7,107 | (2,210) |
| Net realized gain (loss) on forward currency exchange contracts | (221) | 17,633 |
| Foreign currency impact to net increase in net assets resulting from operations | $543 | $1,967 |

Included in total net losses on the consolidated statements of operations is losses of ($6.3) million and ($13.5) million related to realized and unrealized gains and losses on investments, foreign currency holdings and non-investment assets and liabilities attributable to the changes in foreign currency exchange rates for the three months ended September 30, 2023 and 2022, respectively. Including the total net realized and unrealized gains on forward currency exchange contracts of $6.9 million and $15.4 million, respectively, included in the above table, the net impact of foreign currency on total net gains on the consolidated statements of operations is $0.5 million and $2.0 million for the three months ended September 30, 2023 and 2022, respectively.

The following table summarizes the impact of foreign currency for the nine months ended September 30, 2023 and 2022, (dollars in thousands):

|  | For the Nine Months Ended September 30, 2023 | 2022 |
| --- | ---: | ---: |
| Net change in unrealized appreciation on investments due to foreign currency | $(1,096) | $(16,641) |
| Net realized gain (loss) on investments due to foreign currency | 1,016 | (7,402) |
| Net change in unrealized appreciation on foreign currency translation | 3,615 | (6,525) |
| Net realized gain (loss) on foreign currency transactions | (5,207) | 4,932 |
| Net change in unrealized appreciation on forward currency exchange contracts | 5,792 | 7,565 |
| Net realized gain (loss) on forward currency exchange contracts | (2,606) | 20,894 |
| Foreign currency impact to net increase in net assets resulting from operations | $1,514 | $2,823 |

Included in total net losses on the consolidated statements of operations is losses of ($1.7) million and ($25.6) million related to realized and unrealized gains and losses on investments, foreign currency holdings and non-investment assets and liabilities attributable to the changes in foreign currency exchange rates for the nine months ended September 30, 2023 and 2022, respectively. Including the total net realized and unrealized gains on forward currency exchange contracts of $3.2 million and $28.5 million, respectively, included in the above table, the net impact of foreign currency on total net gains on the consolidated statements of operations is $1.5 million and $2.8 million for the nine months ended September 30, 2023 and 2022, respectively.

### Net Increase (Decrease) in Net Assets Resulting from Operations

For the three months ended September 30, 2023 and 2022, the net increase in net assets resulting from operations was $33.9 million and $11.1 million, respectively. Based on the weighted average shares of common stock outstanding for the three months ended September 30, 2023 and 2022, our per share net increase in net assets resulting from operations was $0.52 and $0.17, respectively.

For the nine months ended September 30, 2023 and 2022, the net increase in net assets resulting from operations was $92.3 million and $62.0 million, respectively. Based on the weighted average shares of common stock outstanding for the nine months ended September 30, 2023 and 2022, our per share net increase in net assets resulting from operations was $1.43 and $0.96, respectively.

### Financial Condition, Liquidity and Capital Resources

Our liquidity and capital resources are derived primarily from proceeds from equity issuances, advances from our credit facilities, 2019‑1 Debt, March 2026 Notes, October 2026 Notes, the Sumitomo Credit Facility and cash flows from operations. The primary uses of our cash are for (1) investments in portfolio companies and other investments and to comply with certain portfolio diversification requirements; (2) the cost of operations (including payments to the Advisor under the Investment Advisory and Administration Agreements); (3) debt service, repayment, and other financing costs; and, (4) cash distributions to the holders of our common shares.

We intend to continue to generate cash primarily from cash flows from operations, future borrowings and future offerings of securities. We may from time to time raise additional equity or debt capital through registered offerings, enter into additional debt facilities, or increase the size of existing facilities or issue debt securities. Any such incurrence or issuance would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. We are required to meet an asset coverage ratio, defined under the 1940 Act as the ratio of our total assets (less all liabilities and indebtedness not represented by senior securities) to our outstanding senior securities, of at least 150% after each issuance of senior securities. As of September 30, 2023 and December 31, 2022, our asset coverage ratio was 182.2% and 180.0%, respectively.

At September 30, 2023 and December 31, 2022, we had $105.4 million and $125.7 million in cash, foreign cash, restricted cash and cash equivalents, respectively.

At September 30, 2023, we had approximately $224.2 million of availability on our Sumitomo Credit Facility, subject to existing terms and regulatory requirements. At December 31, 2022, we had approximately $222.0 million of availability on our Sumitomo Credit Facility and $50.0 million of availability on our Revolving Advisor Loan, subject to existing terms and regulatory requirements.

