# Bain Capital Specialty Finance, Inc.: Form 10-Q for the period ended Mar 31, 2020

- Company: [Bain Capital Specialty Finance, Inc.](/companies/bcsf.md) (CIK 1655050)
- Form: 10-Q
- Filed: 2020-05-04
- Accepted by EDGAR: May 4, 2020, 17:18 ET
- Period: 2020-03-31
- Accession: 0001104659-20-056299
- Inline XBRL: no
- Main document: https://www.sec.gov/Archives/edgar/data/1655050/000110465920056299/tm2016704-1_10q.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1655050/000110465920056299/

## Management's discussion and analysis

As filed, 109,597 characters.

You should read the following analysis of our financial condition and results of operations in conjunction with our financial statements and related notes appearing in our Annual Report on Form 10-K (the “Annual Report”) for the year ended December 31, 2019, filed with the U.S. Securities and Exchange Commission (“SEC”) on February 26, 2020. The information contained in this section should also be read in conjunction with our unaudited financial statements and related notes and other financial information appearing elsewhere in this Quarterly Report on Form 10-Q (the “Quarterly 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 March 31, 2020, we have invested approximately $3.7 billion 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.

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. Due to the impact of COVID-19 and related measures taken to contain its spread, investment activity for the first quarter of 2020 was focused primarily on meeting undrawn commitments from existing portfolio companies and, to a lesser extent, opportunistically pursuing investments made available or potentially more attractively priced as a result of market disruptions. The future duration and breadth of the adverse impact of COVID-19 on the broader markets in which the Company invests cannot currently be accurately predicted and future investment activity of the Company will be subject to these effects and the related uncertainty.

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 March 31, 2020 and December 31, 2019, 99.7% and 99.0%, 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 LIBOR, 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 investment advisory agreement (the “Investment 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;
- the base management fee and any incentive fee;
- 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 $0.0 million and $0.1 million for the three months ended March 31, 2020 and 2019, 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 March 31, 2020 and 2019, 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), as of March 31, 2020, 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.

### Impact of COVID-19

In late 2019 and early 2020, a novel coronavirus (SARS-CoV-2) and related respiratory disease ("COVID-19") emerged in China and spread rapidly to across the world, including to the U.S. This outbreak has led and for an unknown period of time will continue to lead to disruptions in local, regional, national and global markets and economies affected thereby. The extent to which the COVID-19 pandemic will adversely impact the Company’s business, financial condition, liquidity and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including the scope and duration of this outbreak, and any future outbreaks.

It is clear that these types of events are negatively impacting and will, for at least some time, continue to negatively impact the Company and portfolio companies and in many instances the impact will be profound. For example, smaller and middle market companies in which we may invest are being significantly impacted by these emerging events and the uncertainty caused by these events. With respect to loans to such companies, the Company will be impacted if, among other things, (i) amendments and waivers are granted (or are required to be granted) to borrowers permitting deferral of loan payments or allowing for payment-in-kind (“PIK”) interest payments, (ii) borrowers default on their loans, are unable to refinance their loans at maturity, or go out of business permanently, and/or (iii) the value of loans held by the Company decreases as a result of such events and the uncertainty they cause. Such emerging events, to the extent experienced, will cause the Company to suffer a loss on its investments or interest thereon. The Company will also be negatively affected if the operations and effectiveness of the Adviser or a portfolio company (or any of the key personnel or service providers of the foregoing) is compromised or if necessary or beneficial systems and processes are disrupted as a result of stay-at-home orders or other related interruptions to regular business operations. The Company has limited exposure to cyclical industries, including those currently experiencing significant distress, such as the energy, hospitality, and airline industries. The Company has no direct investments in commercial aviation companies and has focused on identifying portfolio companies in defensive industries such as technology, aerospace & defense and healthcare & pharmaceuticals with an emphasis on the durability of a portfolio company’s cash flow profile.

With respect to the Company’s investments, we are taking incremental steps in actively overseeing all of our individual portfolio companies. These measures include, among other things, (i) frequent communication with our portfolio company management teams and related private equity sponsors to understand the expected financial performance impact of the COVID-19 pandemic; (ii) re-underwriting our portfolio companies to understand the impact if the current economic environment persists; and (iii) the creation of an internal working group focused on understanding the potential financial needs of our portfolio companies and engaging with these companies and their private equity sponsors, as needed.

The effects of the COVID-19 pandemic on economic and market conditions have increased the Company’s demands to provide capital to its existing portfolio companies. During the month of March 2020, we received unprecedented draw requests on revolving credit and delayed draw facilities we provided to our portfolio companies as many of them sought to husband excess cash as a defensive measure in these uncertain times. All of those draws were met in a timely fashion and we maintain adequate cash and additional borrowing capacity in reserve to meet any further such draw requests.

The Company experienced a significant reduction in our net asset value as of March 31, 2020 as compared to our net asset value as of December 31, 2019. The significant decrease is primarily the result of the impact of the COVID-19 pandemic. During the three months ended March 31, 2020, the Company had significant net losses driven by unrealized depreciation across the fair value of the Company’s investments due to spread widening.

The decline in value of the Company’s net asset value, together, with the new fundings of draw requests on revolving credit and delayed draw facilities, caused the Company’s asset coverage to decrease as of March 31, 2020 as compared to our asset coverage as of December 31, 2019. As of March 31, 2020, we are permitted under the 1940 Act, as a BDC, to borrow amounts such that our asset coverage, as defined in the 1940 Act, must equal at least 150% immediately after each time we incur indebtedness. As of March 31, 2020, the Company’s asset coverage was 154%.

As of March 31, 2020, the Company was in compliance with its asset coverage requirements under the 1940 Act. In addition, the Company was in compliance with all financial covenants within its credit facilities as of March 31, 2020. However, any continued increase in realized or unrealized depreciation of our investment portfolio or further significant reductions in our net asset value as a result of the effects of the COVID-19 pandemic or otherwise increase the risk of breaching the relevant covenants and requirements. Any breach of these requirements may adversely affect the Company's access to sufficient debt and equity capital. The effects of the COVID-19 pandemic may also cause the Company to limit distributions.

It is impossible to determine the scope of this outbreak, or any future outbreaks, how long any such outbreak, market disruption or uncertainties may last, the effect any governmental actions will have or the full potential impact on the Company, the Adviser and portfolio companies.

### Portfolio and Investment Activity

During the three months ended March 31, 2020, we invested $276.3 million, including PIK, in 52 portfolio companies, and had $180.7 million in aggregate amount of principal repayments and sales, resulting in a net increase in investments of $95.6 million for the period. Of the $276.3 million invested during the three months ended March 31, 2020, $165.4 million was related to drawdowns on delayed draw term loans and revolvers of our portfolio companies.

During the three months ended March 31, 2019, we invested $275.6 million, including PIK, in 45 portfolio companies, including ABCS as a single portfolio company, and had $192.2 million in aggregate amount of principal repayments and sales, resulting in a net increase in investments of $83.4 million for the period.

The following table shows the composition of the investment portfolio and associated yield data as of March 31, 2020 (dollars in thousands):

|  | As of March 31, 2020 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 | $2,283,074 | 87.0% | $2,178,825 | 87.7% | 6.9% | 7.2% |
| First Lien Last Out Loans | 16,821 | 0.6 | 16,258 | 0.6 | 10.7 | 11.1 |
| Second Lien Senior Secured Loans | 187,660 | 7.2 | 153,050 | 6.2 | 9.2 | 10.8 |
| Subordinated Debt | 14,763 | 0.6 | 15,000 | 0.6 | 12.7 | 12.5 |
| Equity Interests | 103,332 | 3.9 | 99,867 | 4.0 | 10.1 | 9.9 |
| Preferred Equity | 19,584 | 0.7 | 21,533 | 0.9 | 15.1 | 15.0 |
| Warrants | — | 0.0 | — | 0.0 | N/A | N/A |
| Total | $2,625,234 | 100.0% | $2,484,533 | 100.0% | 7.3% | 7.6% |

(1) Weighted average yields are computed as (a) the annual stated interest rate or yield earned on the relevant accruing debt and other income producing securities, divided by (b) the total relevant investments at amortized cost or at fair value, as applicable. The weighted average yield does not represent the total return to our stockholders.

The following table shows the composition of the investment portfolio and associated yield data as of December 31, 2019 (dollars in thousands):

|  | As of December 31, 2019 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 | $2,167,932 | 85.4% | $2,165,844 | 85.7% | 7.5% | 7.5% |
| First Lien Last Out Loans | 28,315 | 1.1 | 29,300 | 1.2 | 9.9 | 9.5 |
| Second Lien Senior Secured Loans | 187,565 | 7.4 | 175,670 | 7.0 | 9.7 | 10.0 |
| Subordinated Debt | 14,752 | 0.6 | 15,000 | 0.5 | 13.5 | 13.3 |
| Corporate Bonds | 22,412 | 0.9 | 17,508 | 0.7 | 8.5 | 10.8 |
| Equity Interests | 96,736 | 3.8 | 99,293 | 3.9 | 7.7 | 7.5 |
| Preferred Equity | 19,551 | 0.8 | 24,318 | 1.0 | 15.1 | 15.1 |
| Warrants | — | 0.0 | 122 | 0.0 | N/A | N/A |
| Total | $2,537,263 | 100.0% | $2,527,055 | 100.0% | 7.8% | 7.8% |

(1) Weighted average yields are computed as (a) the annual stated interest rate or yield earned on the relevant accruing debt and other income producing securities, divided by (b) the total relevant investments at amortized cost or at fair value, as applicable. The weighted average yield does not represent the total return to our stockholders.

The following table presents certain selected information regarding our investment portfolio as of March 31, 2020:

|  | As of March 31, 2020 |
| --- | ---: |
| Number of portfolio companies | 108 |
| Percentage of debt bearing a floating rate (1) | 99.7% |
| Percentage of debt bearing a fixed rate (1) | 0.3% |

(1) Measured on a fair value basis.

The following table presents certain selected information regarding our investment portfolio as of December 31, 2019:

|  | As of December 31, 2019 |
| --- | ---: |
| Number of portfolio companies | 114 |
| Percentage of debt bearing a floating rate (1) | 99.0% |
| Percentage of debt bearing a fixed rate (1) | 1.0% |

(1) Measured on a fair value basis.

The following table shows the amortized cost and fair value of our performing and non-accrual investments as of March 31, 2020 (dollars in thousands):

|  | As of March 31, 2020 Amortized Cost | Percentage at Amortized Cost | Fair Value | Percentage at Fair Value |
| --- | ---: | ---: | ---: | ---: |
| Performing | $2,579,499 | 98.3% | $2,458,445 | 98.9% |
| Non-accrual | 45,735 | 1.7 | 26,088 | 1.1 |
| Total | $2,625,234 | 100% | $2,484,533 | 100% |

The following table shows the amortized cost and fair value of our performing and non-accrual investments as of December 31, 2019 (dollars in thousands):

|  | As of December 31, 2019 Amortized Cost | Percentage at Amortized Cost | Fair Value | Percentage at Fair Value |
| --- | ---: | ---: | ---: | ---: |
| Performing | $2,523,110 | 99.4% | $2,523,626 | 99.9% |
| Non-accrual | 14,153 | 0.6 | 3,429 | 0.1 |
| Total | $2,537,263 | 100.0% | $2,527,055 | 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 March 31, 2020, there had been three loans placed on non-accrual in the Company's portfolio and only 1.1% of portfolio, based on fair value, was on non-accrual status. This is compared to two loans on non-accrual as of December 31, 2019 and 0.1% of the portfolio being on non-accrual status.

The following table shows the amortized cost and fair value of the investment portfolio, cash and cash equivalents and foreign cash as of March 31, 2020 (dollars in thousands):

|  | As of March 31, 2020 Amortized Cost | Percentage of Total | Fair Value | Percentage of Total |
| --- | ---: | ---: | ---: | ---: |
| Cash and cash equivalents | $55,128 | 2.0% | $55,128 | 2.2% |
| Foreign cash | 943 | 0.0 | 632 | 0.0 |
| Restricted cash | 18,706 | 0.7 | 18,706 | 0.7 |
| First Lien Senior Secured Loans | 2,283,074 | 84.6 | 2,178,825 | 85.1 |
| First Lien Last Out Loans | 16,821 | 0.6 | 16,258 | 0.6 |
| Second Lien Senior Secured Loans | 187,660 | 7.0 | 153,050 | 6.0 |
| Subordinated Debt | 14,763 | 0.6 | 15,000 | 0.7 |
| Equity Interests | 103,332 | 3.8 | 99,867 | 3.9 |
| Preferred Equity | 19,584 | 0.7 | 21,533 | 0.8 |
| Warrants | — | 0.0 | — | 0.0 |
| Total | $2,700,011 | 100.0% | $2,558,999 | 100.0% |

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, 2019 (dollars in thousands):

|  | As of December 31, 2019 Amortized Cost | Percentage of Total | Fair Value | Percentage of Total |
| --- | ---: | ---: | ---: | ---: |
| Cash and cash equivalents | $36,531 | 1.4% | $36,531 | 1.4% |
| Foreign cash | 854 | 0.0 | 810 | 0.0 |
| Restricted cash and cash equivalents | 31,505 | 1.2 | 31,505 | 1.3 |
| First Lien Senior Secured Loans | 2,167,932 | 83.2 | 2,165,844 | 83.4 |
| First Lien Last Out Loans | 28,315 | 1.1 | 29,300 | 1.1 |
| Second Lien Senior Secured Loans | 187,565 | 7.2 | 175,670 | 6.8 |
| Subordinated Debt | 14,752 | 0.5 | 15,000 | 0.6 |
| Corporate Bonds | 22,412 | 0.9 | 17,508 | 0.7 |
| Equity Interests | 96,736 | 3.7 | 99,293 | 3.8 |
| Preferred Equity | 19,551 | 0.8 | 24,318 | 0.9 |
| Warrants | — | 0.0 | 122 | 0.0 |
| Total | $2,606,153 | 100.0% | $2,595,901 | 100.0% |

48

The following table shows the composition of the investment portfolio by industry, at amortized cost and fair value as of March 31, 2020 (with corresponding percentage of total portfolio investments) (dollars in thousands):

|  | As of March 31, 2020 Amortized Cost | Percentage of Total Portfolio | Fair Value | Percentage of Total Portfolio |
| --- | ---: | ---: | ---: | ---: |
| High Tech Industries | $393,219 | 15.0% | $378,539 | 15.2% |
| Aerospace & Defense | 319,706 | 12.2 | 306,957 | 12.4 |
| Healthcare & Pharmaceuticals | 225,606 | 8.6 | 209,603 | 8.4 |
| Consumer Goods: Non-Durable | 211,887 | 8.1 | 206,863 | 8.3 |
| Capital Equipment | 188,172 | 7.2 | 185,100 | 7.5 |
| Services: Business | 198,438 | 7.6 | 182,645 | 7.4 |
| Transportation: Cargo | 117,045 | 4.5 | 113,471 | 4.6 |
| Construction & Building | 109,634 | 4.2 | 106,754 | 4.3 |
| Wholesale | 80,575 | 3.1 | 73,846 | 3.0 |
| Energy: Oil & Gas | 80,603 | 3.1 | 72,177 | 2.9 |
| Automotive | 69,217 | 2.6 | 67,997 | 2.7 |
| Consumer Goods: Durable | 67,532 | 2.6 | 65,370 | 2.6 |
| Transportation: Consumer | 69,696 | 2.6 | 61,343 | 2.4 |
| FIRE: Insurance (1) | 58,540 | 2.2 | 56,203 | 2.3 |
| Media: Advertising, Printing & Publishing | 59,762 | 2.3 | 52,736 | 2.1 |
| Hotel, Gaming & Leisure | 53,022 | 2.0 | 46,867 | 1.9 |
| Media: Broadcasting & Subscription | 43,199 | 1.6 | 43,162 | 1.7 |
| Media: Diversified & Production | 37,920 | 1.4 | 36,777 | 1.5 |
| Chemicals, Plastics & Rubber | 33,702 | 1.3 | 33,327 | 1.3 |
| Retail | 32,289 | 1.2 | 32,125 | 1.3 |
| Services: Consumer | 30,479 | 1.2 | 27,168 | 1.1 |
| Telecommunications | 21,850 | 0.8 | 20,879 | 0.8 |
| Energy: Electricity | 22,124 | 0.8 | 20,784 | 0.8 |
| Environmental Industries | 16,821 | 0.6 | 16,258 | 0.7 |
| FIRE: Finance (1) | 14,865 | 0.6 | 14,857 | 0.6 |
| Banking | 15,340 | 0.6 | 14,388 | 0.6 |
| Containers, Packaging & Glass | 11,642 | 0.4 | 11,485 | 0.5 |
| FIRE: Real Estate (1) | 10,805 | 0.4 | 10,024 | 0.4 |
| Beverage, Food & Tobacco | 21,235 | 0.8 | 9,461 | 0.4 |
| Forest Products & Paper | 10,309 | 0.4 | 7,367 | 0.3 |
| Total | $2,625,234 | 100.0% | $2,484,533 | 100.0% |

(1) Finance, Insurance and Real Estate (“FIRE”).

The following table shows the composition of the investment portfolio by industry, at amortized cost and fair value as of December 31, 2019 (with corresponding percentage of total portfolio investments) (dollars in thousands):

|  | As of December 31, 2019 Amortized Cost | Percentage of Total Portfolio | Fair Value | Percentage of Total Portfolio |
| --- | ---: | ---: | ---: | ---: |
| High Tech Industries | $356,086 | 14.0% | $356,073 | 14.1% |
| Aerospace & Defense | 305,111 | 12.0 | 307,863 | 12.2 |
| Healthcare & Pharmaceuticals | 255,579 | 10.1 | 254,014 | 10.1 |
| Consumer Goods: Non-Durable | 195,602 | 7.7 | 196,653 | 7.8 |
| Capital Equipment | 183,618 | 7.2 | 186,913 | 7.4 |
| Services: Business | 165,286 | 6.5 | 165,862 | 6.5 |
| Transportation: Cargo | 116,074 | 4.6 | 116,237 | 4.6 |
| Construction & Building | 107,413 | 4.2 | 108,176 | 4.3 |
| Wholesale | 79,542 | 3.1 | 78,225 | 3.1 |
| Energy: Oil & Gas | 77,264 | 3.0 | 77,979 | 3.1 |
| Automotive | 66,522 | 2.6 | 67,374 | 2.7 |
| Consumer Goods: Durable | 63,712 | 2.5 | 63,394 | 2.5 |
| Transportation: Consumer | 62,473 | 2.5 | 61,662 | 2.3 |
| Media: Advertising, Printing & Publishing | 59,419 | 2.3 | 54,765 | 2.2 |
| FIRE: Insurance (1) | 52,367 | 2.1 | 54,086 | 2.1 |
| Hotel, Gaming & Leisure | 52,866 | 2.1 | 53,074 | 2.1 |
| Media: Broadcasting & Subscription | 43,165 | 1.7 | 44,247 | 1.8 |
| Media: Diversified & Production | 35,670 | 1.4 | 36,403 | 1.4 |
| Retail | 34,774 | 1.4 | 34,827 | 1.4 |
| Chemicals, Plastics & Rubber | 32,288 | 1.3 | 32,446 | 1.3 |
| Services: Consumer | 30,458 | 1.2 | 30,794 | 1.2 |
| Banking | 25,656 | 1.0 | 25,466 | 1.0 |
| Energy: Electricity | 22,172 | 0.9 | 22,134 | 0.9 |
| Telecommunications | 21,323 | 0.8 | 21,343 | 0.8 |
| Beverage, Food & Tobacco | 30,687 | 1.2 | 19,531 | 0.8 |
| Environmental Industries | 16,814 | 0.7 | 17,612 | 0.7 |
| Containers, Packaging & Glass | 11,637 | 0.5 | 11,633 | 0.5 |
| FIRE: Real Estate (1) | 10,786 | 0.4 | 10,443 | 0.4 |
| Forest Products & Paper | 10,301 | 0.4 | 9,700 | 0.4 |
| Utilities: Electric | 12,598 | 0.6 | 8,126 | 0.3 |
| Total | $2,537,263 | 100.0% | $2,527,055 | 100.0% |

(1) Finance, Insurance and Real Estate (“FIRE”).

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, the 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 March 31, 2020 (dollars in thousands):

| Investment Performance Rating | As of March 31, 2020 Fair Value | Percentage of Total | Number of Companies | Percentage of Total |
| ---: | ---: | ---: | ---: | ---: |
| 1 | $15,245 | 0.6% | 1 | 0.9% |
| 2 | 2,128,915 | 85.7 | 88 | 81.5 |
| 3 | 313,896 | 12.6 | 17 | 15.7 |
| 4 | 26,477 | 1.1 | 2 | 1.9 |
| Total | $2,484,533 | 100.0% | 108 | 100.0% |

The following table shows the composition of our portfolio on the 1 to 4 rating scale as of December 31, 2019 (dollars in thousands):

| Investment Performance Rating | As of December 31, 2019 Fair Value | Percentage of Total | Number of Companies | Percentage of Total |
| ---: | ---: | ---: | ---: | ---: |
| 1 | $140,892 | 5.6% | 4 | 3.5% |
| 2 | 2,355,401 | 93.2 | 106 | 93.0 |
| 3 | 27,333 | 1.1 | 3 | 2.6 |
| 4 | 3,429 | 0.1 | 1 | 0.9 |
| Total | $2,527,055 | 100.0% | 114 | 100.0% |

We believe that, overall, our portfolio has continued to perform well, with approximately 86% of loans performing at or above expectations.