For the nine months ended September 30, 2023, cash, foreign cash, restricted cash, and cash equivalents decreased by $20.3 million. During the nine months ended September 30, 2023, we provided $70.6 million in cash for operating activities. The increase in cash provided by operating activities was primarily related to cash generated from earnings of $92.3 million outpacing net increase in investments of $14.6 million.

During the nine months ended September 30, 2023, we used $89.3 million for financing activities, primarily due to borrowings and repayments on our Sumitomo Credit Facility and paying our quarterly dividend to shareholders.

For the nine months ended September 30, 2022, cash, foreign cash, restricted cash, and cash equivalents decreased by $144.8 million. During the nine months ended September 30, 2022, we used $379.9 million in cash for operating activities. The decrease in cash used for operating activities was primarily related to the purchases of investments of $1,202.2 million, which was offset by proceeds from principal payments and sales of investments of $735.4 million and a net increase in assets resulting from operations of $62.0 million.

During the nine months ended September 30, 2022, we provided $235.5 million for financing activities, primarily due to borrowings and repayments on our Sumitomo Credit Facility and the retirement of the 2023 Notes.

### Equity

On November 19, 2018, we closed our initial public offering (the “IPO”) issuing 7,500,000 shares of its common stock at a public offering price of $20.25 per share. Shares of common stock of the Company began trading on the New York Stock Exchange under the symbol “BCSF” on November 15, 2018. The offering generated net proceeds, after expenses, of $145.4 million. All outstanding capital commitments from the Company’s Private Offering were cancelled as of the completion of the IPO.

During the nine months ended September 30, 2023, we did not issue shares of our common stock to investors who have opted into our dividend reinvestment plan. During the nine months ended September 30, 2022, we did not issue shares of our common stock to investors who have opted into our dividend reinvestment plan.

On May 7, 2019, the Company’s Board of Directors authorized the Company to repurchase up to $50 million of its outstanding common stock in accordance with safe harbor rules under the Exchange Act of 1934. Any such repurchases will depend upon market conditions and there is no guarantee that the Company will repurchase any particular number of shares or any shares at all. As of September 30, 2023, there have been no repurchases of common stock.

On May 4, 2020, the Company’s Board of Directors approved a transferable subscription rights offering to our stockholders of record as of May 13, 2020. The rights entitled record stockholders to subscribe for up to an aggregate of 12,912,453 shares of our common stock. Record stockholders received one right for each share of common stock owned on the record date. The rights entitled the holders to purchase one new share of common stock for every four rights held, and record stockholders who fully exercised their rights were entitled to subscribe, subject to certain limitations and allotment rules, for additional shares that remain unsubscribed as a result of any unexercised rights. The rights were transferable and listed on the New York Stock Exchange under the symbol “BCSF RT”. The rights offering expired June 5, 2020. Based on the terms of the offering and the market price of the stock during the applicable period, holders of rights participating in the offering were entitled to purchase one new share of common stock for every four rights held at a subscription price of $10.2163 per share. On June 16, 2020, the Company closed its transferrable rights offering and issued 12,912,453 shares. The offering generated net proceeds, before expenses, of $129.6 million, including the underwriting discount and commissions of $2.3 million.

### Debt

The Company’s outstanding borrowings as of September 30, 2023 and December 31, 2022 were as follows:

|  | As of September 30, 2023 Total Aggregate Principal Amount Committed | Principal Amount Outstanding | Carrying Value (1) | As of December 31, 2022 Total Aggregate Principal Amount Committed | Principal Amount Outstanding | Carrying Value (1) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| 2019-1 Debt | $352,500 | $352,500 | $351,196 | $352,500 | $352,500 | $351,099 |
| Revolving Advisor Loan | — | — | — | 50,000 | — | — |
| March 2026 Notes | 300,000 | 300,000 | 297,237 | 300,000 | 300,000 | 296,392 |
| October 2026 Notes | 300,000 | 300,000 | 295,837 | 300,000 | 300,000 | 294,812 |
| Sumitomo Credit Facility (2) | 665,000 | 426,000 | 426,000 | 665,000 | 443,000 | 443,000 |
| Total Debt | $1,617,500 | $1,378,500 | $1,370,270 | $1,667,500 | $1,395,500 | $1,385,303 |

(1) Carrying value represents aggregate principal amount outstanding less unamortized debt issuance costs.