### Antares Bain Capital Complete Financing Solution

Prior to April 30, 2019, the Company was party to a limited liability company agreement with Antares Midco Inc. (“Antares”) pursuant to which it invested in ABC Complete Financing Solution LLC, which made investments through its subsidiary, Antares Bain Capital Complete Financing Solution LLC (together with ABC Complete Financing Solution LLC, “ABCS”). ABCS, an unconsolidated Delaware limited liability company, was formed on September 27, 2017 and commenced operations on November 29, 2017. ABCS’ principal purpose was to make investments, primarily in senior secured unitranche loans. The Company recorded its investment in ABCS at fair value. Distributions of income received from ABCS, if any, were recorded as dividend income from controlled affiliate investments in the consolidated statements of operations. Distributions received from ABCS in excess of income earned at ABCS, if any, were recorded as a return of capital and reduced the amortized cost of controlled affiliate investments.

We and Antares, as members of ABCS, agreed to contribute capital up to (subject to the terms of their agreement) $950.0 million in aggregate to purchase equity interests in ABCS, with us and Antares contributing up to $425.0 million and $525.0 million, respectively. Funding of such commitments generally required the consent of both Antares Credit Opportunities Manager LLC and the Advisor on behalf of Antares and us, respectively. ABCS was capitalized with capital contributions from its members on a pro-rata basis based on their maximum capital contributions as transactions were funded after they had been approved.

Investment decisions of ABCS required the consent of both the Advisor and Antares Credit Opportunities Manager LLC, as representatives of us and Antares, respectively. Each of the Advisor and Antares sourced investments for ABCS.

On April 30, 2019, we formed BCSF Complete Financing Solution Holdco, LLC (“BCSF CFSH, LLC”) and BCSF Complete Financing Solution, LLC (“BCSF Unitranche” or “BCSF CFS, LLC”), wholly-owned, newly-formed, subsidiaries. We received our proportionate share of all assets which represented 44.737% of ABCS. The portfolio of investments that was distributed to us comprised of 25 senior secured unitranche loans with a fair value of $919.0 million and cash of $3.2 million. We also assumed the obligation to fund outstanding unfunded commitments of $31.4 million. In connection with the distribution, we recognized a realized gain of $0.3 million. We are no longer a member of ABCS. The assets we received from ABCS have been included in the Company’s consolidated financial statements and notes thereto.

In conjunction with the distribution from ABCS, on April 30, 2019, BCSF CFS, LLC entered into a loan and security agreement (the “JPM Credit Agreement” or the “JPM Credit Facility”) as borrower, with JPMorgan Chase Bank, National Association, as Administrative Agent, and Wells Fargo Bank, National Association as Collateral Administrator, Collateral Agent, Securities Intermediary and Bank. On the date of the ABCS distribution, the Company had $577.5 million outstanding on the JPM Credit Facility.

Below is selected statements of operations information for the three months ended March 31, 2019:

### Selected Statements of Operations Information

|  | For the Three Months Ended March 31, 2019 |
| --- | ---: |
| Interest Income | $38,911 |
| Fee income | 188 |
| Total revenues | 39,099 |
| Credit facility expenses (1) | 16,260 |
| Other fees and expenses | 5,066 |
| Total expenses | 21,326 |
| Net investment income | 17,773 |
| Net increase in members’ capital from operations | $17,773 |

(1) As of March 31, 2019 the ABCS Facility had $1,243.4 million of outstanding debt.

### Results of Operations

Our operating results for the three months ended March 31, 2020 and 2019 were as follows (dollars in thousands):

|  | For the Three Months Ended March 31, 2020 | 2019 |
| --- | ---: | ---: |
| Total investment income | $51,496 | $39,890 |
| Total expenses, net of fee waivers | 28,996 | 18,647 |
| Net investment income before taxes | 22,500 | 21,243 |
| Net investment income after taxes | 22,500 | 21,243 |
| Net realized gain (loss) | (9,366) | 2,789 |
| Net change in unrealized appreciation (depreciation) | (117,581) | 15,281 |
| Net increase (decrease) in net assets resulting from operations | $(104,447) | $39,313 |

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 March 31, 2020 and 2019 was as follows (dollars in thousands):

|  | For the Three Months Ended March 31, 2020 | 2019 |
| --- | ---: | ---: |
| Interest income | $48,643 | $30,495 |
| Dividend income | 2,413 | 9,373 |
| Other income | 440 | 22 |
| Total investment income | $51,496 | $39,890 |

Interest income from investments, which includes interest and accretion of discounts and fees, increased to $48.6 million for the three months ended March 31, 2020 from $30.5 million for the three months ended March 31, 2019, primarily due to the growth of our investment portfolio and an increase in accelerated unamortized discounts from paydowns. Our investment portfolio at amortized cost increased to $2,625.2 million from $1,836.5 million as of March 31, 2020 and 2019, respectively. Accelerated unamortized discounts from paydowns increased to $1.5 million for the three months ended March 31, 2020 from $0.6 million for the three months ended March 31, 2019. Dividend income decreased to $2.4 million for the three months ended March 31, 2020 from $9.4 million for the three months ended March 31, 2019, primarily due to the closing of the ABCS distribution transaction on April 30, 2019. Other income increased to $0.4 for the three months ended March 31, 2020, primarily due to an increase in amendment fees earned on certain investments and prepayment fees. As of March 31, 2020, the weighted average yield of our investment portfolio at amortized cost decreased to 7.3% from 8.8% as of March 31, 2019.

### Operating Expenses

The composition of our operating expenses for the three months ended March 31, 2020 and 2019 was as follows (dollars in thousands):

|  | For the Three Months Ended March 31, 2020 | 2019 |
| --- | ---: | ---: |
| Interest and debt financing expenses | $17,876 | $10,546 |
| Base management fee | 8,726 | 6,751 |
| Incentive fee | — | 4,086 |
| Professional fees | 970 | 550 |
| Directors fees | 175 | 105 |
| Other general and administrative expenses | 1,249 | 841 |
| Total expenses, before fee waivers | $28,996 | $22,879 |
| Base management fee waiver | — | (2,250) |
| Incentive fee waiver | — | (1,982) |
| Total expenses, net of fee waivers | $28,996 | $18,647 |

### Interest and Debt Financing Expenses

Interest and debt financing expenses on our borrowings totaled approximately $17.9 million and $10.5 million for the three months ended March 31, 2020 and 2019, respectively. Interest and debt financing expense for the three months ended March 31, 2020 as compared to March 31, 2019, increased primarily due to higher principal debt balances outstanding on our revolving credit facilities and the issuance of our 2019-1 Debt in August 2019. The weighted average principal debt balance outstanding for the three months ended March 31, 2020 was $1,581.9 million compared to $834.0 million for the three months ended March 31, 2019.

The weighted average interest rate (excluding deferred upfront financing costs and unused fees) on our debt outstanding was 4.1% and 4.7% as of March 31, 2020 and December 31, 2019, respectively.

### Management Fees

Management fees (net of waivers) increased to $8.7 million for the three months ended March 31, 2020 from $4.5 million for the three months ended March 31, 2019. Management fees (gross of waivers) increased to $8.7 million for the three months ended March 31, 2020 from $6.8 million for the three months ended March 31, 2019, primarily due to an increase in assets to $2.6 billion as of March 31, 2020 from $2.0 billion as of March 31, 2019. Management fees waived for the three months ended March 31, 2020 and 2019 were $0.0 million and $2.3 million, respectively. As of December 31, 2019, the voluntary management fee waiver related to ABCS has expired.

### Incentive Fees

Incentive fee (net of waivers) decreased to $0.0 million for the three months ended March 31, 2020 from $2.1 million for the three months ended March 31, 2019. The Company did not incur an incentive fee for the three months ended March 31, 2020 due to the Incentive Fee Cap. Incentive fee waivers related to pre-incentive fee net investment income consisted of voluntary waivers of $0.0 million for the three months ended March 31, 2020 and $2.0 million for the three months ended March 31, 2019. For the three months ended March 31, 2020, 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 increased to $2.2 million for the three months ended March 31, 2020 from $1.4 million for the three months ended March 31, 2019, primarily due to an increase in costs associated with servicing our investment portfolio and legal fees.

### Net Realized and Unrealized Gains and Losses

The following table summarizes our net realized and unrealized gains (losses) for the three months ended March 31, 2020 and 2019 (dollars in thousands):

|  | For the Three Months Ended March 31, 2020 | 2019 |
| --- | ---: | ---: |
| Net realized gain on investments | $185 | $439 |
| Net realized loss on investments | (10,641) | (1,289) |
| Net realized gain on foreign currency transactions | 132 | 18 |
| Net realized loss on foreign currency transactions | (547) | (12) |
| Net realized gain on forward currency exchange contracts | 1,681 | 3,633 |
| Net realized loss on forward currency exchange contracts | (176) | — |
| Net realized gains (losses) | $(9,366) | $2,789 |
| Change in unrealized appreciation on investments | $5,080 | $24,822 |
| Change in unrealized depreciation on investments | (135,573) | (6,060) |
| Net change in unrealized appreciation (depreciation) on investments | (130,493) | 18,762 |
| Unrealized depreciation on foreign currency translation | (209) | (198) |
| Unrealized appreciation (depreciation) on forward currency exchange contracts | 13,121 | (3,283) |
| Net change in unrealized appreciation (depreciation) on foreign currency and forward currency exchange contracts | 12,912 | (3,481) |
| Net change in unrealized appreciation (depreciation) | $(117,581) | $15,281 |

For the three months ended March 31, 2020, and 2019, we had net realized gains (losses) on investments of ($10.5) million and ($0.8) million, respectively. For the three months ended March 31, 2020 and 2019, we had net realized gains (losses) on foreign currency transactions of ($0.4) million and $0.0 million, respectively. For the three months ended March 31, 2020 and 2019, we had net realized gains (losses) on forward currency contracts of $1.5 million and $3.6 million, respectively, primarily as a result of settling GBP, AUD, DKK, EUR and NOK forward contracts.

For the three months ended March 31, 2020, we had $5.1 million in unrealized appreciation on 3 portfolio company investments which was primarily related to unrealized appreciation due to the reversal of unrealized depreciation upon pay-off, which was offset by $135.6 million in unrealized depreciation on 117 portfolio company investments. Unrealized depreciation for the three months ended March 31, 2020 resulted from a decrease in fair value, primarily due to negative valuation adjustments.

For the three months ended March 31, 2019, we had $24.8 million in unrealized appreciation on 84 portfolio company investments, which was offset by $6.1 million in unrealized depreciation on 41 portfolio company investments. Unrealized appreciation for the three months ended March 31, 2019 resulted from an increase in fair value, primarily due to reversal of prior period unrealized depreciation and positive valuation adjustments.

For the three months ended March 31, 2020 and 2019, we had unrealized appreciation (depreciation) on forward currency exchange contracts of $13.1 million and ($3.3) million, respectively. For the three months ended March 31, 2020, unrealized appreciation on forward currency exchange contracts was due to EUR, GBP, DKK, NOK and AUD forward contracts. For the three months ended March 31, 2019, unrealized depreciation on forward currency exchange contracts was due to EUR, GBP, DKK, NOK and AUD forward contracts.

The following table summarizes the impact of foreign currency for the three months ended March 31, 2020 and 2019 (dollars in thousands):

|  | For the Three Months Ended March 31, 2020 | 2019 |
| --- | ---: | ---: |
| Net change in unrealized appreciation (depreciation) on investments due to foreign currency | $(13,012) | $646 |
| Net realized gain (loss) on investments due to foreign currency | 2 | — |
| Net change in unrealized depreciation on foreign currency translation | (209) | (198) |
| Net realized gain (loss) on foreign currency transactions | (415) | 6 |
| Net change in unrealized appreciation (depreciation) on forward currency exchange contracts | 13,121 | (3,283) |
| Net realized gain on forward currency exchange contracts | 1,505 | 3,633 |
| Foreign currency impact to net increase in net assets resulting from operations | $992 | $804 |

Included in total net gains (losses) on the consolidated statements of operations is net gains (losses) of ($13.6) million and $0.5 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 March 31, 2020 and 2019, respectively. Including the total net realized and unrealized gains (losses) on forward currency exchange contracts of $14.6 million and $0.3 million, respectively, included in the above table, the net impact of foreign currency on total net gains (losses) on the consolidated statements of operations is $1.0 million and $0.8 million for the three months ended March 31, 2020 and 2019, respectively.

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

For the three months ended March 31, 2020 and 2019, the net increase (decrease) in net assets resulting from operations was ($104.4) million and $39.3 million, respectively. Based on the weighted average shares of common stock outstanding for the three months ended March 31, 2020 and 2019, our per share net increase (decrease) in net assets resulting from operations was ($2.02) and $0.76, 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, 2018-1 Notes, 2019-1 Debt, 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 March 31, 2020 and December 31, 2019, our asset coverage ratio was 154% and 164%, respectively.

At March 31, 2020 and December 31, 2019, we had $74.5 million and $68.8 million in cash, foreign cash, restricted cash and cash equivalents, respectively.

At March 31, 2020, we had approximately $73.0 million of availability on our BCSF Revolving Credit Facility, $50.4 million of availability on our JPM Credit Facility and $31.7 million Revolving Advisor Loan, subject to existing terms and regulatory requirements. At December 31, 2019, we had approximately $232.0 million of availability on our BCSF Revolving Credit Facility and $119.8 million of availability on our JPM Credit Facility, subject to existing terms and regulatory requirements.

For the three months ended March 31, 2020, cash, foreign cash, restricted cash, and cash equivalents increased by $5.6 million. During the three months ended March 31, 2020, we used $51.4 million in cash for operating activities. The decrease in cash used for operating activities is primarily related to the purchase of investments of $275.9 million and a net decrease in net assets resulting from operations of $104.4 million, which was offset by proceeds from principal payments and sales of investments of $190.6 million and the net change in unrealized depreciation on investments of $130.5 million. During the three months ended March 31, 2020, we generated $57.9 million from financing activities, primarily from borrowings on our debt from BCSF Revolving Credit Facility, JPM Credit Facility, and Revolving Advisor Loan, offset by repayments on our debt of $252.9 million and distributions paid during the period of $21.2 million.

For the three months ended March 31, 2019, cash, foreign cash, restricted cash, and cash equivalents increased by $61.4 million. During the three months ended March 31, 2019, we used $197.1 million in cash for operating activities, primarily to purchase investments of $370.3 million, which was offset by proceeds from principal payments and sales of investments of $153.6 million, a net increase in net assets resulting from operations of $39.3 million, and a change in unrealized appreciation of investments of $18.8 million. During the three months ended March 31, 2019, we generated $258.6 million from financing activities, primarily from borrowings on our BCSF Revolving Credit Facility and our Citibank Revolving Credit Facility, together referred to as the “Revolving Credit Facilities”, of $465.9 million, offset by repayments on our Revolving Credit Facilities of $186.0 million and distributions paid during the period of $21.1 million.

### 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.

BCSF Investments, LLC and certain individuals adopted the 10b5-1 Plan in accordance with Rules 10b5-1 and 10b-18 under the Exchange Act, under which such parties would buy up to $20 million in the aggregate of our common stock in the open market during the period beginning after four full calendar weeks after the closing of the IPO and ending on the earlier of the date on which the capital committed to the 10b5-1 has been exhausted or one year after the closing of the IPO. As of December 31, 2019, zero dollars remain under the 10b5-1 Plan and no further purchases are intended under the 10b5-1 Plan.

During the three months ended March 31, 2020, we did not issue shares of our common stock to investors who have opted into our dividend reinvestment plan. During the three months ended March 31, 2019, 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 Securities 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 March 31, 2020, there have been no repurchases of common stock.

### Debt

Debt consisted of the following as of March 31, 2020, and December 31, 2019 (dollars in thousands):

|  | As of March 31, 2020 Total Aggregate Principal Amount Committed | Principal Amount Outstanding | Carrying Value (1) | As of December 31, 2019 Total Aggregate Principal Amount Committed | Principal Amount Outstanding | Carrying Value (1) |
| --- | ---: | ---: | ---: | ---: | ---: | ---: |
| BCSF Revolving Credit Facility | $500,000 | $427,015 | $427,015 | $500,000 | $268,015 | $268,015 |
| 2018-1 Notes | 365,700 | 365,700 | 363,876 | 365,700 | 365,700 | 363,832 |
| JPM Credit Facility | 500,000 | 449,593 | 449,593 | 666,581 | 546,754 | 546,754 |
| 2019-1 Debt | 398,750 | 398,750 | 396,091 | 398,750 | 398,750 | 396,034 |
| Revolving Advisor Loan | 50,000 | 18,325 | 18,325 | — | — | — |
| Total Debt | $1,814,450 | $1,659,383 | $1,654,900 | $1,931,031 | $1,579,219 | $1,574,635 |

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

### BCSF Revolving Credit Facility

On October 4, 2017, we entered into the revolving credit agreement (the “BCSF Revolving Credit Facility”) with us, as equity holder, BCSF I, LLC, a Delaware limited liability company and a wholly owned and consolidated subsidiary of the Company, as borrower, and Goldman Sachs Bank USA, as sole lead arranger (“Goldman Sachs”). The BCSF Revolving Credit Facility was subsequently amended on May 15, 2018 to reflect certain clarifications regarding margin requirements and hedging currencies. The maximum commitment amount under the BCSF Revolving Credit Facility is $500.0 million, and may be increased up to $750.0 million. Proceeds of the loans under the BCSF Revolving Credit Facility may be used to acquire certain qualifying loans and such other uses as permitted under the BCSF Revolving Credit Facility. The BCSF Revolving Credit Facility includes customary affirmative and negative covenants, including certain limitations on the incurrence of additional indebtedness and liens, as well as usual and customary events of default for revolving credit facilities of this nature.

On January 8, 2020, the Company entered into an amended and restated credit agreement of its BCSF Revolving Credit Facility. The amendment amends the existing credit facility to, among other things, modify various financial covenants, including removing a liquidity covenant and adding a net asset value covenant with respect to the Company, as sponsor.

On March 31, 2020, the Parties entered into Omnibus Amendment No. 1 to the amended and restated credit agreement. The amendment amends the existing credit facility to, among other things, provide for enhanced flexibility to purchase or contribute and borrow against revolving loans and delayed draw term loans, and to count certain additional assets in the calculation of collateral for the outstanding advances; increase the spread payable under the facility from 2.50% to 3.25% per annum; include additional events of default to the existing credit facility, including but not limited to, a qualified equity raise not effected on or prior to June 22, 2020; and, after June 22, 2020, require the Company maintain at least $50.0 million of unencumbered liquidity or pay down the facility by at least $50.0 million.

Assets that are pledged as collateral for the BCSF Revolving Credit Facility are not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the BCSF Revolving Credit Facility.

Borrowings under the BCSF Revolving Credit Facility bear interest at LIBOR plus a margin. As of March 31, 2020, the BCSF Revolving Credit Facility was accruing interest expense at a rate of LIBOR plus 3.25%. As of December 31, 2019, the BCSF Revolving Credit Facility was accruing interest expense at a rate of LIBOR plus 2.50%. The Company pays an unused commitment fee of 30 basis points (0.30%) per annum. Interest is payable quarterly in arrears. Any amounts borrowed under the BCSF Revolving Credit Facility, and all accrued and unpaid interest, will be due and payable, on the earliest of: (a) October 5, 2022 and (b) the date upon which all loans shall become due and payable in full, whether by acceleration or otherwise.

As of March 31, 2020 and December 31, 2019, there were $427.0 million and $268.0 million borrowings under the BCSF Revolving Credit Facility, respectively, and we were in compliance with the terms of the BCSF Revolving Credit Facility.

For the three months ended March 31, 2020 and 2019, the components of interest expense related to the BCSF Revolving Credit Facility were as follows (dollars in thousands):

|  | For the Three Months Ended March 31, 2020 | 2019 |
| --- | ---: | ---: |
| Borrowing interest expense | $4,398 | $4,988 |
| Unused facility fee | 94 | 87 |
| Amortization of deferred financing costs and upfront commitment fees | 266 | 264 |
| Total interest and debt financing expenses | $4,758 | $5,339 |

### 2018-1 Notes

On September 28, 2018, (the “2018-1 Closing Date”), we, through BCC Middle Market CLO 2018-1 LLC (the “2018-1 Issuer”), a Delaware limited liability company and a wholly owned and consolidated subsidiary of us, completed its $451.2 million term debt securitization (the “CLO Transaction”). The notes issued in connection with the CLO Transaction (the “2018-1 Notes”) are secured by a diversified portfolio of the 2018-1 Issuer consisting primarily of middle market loans, the majority of which are senior secured loans (the “2018-1 Portfolio”). At the 2018-1 Closing Date, the 2018-1 Portfolio was comprised of assets transferred from the Company and its consolidated subsidiaries. All transfers were eliminated in consolidation and there were no realized gains or losses recognized in the CLO Transaction.