(2) On January 26, 2022, Gale Aviation (Offshore) Co investment, a controlled affiliate investment of the Company, entered into a letter of credit agreement with Sumitomo Mitsui Banking Corporation for $14.7 million. As of September 30, 2023, $14.7 million is outstanding on the letter of credit and the amount has been drawn against the total aggregate principal amount committed of the Sumitomo Credit Facility.

### Distribution Policy

The Company’s distributions are recorded on the record date. The following tables summarizes distributions declared during the nine months ended September 30, 2023 (dollars 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 | September 29, 2023 | October 31, 2023 | $0.42 | $27,116 |
| Total distributions declared |  |  | $1.18 | $76,184 |

132

The Company’s distributions are recorded on the record date. The following table summarizes distributions declared during the nine months ended September 30, 2022 (dollars in thousands, except per share data):

| 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 | September 30, 2022 | October 28, 2022 | $0.34 | $21,951 |
| Total distributions declared |  |  | $1.02 | $65,853 |

Distributions to common stockholders are recorded on the record date. To the extent that we have income available, we intend to distribute quarterly distributions to our stockholders. Our quarterly distributions, if any, will be determined by the Board. Any distributions to our stockholders will be declared out of assets legally available for distribution.

We have elected to be treated, and intend to operate in a manner so as to continuously qualify, as a regulated investment company (a “RIC) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), beginning with our taxable year ended December 31, 2016. To qualify for and maintain RIC tax treatment, among other things, we must distribute dividends to our stockholders in respect of each taxable year of an amount generally at least equal to 90% of the sum of our net ordinary income and net short-term capital gains in excess of our net long-term capital losses. In addition, we generally will be required to pay an excise tax equal to 4% on certain undistributed taxable income unless we distribute in a timely manner an amount at least equal to the sum of: (1) 98% of our net ordinary income (taking into account certain deferrals and elections) for such calendar year; (2) 98.2% of our capital gains in excess of capital losses, adjusted for certain ordinary losses, generally for the one-year period ending on October 31 of such calendar year; and (3) the sum of any net ordinary income plus capital gains net income for preceding years that were not distributed during such years and on which we paid no federal income tax. The taxable income on which we pay excise tax is generally distributed to our stockholders in the next tax year. Depending on the level of taxable income earned in a tax year, we may choose to carry forward such taxable income for distribution in the following year, and pay any applicable excise tax. For the three months ended September 30, 2023 and 2022 we recorded an expense of $0.6 million and $0.0 million, respectively for U.S. federal excise tax. For the nine months ended September 30, 2023 and 2022 we recorded an expense of $1.9 million and $0.0 million, respectively for U.S. federal excise tax.

We intend to distribute net capital gains (i.e., net long-term capital gains in excess of net short-term capital losses), if any, at least annually out of the assets legally available for such distributions. However, we may decide in the future to retain all or a portion of our net capital gains for investment, incur a corporate-level tax on such capital gains, and elect to treat such capital gains as deemed distributions to our stockholders.

We have adopted a dividend reinvestment plan that provides for the reinvestment of cash dividends and distributions. Prior to the IPO, stockholders who “opted in” to our dividend reinvestment plan had their cash dividends and distributions automatically reinvested in additional shares of our common stock, rather than receiving cash dividends and distributions. Subsequent to the IPO, stockholders who do not “opt out” of our dividend reinvestment plan will have their cash dividends and distributions automatically reinvested in additional shares of our common stock, rather than receiving cash dividends and distributions. Stockholders could elect to “opt in” or “opt out” of our dividend reinvestment plan in their subscription agreements, through the private offering. The elections of stockholders prior to the IPO shall remain effective after the IPO.

The U.S. federal income tax characterization of distributions declared and paid for the fiscal year will be determined at fiscal year-end based upon our investment company taxable income for the full fiscal year and distributions paid during the full year.

### Commitments and Off-Balance Sheet Arrangements

We may become a party to financial instruments with off-balance sheet risk in the normal course of our business to fund investments and to meet the financial needs of our portfolio companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized on the statements of assets and liabilities.

### Significant Accounting Estimates and Critical Accounting Policies

### Basis of Presentation

The Company’s unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). The Company’s unaudited consolidated financial statements and related financial information have been prepared pursuant to the requirements for reporting on Form 10‑Q and Articles 1, 6, 10 and 12 of Regulation S-X. These consolidated financial statements reflect adjustments that in the opinion of the Company are necessary for the fair statement of the financial position and results of operations for the periods presented herein and are not necessarily indicative of the full fiscal year. We have determined we meet the definition of an investment company and follow the accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 — Financial Services — Investment Companies (“ASC 946”). Our financial currency is U.S. dollars and these consolidated financial statements have been prepared in that currency.