The CLO Transaction was executed through a private placement of the following 2018-1 Notes (dollars in thousands):

| 2018-1 Notes | Principal Amount | Spread above Index | Interest rate at March 31, 2020 |
| --- | ---: | --- | ---: |
| Class A-1 A | $205,900 | 1.55% + 3 Month LIBOR | 3.37% |
| Class A-1 B | 45,000 | 1.50% + 3 Month LIBOR (first 24 months) | 3.32% |
|  |  | 1.80% + 3 Month LIBOR (thereafter) |  |
| Class A-2 | 55,100 | 2.15% + 3 Month LIBOR | 3.97% |
| Class B | 29,300 | 3.00% + 3 Month LIBOR | 4.82% |
| Class C | 30,400 | 4.00% + 3 Month LIBOR | 5.82% |
| Total 2018-1 Notes | 365,700 |  |  |
| Membership Interests | 85,450 | Non-interest bearing | Not applicable |
| Total | $451,150 |  |  |

The Class A-1 A, A-1 B, A-2, B and C 2018-1 Notes were issued at par and are scheduled to mature on October 20, 2030. The Company received 100% of the membership interests (the “Membership Interests”) in the 2018-1 Issuer in exchange for its sale to the 2018-1 Issuer of the initial closing date loan portfolio. The Membership Interests do not bear interest. As of March 31, 2020, the Company’s Membership Interests are pledged as collateral to the BCSF Revolving Credit Facility.

The Class A-1 A, A-1 B, A-2, B and C 2018-1 Notes are included in the consolidated financial statements. The Membership Interests are eliminated in consolidation.

The Company serves as portfolio manager of the 2018-1 Issuer pursuant to a portfolio management agreement between the Company and the 2018-1 Issuer. For so long as the Company serves as portfolio manager, the Company will not charge any management fee or subordinated interest to which it may be entitled.

During the reinvestment period (four years from the closing date of the CLO Transaction), pursuant to the indenture governing the 2018-1 Notes, all principal collections received on the underlying collateral may be used by the 2018-1 Issuer to purchase new collateral under the direction of the Company in its capacity as portfolio manager of the 2018-1 Issuer and in accordance with the 2018-1 Issuer’s investment strategy and the terms of the indenture.

The Company has agreed to hold on an ongoing basis the Membership Interests with an aggregate dollar purchase price of at least equal to 5% of the aggregate amount of all obligations issued by the 2018-1 Issuer for so long as the 2018-1 Notes remain outstanding.

The 2018-1 Issuer pays ongoing administrative expenses to the trustee, independent accountants, legal counsel, rating agencies and independent managers in connection with developing and maintaining reports, and providing required services in connection with the administration of the 2018-1 Issuer.

As of March 31, 2020, there were 59 first lien and second lien senior secured loans with a total fair value of approximately $415.7 million and cash of $8.9 million securing the 2018-1 Notes. As of December 31, 2019, there were 61 first lien and second lien senior secured loans with a total fair value of approximately $435.8 million and cash of $9.1 million securing the 2018-1 Notes. Assets that are pledged as collateral for the 2018-1 Notes are not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the indenture governing the 2018-1 Notes. Such assets are included in the Company’s consolidated financial statements. The creditors of the 2018-1 Issuer have received security interests in such assets and such assets are not intended to be available to the creditors of the Company (or an affiliate of the Company). The 2018-1 Portfolio must meet certain requirements, including asset mix and concentration, term, agency rating, collateral coverage, minimum coupon, minimum spread and sector diversity requirements in the indenture governing the 2018-1 Notes. As of March 31, 2020 and December 31, 2019, the Company was in compliance with its covenants related to the 2018-1 Notes.

Costs of $2.1 million were incurred in connection with debt securitization of the 2018-1 Notes by the 2018-1 Issuer which have been recorded as debt issuance costs and presented as a reduction to the outstanding principal amount of the 2018-1 Notes on the consolidated statements of assets and liabilities and are being amortized over the life of the 2018-1 Issuer using the effective interest method. The balance of the unamortized deferred financing costs related to the 2018-1 Issuer was $1.8 million and $1.9 million as of March 31, 2020 and December 31, 2019, respectively.

For the three months ended March 31, 2020 and 2019, the components of interest expense related to the 2018-1 Issuer were as follows (dollars in thousands):

|  | For the Three Months Ended March 31, 2020 | 2019 |
| --- | ---: | ---: |
| Borrowing interest expense | $3,518 | $4,238 |
| Amortization of deferred financing costs and upfront commitment fees | 43 | 43 |
| Total interest and debt financing expenses | $3,561 | $4,281 |

### Citibank Revolving Credit Facility

On February 19, 2019, the Company entered into a credit and security agreement (the “Credit Agreement” or the “Citibank Revolving Credit Facility”) with the Company as equity holder and servicer, BCSF II-C, LLC as Borrower, Citibank, N.A., as Administrative Agent, and Wells Fargo Bank, National Association as Collateral Administrator, Collateral Agent and Custodian. The Credit Agreement is effective as of February 19, 2019.

The facility amount under the Credit Agreement is $350.0 million. Proceeds of the loans under the Credit Agreement may be used to acquire certain qualifying loans and such other uses as permitted under the Credit Agreement. The period from the closing date until February 19, 2020 is referred to as the reinvestment period and during such reinvestment period, the Borrower may request drawdowns under the Credit Agreement. The final maturity date is the earliest of: (a) the business day designated by the Borrower as the final maturity date upon not less than three business days’ prior written notice to the Administrative Agent, the Collateral Agent, the Lenders, the Custodian and the Collateral Administrator, (b) February 19, 2022 and (c) the date on which the Administrative Agent provides notice of the declaration of the final maturity date after the occurrence of an event of default. The Credit Agreement includes customary affirmative and negative covenants, including certain limitations on the incurrence of additional indebtedness and liens, as well as usual and customary events of default for revolving credit facilities of this nature.

Borrowings under the Citibank Revolving Credit Facility bear interest at the London Interbank Offered Rate (“LIBOR”) plus a margin. During the period prior to the last day of the reinvestment period, borrowings under the Credit Agreement will bear interest at a rate equal to the three-month LIBOR plus 1.60%. Commencing on the last day of the reinvestment period, the interest rate on borrowings under the Credit Agreement will reset to three-month LIBOR plus 2.60% for the remaining term of the Credit Agreement. We pay an unused commitment fee based on a corresponding utilization rate; (i) 0 basis points (0.00%) per annum when greater than or equal to 85.0% utilization, (ii) 25 basis points (0.25%) per annum when greater than or equal to 75.0% but less than 85.0% utilization, (iii) 50 basis points (0.50%) per annum when greater than or equal to 50.0% but less than 75.0% utilization, (iv) 75 basis points (0.75%) per annum when greater than or equal to 25.0% but less than 50% utilization, or (v) 100 basis points (1.00%) per annum when less than 25.0% utilization.

On August 28, 2019, the Citibank Revolving Credit Facility was terminated. The proceeds from the 2019-1 Debt were used to repay the total outstanding debt.

For the three months ended March 31, 2020 and 2019, the components of interest expense related to the Citibank Revolving Credit Facility were as follows (dollars in thousands):

|  | For the Three Months Ended March 31, 2020 | 2019 |
| --- | ---: | ---: |
| Borrowing interest expense | $— | $906 |
| Unused facility fee | — | 14 |
| Amortization of deferred financing costs and upfront commitment fees | — | 6 |
| Total interest and debt financing expenses | $— | $926 |

58

### JPM Credit Facility

On April 30, 2019, the Company entered into a loan and security agreement (the “JPM Credit Agreement” or the “JPM Credit Facility”) as Borrower, with JPMorgan Chase Bank, National Association, as Administrative Agent, and Wells Fargo Bank, National Association as Collateral Administrator, Collateral Agent, Securities Intermediary and Bank. The facility amount under the JPM Credit Agreement was $666.6 million. Borrowings under the JPM Credit Facility bore interest at LIBOR plus 2.75%.

On January 29, 2020, the Company entered into an amended and restated loan and security agreement (the "Amended Loan and Security Agreement") as Borrower, with JPMorgan Chase Bank, National Association, as Administrative Agent, and Wells Fargo Bank, National Association as Collateral Administrator, Collateral Agent, Securities Intermediary and Bank. The Amended Loan and Security Agreement amended the Existing Loan and Security Agreement to, among other things, (1) decrease the financing limit under the agreement from $666.6 million to $500.0 million; (2) decrease the minimum facility amount from $466.6 million to $300.0 million period from January 29, 2020 to July 29, 2020 (the minimum facility amount will increase to $350.0 million after July 29, 2020 until the end of the reinvestment period); (3) decrease the interest rate on financing from 2.75% per annum over the applicable London Interbank Offered Rate ("LIBOR") to 2.375% per annum over the applicable LIBOR; and (4) extend the scheduled termination date of the agreement from November 29, 2022 to January 29, 2025.

On March 20, 2020, the Company entered into a second amended and restated loan and security agreement between the parties (the "Second Amended Loan and Security Agreement"). The Second Amended Loan and Security Agreement, among other things, provides flexibility to contribute and borrow against revolving loans, reduce the amount required to be reserved for unfunded revolvers and delayed draw obligations and decreases the financing limit by $50.0 million within 90 days or, based on the occurrence of certain events, such earlier period as may be set forth in the Second Amended Loan and Security Agreement. The Company shall pay to the Administrative Agent $50.0 million to the prepayment of Advances and the Financing Commitments shall be reduced by the amount of principal so prepaid on the earlier of two Business days following the closing of the Rights Offering and June 18, 2020.

The facility amount under the JPM Credit Agreement is currently $500.0 million. Proceeds of the loans under the JPM Credit Facility may be used to acquire certain qualifying loans and such other uses as permitted under the JPM Credit Agreement. The period from the effective date of the amendment until January 29, 2023 is referred to as the reinvestment period and during such reinvestment period, the Borrower may request drawdowns under the JPM Credit Facility.

The maturity date is the earliest of: (a) January 29, 2025, (b) the date on which the secured obligations become due and payable following the occurrence of an event of default, (c) the date on which the advances are repaid in full and (d) the date after a market value cure failure occurs on which all portfolio investments have been sold and proceeds therefrom have been received by the Borrower. The stated maturity date of January 29, 2025 may be extended for successive one year periods by mutual agreement of the Borrower and the Administrative Agent.

The JPM Credit Agreement includes customary affirmative and negative covenants, including certain limitations on the incurrence of additional indebtedness and liens, as well as usual and customary events of default for revolving credit facilities of this nature.

Borrowings under the JPM Credit Facility bear interest at LIBOR plus a margin. As of March 31, 2020, the JPM Credit Facility was accruing interest expense at a rate of LIBOR plus 2.375%. The Company pays an unused commitment fee of between 37.5 basis points (0.375%) and 75 basis points (0.75%) per annum depending on the size of the unused portion of the facility. Interest is payable quarterly in arrears.

As of March 31, 2020, there were $449.6 million borrowings under the JPM Credit Facility and we were in compliance with the terms of the JPM Credit Facility.

For the three months ended March 31, 2020 and 2019, the components of interest expense related to the JPM Credit Facility were as follows:

|  | For the Three Months Ended March 31, 2020 | 2019 |
| --- | ---: | ---: |
| Borrowing interest expense | $4,924 | $— |
| Unused facility fee | 162 | — |
| Amortization of deferred financing costs and upfront commitment fees | 275 | — |
| Total interest and debt financing expenses | $5,361 | $— |

59

### 2019-1 Debt

On August 28, 2019, the Company, through BCC Middle Market CLO 2019-1 LLC (the “2019-1 Issuer”), a Cayman Islands limited liability company and a wholly-owned and consolidated subsidiary of the Company, and BCC Middle Market CLO 2019-1 Co-Issuer, LLC (the “Co-Issuer” and, together with the Issuer, the “Co-Issuers”), a Delaware limited liability company, completed its $501.0 million term debt securitization (the “2019-1 CLO Transaction”). The notes issued in connection with the 2019-1 CLO Transaction (the “2019-1 Notes”) are secured by a diversified portfolio of the Co-Issuers consisting primarily of middle market loans, the majority of which are senior secured loans (the “2019-1 Portfolio”). The Co-Issuers also issued Class A-1L Loans (the “Loans” and, together with the 2019-1 Notes, the “2019-1 Debt”). The Loans are also secured by the 2019-1 Portfolio. At the 2019-1 closing date, the 2019-1 Portfolio was comprised of assets transferred from the Company and its consolidated subsidiaries. All transfers were eliminated in consolidation and there were no realized gains or losses recognized in the 2019-1 CLO Transaction.

The 2019-1 CLO Transaction was executed through a private placement of the following 2019-1 Debt:

| 2019-1 Debt | Principal Amount | Spread above Index | Interest rate at March 31, 2020 |
| --- | ---: | --- | ---: |
| Class A-1L | $50,000 | 1.70% + 3 Month LIBOR | 3.53% |
| Class A-1 | 222,500 | 1.70% + 3 Month LIBOR | 3.53% |
| Class A-2A | 50,750 | 2.70% + 3 Month LIBOR | 4.53% |
| Class A-2B | 13,000 | 4.23% (Fixed) | 4.23% |
| Class B | 30,000 | 3.60% + 3 Month LIBOR | 5.43% |
| Class C | 32,500 | 4.75% + 3 Month LIBOR | 6.58% |
| Total 2019-1 Debt | 398,750 |  |  |
| Membership Interests | 102,250 | Non-interest bearing | Not applicable |
| Total | $501,000 |  |  |

The Loans and the Class A-1, A-2A, A-2B, and B Notes were issued at par. The Class C Notes were issued at a discount. The Notes are scheduled to mature on October 15, 2031. The Company received 100% of the membership interests (the “Membership Interests”) in the 2019-1 Issuer in exchange for its sale to the 2019-1 Issuer of the initial closing date loan portfolio. The Membership Interests do not bear interest. As of March 31, 2020, the Company’s Membership Interests are pledged as collateral to the BCSF Revolving Credit Facility.

The Loans and Class A-1, A-2A, A-2B, B, and C Notes are included in the consolidated financial statements of the Company. The Membership Interests are eliminated in consolidation.

The Company serves as portfolio manager of the 2019-1 Issuer pursuant to a portfolio management agreement between the Company and the 2019-1 Issuer. For so long as the Company serves as portfolio manager, the Company will not charge any management fee or subordinated interest to which it may be entitled.

During the reinvestment period, pursuant to the indenture and loan agreement governing the 2019-1 Notes and Loans, respectively, all principal collections received on the underlying collateral may be used by the 2019-1 Issuer to purchase new collateral under the direction of the Company in its capacity as portfolio manager of the 2019-1 Issuer and in accordance with the 2019-1 Issuer investment strategy and the terms of the indenture and loan agreement, as applicable.

The Company has agreed to hold on an ongoing basis the Membership Interests with an aggregate dollar purchase price at least equal to 5% of the aggregate amount of all obligations issued by the 2019-1 Co-Issuers for so long as the 2019-1 Debt remains outstanding.

The 2019-1 Issuer pays ongoing administrative expenses to the trustee, independent accountants, legal counsel, rating agencies and independent managers in connection with developing and maintaining reports, and providing required services in connection with the administration of the 2019-1 Issuer.

As of March 31, 2020, there were 66 first lien and second lien senior secured loans with a total fair value of approximately $458.7 million and cash of $9.8 million securing the 2019-1 Debt. As of December 31, 2019, there were 65 first lien and second lien senior secured loans with a total fair value of approximately $471.3 million and cash of $22.4 million securing the 2019-1 Notes. Assets that are pledged as collateral for the 2019-1 Debt are not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the indenture and loan agreement governing the 2019-1 Debt. The creditors of the 2019-1 Co-Issuers have received security interests in such assets and such assets are not intended to be available to the creditors of the Company (or an affiliate of the Company). The 2019-1 Portfolio must meet certain requirements, including asset mix and concentration, term, agency rating, collateral coverage, minimum coupon, minimum spread and sector diversity requirements in the indenture and loan agreement governing the 2019-1 Debt. As of March 31, 2020, the Company was in compliance with its covenants related to the 2019-1 Debt.

Costs of the offering, including the discount of the Class C Notes, of $2.8 million were incurred in connection with debt securitization of the 2019-1 Debt by the 2019-1 Co-Issuers which have been recorded as debt issuance costs and presented as a reduction to the outstanding principal amount of the 2019-1 Debt on the consolidated statements of assets and liabilities and are being amortized over the life of the 2019-1 Issuer using the effective interest method. The balance of the unamortized deferred financing costs related to the 2019-1 Issuer was $2.7 million as of March 31, 2020. The 2019-1 issuer was not in existence as of March 31, 2019 and the 2019-1 Debt were not outstanding.

For the three months ended March 31, 2020 and 2019, the components of interest expense related to the 2019-1 Co-Issuers were as follows (dollars in thousands):

|  | For the Three Months Ended March 31, 2020 | 2019 |
| --- | ---: | ---: |
| Borrowing interest expense | $4,137 | $— |
| Amortization of deferred financing costs and upfront commitment fees | 57 | — |
| Total interest and debt financing expenses | $4,194 | $— |

### Revolving Advisor Loan

On March 27, 2020, the Company entered into an unsecured revolving loan agreement (the “Revolving Advisor Loan”) with BCSF Advisors, LP, the investment adviser of the Company. The Revolving Advisor Loan has a maximum credit limit of $50.0 million and a maturity date of March 27, 2023. The Revolving Advisor Loan accrues interest at the Applicable Federal Rate from the date of such loan until the loan is repaid in full. The Applicable Federal Rate as of March 31, 2020 was 1.59%. As of March 31, 2020, there were $18.3 million borrowings under the Revolving Advisor Loan.

For the three months ended March 31, 2020 and 2019, the components of interest expense related to the Revolving Advisor Loan were as follows:

|  | For the Three Months Ended March 31, 2020 | 2019 |
| --- | ---: | ---: |
| Borrowing interest expense | $2 | $— |
| Total interest and debt financing expenses | $2 | $— |

### Distribution Policy

The following table summarizes distributions declared during the three months ended March 31, 2020 (dollars in thousands, except per share data):

| Date Declared | Record Date | Payment Date | Amount Per Share | Total Distributions |
| --- | --- | --- | ---: | ---: |
| February 20, 2020 | March 31, 2020 | April 30, 2020 | $0.41 | $21,176 |
| Total distributions declared |  |  | $0.41 | $21,176 |

The following table summarizes distributions declared during the three months ended March 31, 2019 (dollars in thousands, except per share data):

| Date Declared | Record Date | Payment Date | Amount Per Share | Total Distributions |
| --- | --- | --- | ---: | ---: |
| February 21, 2019 | March 29, 2019 | April 12, 2019 | $0.41 | $21,108 |
| Total distributions declared |  |  | $0.41 | $21,108 |

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 order to avoid the imposition of certain excise taxes imposed on RICs, we must distribute dividends to our stockholders in respect of each calendar year of 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.

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 that make an election 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.