### Use of Estimates

The preparation of the consolidated financial statements in conformity with US GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates and such differences could be material.

### Revenue Recognition

We record our investment transactions on a trade date basis. We record realized gains and losses based on the specific identification method. We record interest income, adjusted for amortization of premium and accretion of discount, on an accrual basis. Discount and premium to par value on investments acquired are accreted and amortized, respectively, into interest income over the life of the respective investment using the effective interest method. Loan origination fees, original issue discount and market discount or premium are capitalized and amortized into or against interest income using the effective interest method or straight-line method, as applicable. We record any prepayment premiums, unamortized upfront loan origination fees and unamortized discounts received upon prepayment of a loan or debt security as interest income.

Dividend income on preferred equity investments is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity investments is recorded on the record date for such distributions in the case of private portfolio companies, and on the ex-dividend date for publicly traded portfolio companies. Distributions received from a limited liability company or limited partnership investment are evaluated to determine if the distribution should be recorded as dividend income or a return of capital.

Certain investments may have contractual PIK interest or dividends. PIK represents accrued interest or accumulated dividends that are added to the loan principal of the investment on the respective interest or dividend payment dates rather than being paid in cash and generally becomes due at maturity or upon being called by the issuer. We record PIK as interest or dividend income, as applicable. If at any point we believe PIK may not be realized, we place the investment generating PIK on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends are generally reversed through interest or dividend income, as applicable.

Certain structuring fees and amendment fees are recorded as other income when earned. We record administrative agent fees received as other income when the services are rendered.

### Valuation of Portfolio Investments

The Advisor shall value the investments owned by the Company, subject at all times to the oversight of the Board. The Advisor shall follow its own written valuation policies and procedures as approved by the Board when determining valuations. A short summary of the Advisor’s valuation policies is below.

Investments for which market quotations are readily available are typically valued at such market quotations. Pursuant to Rule 2a-5 under the 1940 Act, the Board designates the Advisor as Valuation Designee to perform fair value determinations for the Company for investments that do not have readily available market quotations. Market quotations are obtained from an independent pricing service, where available. If a price cannot be obtained from an independent pricing service or if the independent pricing service is not deemed to be current with the market, certain investments held by the Company will be valued on the basis of prices provided by principal market makers. Generally, investments marked in this manner will be marked at the mean of the bid and ask of the independent broker quotes obtained. To validate market quotations, the Company utilizes a number of factors to determine if the quotations are representative of fair value, including the source and number of quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available will be valued at a price that reflects such security’s fair value.

With respect to unquoted portfolio investments, the Company will value each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies that are public, and other factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Company will use the pricing indicated by the external event to corroborate and/or assist us in our valuation. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.

With respect to investments for which market quotations are not readily available, in particular, illiquid/hard to value assets, the Advisor will typically undertake a multi-step valuation process, which includes among other things, the below:

- The Company’s quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of the Advisor responsible for the portfolio investment;
- Preliminary valuation conclusions are then documented and discussed with the Company’s senior management and the Advisor;
- Generally investments that constitute a material portion of the Company’s portfolio are periodically reviewed by an independent valuation firm; and
- The Board and Audit Committee provide oversight with respect to the valuation process, including requesting such materials as they deem appropriate.

In following this approach, the types of factors that are taken into account in the fair value pricing of investments include, as relevant, but are not limited to: comparison to publicly traded securities, including factors such as yield, maturity and measures of credit quality; the enterprise value of a portfolio company; the nature and realizable value of any collateral; the portfolio company’s ability to make payments and its earnings and discounted cash flows; and the markets in which the portfolio company does business. In cases where an independent valuation firm provides fair valuations for investments, the independent valuation firm provides a fair valuation report, a description of the methodology used to determine the fair value and their analysis and calculations to support their conclusion.

### Contractual Obligations

We have entered into the Amended Advisory Agreement with our Advisor (which supersedes the Prior Investment Advisory Agreement dated November 14, 2018 we had previously entered into). Our Advisor has agreed to serve as our investment adviser in accordance with the terms of the Amended Advisory Agreement. Under the Amended Advisory Agreement, we have agreed to pay an annual base management fee as well as an incentive fee based on our investment performance.

On November 28, 2018, our Board, including a majority of our Independent Directors, approved the Amended Advisory Agreement. On February 1, 2019 the Company’s stockholders approved the Amended Advisory Agreement. Pursuant to this Agreement, effective February 1, 2019, the base management fee of 1.5% (0.375% per quarter) of the average value of the Company’s gross assets (excluding cash and cash equivalents, but including assets purchased with borrowed amounts) will continue to apply to assets held at an asset coverage ratio of 200%, but a lower base management fee of 1.0% (0.25% per quarter) of the average value of the Company’s gross assets (excluding cash and cash equivalents, but including assets purchased with borrowed amounts) will apply to any amount of assets attributable to leverage decreasing the Company’s asset coverage ratio below 200%. The Amended Advisory Agreement incorporates (i) a three-year lookback provision and (ii) a cap on quarterly income incentive fee payments based on net realized or unrealized capital loss, if any, during the applicable three-year lookback period.

We have entered into an Administration Agreement with the Administrator pursuant to which the Administrator will furnish us with administrative services necessary to conduct our day-to-day operations. We reimburse the Administrator for its costs and expenses and our allocable portion of overhead incurred by it in performing its obligations under the Administration Agreement, including certain compensation paid to or compensatory distributions received by our officers (including our Chief Compliance Officer and Chief Financial Officer) and any of their respective staff who provide services to us, operations staff who provide services to us, and internal audit staff, if any, to the extent internal audit performs a role in our Sarbanes-Oxley internal control assessment.

If any of our contractual obligations discussed above are terminated, our costs may increase under any new agreements that we enter into as replacements. We would also likely incur expenses in locating alternative parties to provide the services we expect to receive under our Amended Advisory Agreement and Administration Agreement.

The following table shows the contractual maturities of our debt obligations as of September 30, 2023 (dollars in thousands):

|  | Payments Due by Period 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 |

136

## Market risk

As filed, 2,238 characters.

We are subject to financial market risks, including changes in interest rates. We will generally invest in illiquid loans and securities including debt and equity securities of middle-market companies. Because we expect that there will not be a readily available market for many of the investments in our portfolio, we expect to value many of our portfolio investments at fair value as determined in good faith by the Board using a documented valuation policy and a consistently applied valuation process. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.

Assuming that the statement of financial condition as of September 30, 2023 were to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates (dollars 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) |
| Down 200 basis points | (35,063) | (15,570) | (16,569) |
| Down 300 basis points | (52,511) | (23,355) | (24,783) |
| Up 100 basis points | 17,532 | 7,785 | 8,285 |
| Up 200 basis points | 35,063 | 15,570 | 16,569 |
| Up 300 basis points | 52,595 | 23,355 | 24,854 |

From time to time, we may make investments that are denominated in a foreign currency. These investments are translated into U.S. dollars at the balance sheet date, exposing us to movements in foreign exchange rates. We may employ hedging techniques to minimize these risks, but we cannot assure you that such strategies will be effective or without risk to us. We may seek to utilize instruments such as, but not limited to, forward contracts to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates.

## Controls and procedures

As filed, 1,826 characters.

### Evaluation of Disclosure Controls and Procedures

As of September 30, 2023 (the end of the period covered by this report), our management has carried out an evaluation, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a‑15 and 15d‑15(e) under the Exchange Act). Based on that evaluation our Chief Executive Officer and Chief Financial Officer have concluded that our current disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.

### Changes in Internal Controls Over Financial Reporting

There have been no changes in our internal control over financial reporting, as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act, that occurred during our most recently completed fiscal quarter ended September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 1,535 characters.

In addition to the other information set forth in this report, you should carefully consider the factors described below and discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which could materially affect our business, financial condition and/or operating results. The risks described below and in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties are not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

***Our business is dependent on bank relationships and recent strain on the banking system may adversely impact us.***

The financial markets recently have encountered volatility associated with concerns about the banking industry, especially small and regional banks who may have significant losses associated with investments that make it difficult to fund demands to withdraw deposits and other liquidity needs. Although the federal government has announced measures to assist these banks and protect depositors, some banks have already been impacted, including suffering bank failures, and others may be materially and adversely impacted. Our business is dependent on bank relationships and we are proactively monitoring the financial health of such bank relationships. Continued strain on the banking system may adversely impact our business, financial condition and results of operations.

Filed Nov 6, 2023.
Source: SEC EDGAR, the filing index for accession 0000950170-23-059452. Last ingested by Listed: Oct 24, 2026, 15:15 ET. No prices; not investment advice.