As of March 31, 2020, the Company had $90.9 million of unfunded commitments under loan and financing agreements as follows (dollars in thousands):

| First Lien Senior Secured Loans | Expiration Date (1) | Unfunded Commitments (2) |
| --- | --- | ---: |
| A&R Logistics, Inc. - Revolver | 5/5/2025 | $1,155 |
| Abracon Group Holding, LLC. - Revolver | 7/18/2024 | 2,833 |
| Allworth Financial Group, L.P. - Revolver | 12/31/2025 | 2,431 |
| AMI US Holdings Inc. - Revolver | 4/1/2024 | 140 |
| Amspec Services, Inc. - Revolver | 7/2/2024 | 113 |
| Ansira Holdings, Inc. - Delayed Draw | 12/20/2022 | 1,509 |
| AP Plastics Group, LLC - Revolver | 8/2/2021 | 1,417 |
| Appriss Holdings, Inc. - Revolver | 5/30/2025 | 2,383 |
| Aramsco, Inc. - Revolver | 8/28/2024 | 1,581 |
| Batteries Plus Holding Corporation - Revolver | 7/6/2022 | 710 |
| Captain D's LLC - Revolver | 12/15/2023 | 485 |
| CMI Marketing Inc. - Revolver | 5/24/2023 | 704 |
| Cruz Bay Publishing, Inc. - Delayed Draw | 5/4/2020 | 1,098 |
| CST Buyer Company - Revolver | 10/3/2025 | 876 |
| Direct Travel, Inc. - Delayed Draw | 12/1/2021 | 7,030 |
| Dorner Manufacturing Corp - Revolver | 3/15/2022 | 1,099 |
| Efficient Collaborative Retail Marketing Company, LLC - Revolver | 6/15/2022 | 1,275 |
| Element Buyer, Inc. - Delayed Draw | 7/18/2025 | 2,267 |
| Grammer Purchaser, Inc. - Revolver | 9/30/2024 | 683 |
| Green Street Parent, LLC - Revolver | 8/27/2025 | 1,210 |
| Hightower Holding, LLC - Delayed Draw | 1/31/2025 | 6,640 |
| Horizon Telcom, Inc. - Delayed Draw | 6/15/2023 | 806 |
| Ivy Finco Limited - First Lien Senior Secured Loan | 5/19/2025 | 2,746 |
| JHCC Holdings, LLC - Delayed Draw | 9/9/2025 | 6,262 |
| JHCC Holdings, LLC - Revolver | 9/9/2025 | 2,463 |
| Kellstrom Commercial Aerospace, Inc. - Delayed Draw | 7/1/2025 | 3,838 |
| Margaux Acquisition Inc. - Delayed Draw | 12/19/2024 | 7,139 |
| Margaux UK Finance Limited - Revolver | 12/19/2024 | 4 |
| MRI Software LLC - Delayed Draw | 2/10/2026 | 3,906 |
| MRI Software LLC - Revolver | 2/10/2026 | 891 |
| Profile Products LLC - Revolver | 12/20/2024 | 1,150 |
| Refine Intermediate, Inc. - Revolver | 9/3/2026 | 4,450 |
| Solaray, LLC - Revolver | 9/9/2022 | 623 |
| Tidel Engineering, L.P. - Revolver | 3/1/2023 | 1,417 |
| TLC Purchaser, Inc. - Delayed Draw | 10/13/2025 | 7,119 |
| TLC Purchaser, Inc. - Revolver | 10/13/2025 | 1,068 |
| Ventiv Holdco, Inc. - Revolver | 9/3/2025 | 2,981 |
| Whitcraft LLC - Revolver | 4/3/2023 | 362 |
| WU Holdco, Inc. - Revolver | 3/26/2025 | 26 |
| YLG Holdings, Inc. - Delayed Draw | 10/31/2025 | 5,127 |
| YLG Holdings, Inc. - Revolver | 10/31/2025 | 855 |
| Total First Lien Senior Secured Loans |  | $90,872 |

(1) Commitments are generally subject to borrowers meeting certain criteria such as compliance with covenants and certain operational metrics. These amounts may remain outstanding until the commitment period of an applicable loan expires, which may be shorter than its maturity.

(2) Unfunded commitments denominated in currencies other than U.S. dollars have been converted to U.S. dollars using the applicable foreign currency exchange rate as of March 31, 2020.

As of December 31, 2019, the Company had $215.8 million of unfunded commitments under loan and financing agreements as follows (dollars in thousands):

| First Lien Senior Secured Loans | Expiration Date (1) | Unfunded Commitments (2) |
| --- | --- | ---: |
| A&R Logistics, Inc. - Revolver | 5/5/2025 | $5,043 |
| Abracon Group Holding, LLC. - Revolver | 7/18/2024 | 2,833 |
| AMI US Holdings Inc. - Revolver | 4/1/2024 | 977 |
| Amspec Services, Inc. - Revolver | 7/2/2024 | 3,542 |
| Ansira Holdings, Inc. - Delayed Draw | 12/20/2022 | 1,509 |
| AP Plastics Group, LLC - Revolver | 8/2/2021 | 8,500 |
| Appriss Holdings, Inc. - Revolver | 5/30/2025 | 4,711 |
| Aramsco, Inc. - Revolver | 8/28/2024 | 2,766 |
| Batteries Plus Holding Corporation - Revolver | 7/6/2022 | 4,250 |
| Captain D’s LLC - Revolver | 12/15/2023 | 577 |
| CB Nike Intermediate Co Ltd - Revolver | 10/31/2025 | 2,878 |
| Clinical Innovations, LLC - Revolver | 10/17/2022 | 380 |
| CMI Marketing Inc. - Revolver | 5/24/2023 | 2,112 |
| CPS Group Holdings, Inc. - Revolver | 3/3/2025 | 4,933 |
| Cruz Bay Publishing, Inc. - Delayed Draw | 2/28/2020 | 1,098 |
| Cruz Bay Publishing, Inc. - Revolver | 2/28/2020 | 535 |
| CST Buyer Company - Revolver | 10/3/2025 | 2,190 |
| Datix Bidco Limited - Revolver | 10/28/2024 | 1,290 |
| Direct Travel, Inc. - Delayed Draw | 12/1/2021 | 7,030 |
| Direct Travel, Inc. - Revolver | 12/1/2021 | 4,250 |
| Dorner Manufacturing Corp - Revolver | 3/15/2022 | 1,099 |
| Efficient Collaborative Retail Marketing Company, LLC - Revolver | 6/15/2022 | 3,542 |
| Element Buyer, Inc. - Delayed Draw | 7/18/2025 | 7,933 |
| Element Buyer, Inc. - Revolver | 7/19/2024 | 2,833 |
| FFI Holdings I Corp - Delayed Draw | 1/24/2025 | 677 |
| FFI Holdings I Corp - Revolver | 1/24/2025 | 1,994 |
| Fineline Technologies, Inc. - Revolver | 11/4/2022 | 655 |
| Grammer Purchaser, Inc. - Revolver | 9/30/2024 | 998 |
| Great Expressions Dental Center PC - Revolver | 9/28/2022 | 150 |
| Green Street Parent, LLC - Revolver | 8/27/2025 | 2,419 |
| GSP Holdings, LLC - Revolver | 11/6/2025 | 4,307 |
| Hightower Holding, LLC - Delayed Draw | 1/31/2025 | 6,640 |
| Horizon Telcom, Inc. - Delayed Draw | 6/15/2023 | 1,256 |
| Horizon Telcom, Inc. - Revolver | 6/15/2023 | 116 |
| Ivy Finco Limited - First Lien Senior Secured Loan | 5/19/2025 | 5,817 |
| JHCC Holdings, LLC - Delayed Draw | 9/9/2025 | 8,500 |
| JHCC Holdings, LLC - Revolver | 9/9/2025 | 1,820 |
| Kellstrom Commercial Aerospace, Inc. - Delayed Draw | 7/1/2025 | 3,838 |
| Kellstrom Commercial Aerospace, Inc. - Revolver | 7/1/2025 | 640 |
| Margaux Acquisition Inc. - Delayed Draw | 12/19/2024 | 7,139 |
| Margaux Acquisition Inc. - Revolver | 12/19/2024 | 2,872 |
| Margaux UK Finance Limited - Revolver | 12/19/2024 | 662 |
| Mertus 522. GmbH - Delayed Draw | 5/28/2026 | 13,761 |
| Profile Products LLC - Revolver | 12/20/2024 | 3,833 |
| RoC Opco LLC - Revolver | 2/25/2025 | 10,241 |
| Solaray, LLC - Revolver | 9/9/2022 | 1,077 |
| SumUp Holdings Luxembourg S.à.r.l. - First Lien Senior Secured Loan | 8/1/2024 | 10,638 |
| Symplr Software, Inc. - Revolver | 11/30/2023 | 466 |
| TCFI Aevex LLC - Revolver | 5/13/2025 | 138 |
| TEI Holdings Inc. - Revolver | 12/23/2025 | 3,018 |
| Tidel Engineering, L.P. - Revolver | 3/1/2023 | 4,250 |
| TLC Purchaser, Inc. - Delayed Draw | 10/13/2025 | 7,119 |
| TLC Purchaser, Inc. - Revolver | 10/13/2025 | 4,984 |
| Ventiv Holdco, Inc. - Revolver | 9/3/2025 | 3,407 |
| WCI-HSG Purchaser, Inc. - Revolver | 2/24/2025 | 2,284 |
| WU Holdco, Inc. - Delayed Draw | 3/26/2026 | 4,801 |
| WU Holdco, Inc. - Revolver | 3/26/2025 | 3,944 |
| YLG Holdings, Inc. - Delayed Draw | 10/31/2025 | 5,127 |
| YLG Holdings, Inc. - Revolver | 10/31/2025 | 8,545 |
| Zywave, Inc. - Revolver | 11/17/2022 | 851 |
| Total First Lien Senior Secured Loans |  | $215,795 |

(1) Commitments are generally subject to borrowers meeting certain criteria such as compliance with covenants and certain operational metrics. These amounts may remain outstanding until the commitment period of an applicable loan expires, which may be shorter than its maturity.

(2) Unfunded commitments denominated in currencies other than U.S. dollars have been converted to U.S. dollars using the applicable foreign currency exchange rate as of December 31, 2019.

During the month of March 2020, we received unprecedented draw requests on revolving credit and delayed draw facilities we provided to our portfolio companies as many of them sought to husband excess cash as a defensive measure in these uncertain times. All of those draws were met in a timely fashion and we maintain adequate cash and additional borrowing capacity in reserve to meet any further such draw requests.

### 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

Investments for which market quotations are readily available are typically valued at such market quotations. Market quotations are obtained from an independent pricing service, where available. If we cannot obtain a price from an independent pricing service or if the independent pricing service is not deemed to be representative with the market, we value certain investments held by us 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, in some cases, primarily illiquid securities, multiple quotes may not be available and the mid of the bid/ask from one broker will be used. To validate market quotations, we utilize 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 are valued at fair value, subject at all times to the oversight and approval of the Board, based on the input of our Advisor, our Audit Committee and one or more independent third-party valuation firms engaged by our Board.

With respect to unquoted securities, we 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, we 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, the Advisor will undertake a multi-step valuation process, which includes among other things, the below:

- Our quarterly valuation process begins with each portfolio company or investment being initially valued by the investment professionals of our Advisor responsible for the portfolio investment or by an independent valuation firm;
- Preliminary valuation conclusions are then documented and discussed with our senior management and our Advisor. Agreed upon valuation recommendations are presented to our Audit Committee;
- Our Audit Committee of our Board reviews the valuations presented and recommends values for each of the investments to our Board;
- At least once annually, the valuation for each portfolio investment constituting a material portion of the Company’s portfolio will be reviewed by an independent valuation firm; and
- Our Board discusses valuations and determines the fair value of each investment in good faith based upon, among other things, the input of our Advisor, independent valuation firms, where applicable, and our Audit Committee.

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 companies 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. Spreads have generally widened as a result of the impact of COVID-19 and the pricing of many of the Company's portfolio securities has become more volatile. There can be no assurance that this volatility will abate over the short or medium term.

### Recent Accounting Pronouncements

In August 2018, the FASB issued ASU 2018-13, “*Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement.”* ASU 2018-13 is part of the disclosure framework project and eliminates certain disclosure requirements for fair value measurements, requires entities to disclose new information, and modifies existing disclosure requirements. The new guidance is effective after December 15, 2019. Early adoption is permitted. We do not believe this change will have a material effect on our consolidated financial statements and disclosures.

### Contractual Obligations

We have entered into the Amended Advisory Agreement with our Advisor (which supersedes the 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 October 11, 2018, the Board approved, subject to completion of the IPO, the Investment Advisory Agreement. Beginning with the calendar quarter that commences January 1, 2019, this Investment 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.

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%.

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.

A summary of the maturities of our principal amounts of debt and other contractual payment obligations as of March 31, 2020 are as follows (dollars in thousands):

|  | Payments Due by Period Total | Less than 1 year | 1 — 3 years | 3 — 5 years | More than 5 years |
| --- | ---: | ---: | ---: | ---: | ---: |
| BCSF Revolving Credit Facility | $427,015 | $50,000 | $377,015 | $— | $— |
| 2018-1 Notes | 365,700 | — | — | — | 365,700 |
| JPM Credit Facility | 449,593 | 50,000 | — | 399,593 | — |
| 2019-1 Debt | 398,750 | — | — | — | 398,750 |
| Revolving Advisor Loan | 18,325 | — | 18,325 | — | — |
| Total Debt Obligations | $1,659,383 | $100,000 | $395,340 | $399,593 | $764,450 |

### Subsequent Events

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 will entitle record stockholders to subscribe for up to an aggregate of 12,912,453 shares of our common stock at an estimated price per share of $9.46. Record stockholders will receive one right for each share of common stock owned on the record date. The rights will entitle the holders to purchase one new share of common stock for every four rights held, and record stockholders who fully exercise their rights will be entitled to subscribe, subject to certain limitations and allotment, for additional shares that remain unsubscribed as a result of any unexercised rights. The rights are transferable and we have applied to list the rights on the New York Stock Exchange under the symbol “BCSF RT”. Our Board has determined that it is in the best interest of the Company and its stockholders to raise additional equity capital, via the rights offering, to (i) repay outstanding indebtedness, including indebtedness under the BCSF Revolving Credit Facility and the JPM Credit Facility, in an aggregate amount equal to at least $100 million, in order to continue to maintain an appropriate level of debt in a challenging market environment, (ii) support our existing portfolio companies, particularly in light of current market conditions, and (iii) make opportunistic investments, in accordance with our investment objectives and policies, in assets that the Advisor believes have become undervalued due to the current extreme market volatility, and on more attractive terms than we would otherwise be able to obtain under typical, less volatile market conditions.

## Market risk

As filed, 2,090 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 March 31, 2020 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.

| Change in Interest Rates | Increase (Decrease) in Interest Income | Increase (Decrease) in Interest Expense | Net Increase (Decrease) in Net Investment Income |
| --- | ---: | ---: | ---: |
| Down 25 basis points | $(4,856) | $(4,116) | $(740) |
| Up 100 basis points | 24,195 | 16,464 | 7,731 |
| Up 200 basis points | 49,279 | 32,928 | 16,351 |
| Up 300 basis points | 74,559 | 49,391 | 25,168 |

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, 1,549 characters.

### Evaluation of Disclosure Controls and Procedures

As of March 31, 2020 (the end of the period covered by this report), our management has carried out an evaluation, under the supervision 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 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 in timely alerting management, including the Chief Executive Officer and Chief Financial Officer, to material information relating to us that is required to be disclosed by us in the reports we file or submit under the Exchange Act. 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 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

## Risk factors

As filed, 16,797 characters.

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019, which could materially affect our business, financial condition and/or operating results. The risks described 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. During the three months ended March 31, 2020, other than as set forth below, there have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2019.

***The outbreak of COVID-19 has caused, and for an unknown period of time, will continue to cause, disruptions in global debt and equity markets and economies in regions in which we operate.***

In late 2019 and early 2020, COVID-19 emerged in China and spread rapidly to across the world, including to the U.S. This outbreak has led and for an unknown period of time will continue to lead to disruptions in local, regional, national and global markets and economies affected thereby. With respect to the U.S. credit markets (in particular for middle market loans), this outbreak has resulted in, and until fully resolved is likely to continue to result in, the following among other things: (i) government imposition of various forms of “stay at home” orders and the closing of “non-essential” businesses, resulting in significant disruption to the businesses of many middle-market loan borrowers including supply chains, demand and practical aspects of their operations, as well as in lay-offs of employees, and, while these effects are hoped to be temporary, some effects could be persistent or even permanent; (ii) increased draws by borrowers on revolving lines of credit and other financing instruments; (iii) increased requests by borrowers for amendments and waivers of their credit agreements to avoid default, increased defaults by such borrowers and/or increased difficulty in obtaining refinancing at the maturity dates of their loans; (iv) volatility and disruption of these markets including greater volatility in pricing and spreads and difficulty in valuing loans during periods of increased volatility, and liquidity issues; and (v) rapidly evolving proposals and/or actions by state and federal governments to address problems being experienced by the markets and by businesses and the economy in general which will not necessarily adequately address the problems facing the loan market and middle market businesses. This outbreak is having, and any future outbreaks could have, an adverse impact on the markets and the economy in general, which could have a material adverse impact on, among other things, the ability of lenders to originate loans, the volume and type of loans originated, the ability of borrowers to make payments and the volume and type of amendments and waivers granted to borrowers and remedial actions taken in the event of a borrower default, each of which could negatively impact the amount and quality of loans available for investment by the Company and returns to the Company, among other things. As of the date of this prospectus, it is impossible to determine the scope of this outbreak, or any future outbreaks, how long any such outbreak, market disruption or uncertainties may last, the effect any governmental actions will have or the full potential impact on the Company, the Adviser and portfolio companies. Any potential impact to our results of operations will depend to a large extent on future developments and new information that could emerge regarding the duration and severity of COVID-19 and the actions taken by authorities and other entities to contain the coronavirus or treat its impact, all of which are beyond our control. These potential impacts, while uncertain, could adversely affect our and our portfolio companies’ operating results.

Although it is impossible to predict the precise nature and consequences of these events, or of any political or policy decisions and regulatory changes occasioned by emerging events or uncertainty on applicable laws or regulations that impact the Company, our portfolio companies and our investments, it is clear that these types of events are negatively impacting and will, for at least some time, continue to negatively impact the Company and portfolio companies and in many instances the impact will be profound. For example, many of the smaller and middle market companies in which we may invest are being significantly negatively impacted by these emerging events and the uncertainty caused by these events. With respect to loans to such companies, the Company will be impacted if, among other things, (i) amendments and waivers are granted (or are required to be granted) to borrowers permitting deferral of loan payments or allowing for payment-in-kind (“PIK”) interest payments, (ii) borrowers default on their loans, are unable to refinance their loans at maturity, or go out of business permanently, and/or (iii) the value of loans held by the Company decreases as a result of such events and the uncertainty they cause. Such emerging events, to the extent experienced, will cause the Company to suffer a loss on its investments or interest thereon. The Company will also be negatively affected if the operations and effectiveness of the Adviser or a portfolio company (or any of the key personnel or service providers of the foregoing) is compromised or if necessary or beneficial systems and processes are disrupted as a result of stay-at-home orders or other related interruptions to regular business operations. The Company has limited exposure to cyclical industries, including those currently experiencing significant distress, such as the energy, hospitality, and airline industries. The Company has no direct investments in commercial aviation companies and has focused on identifying portfolio companies in defensive industries such as technology, aerospace & defense and healthcare & pharmaceuticals with an emphasis on the durability of a portfolio company’s cash flow profile. For more information regarding the impact of current events and market conditions on the Company and our portfolio companies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Uncertainty can result in or coincide with, among other things: increased volatility in the financial markets for securities, derivatives, loans, credit and currency; a decrease in the reliability of market prices and difficulty in valuing assets (including portfolio company assets); greater fluctuations in spreads on debt investments and currency exchange rates; increased risk of default (by both government and private obligors and issuers); further social, economic, and political instability; nationalization of private enterprise; greater governmental involvement in the economy or in social factors that impact the economy; changes to governmental regulation and supervision of the loan, securities, derivatives and currency markets and market participants and decreased or revised monitoring of such markets by governments or self-regulatory organizations and reduced enforcement of regulations; limitations on the activities of investors in such markets; controls or restrictions on foreign investment, capital controls and limitations on repatriation of invested capital; the significant loss of liquidity and the inability to purchase, sell and otherwise fund investments or settle transactions (including, but not limited to, a market freeze); unavailability of currency hedging techniques; substantial, and in some periods extremely high, rates of inflation, which can last many years and have substantial negative effects on credit and securities markets as well as the economy as a whole; recessions; and difficulties in obtaining and/or enforcing legal judgments.

***We currently are operating in a period of capital markets disruption, significant volatility and economic uncertainty.***

The global capital markets are experiencing a period of disruption and instability resulting in increasing spreads between the yields realized on riskier debt securities and those realized on risk-free securities, lack of liquidity in parts of the debt capital markets, significant write-offs in the financial services sector and the re-pricing of credit risk in the broadly syndicated market. Highly disruptive market conditions have resulted in increasing volatility and illiquidity in the global credit, debt and equity markets generally. The duration and ultimate effect of such market conditions cannot be accurately forecasted. Extreme uncertainty regarding economic markets is resulting in declines in the market values of potential investments and declines in the market values of investments after they are made or acquired by us and affecting the potential for liquidity events involving such investments or portfolio companies. During periods of market disruption, portfolio companies may be more likely to seek to draw on unfunded commitments we have made, and the risk of being unable to fund such commitments is heightened during such periods. Applicable accounting standards require us to determine the fair value of our investments as the amount that would be received in an orderly transaction between market participants at the measurement date. While most of our investments are not publicly traded, as part of our valuation process we consider a number of measures, including comparison to publicly traded securities. As a result, volatility in the public capital markets can adversely affect our investment valuations.

During any such periods of market disruption and instability, we and other companies in the financial services sector may have limited access, if any, to alternative markets for debt and equity capital. Equity capital may be difficult to raise because, subject to some limited exceptions that will apply to us as a BDC, we will generally not be able to issue additional shares of our common stock at a price less than NAV without first obtaining approval for such issuance from our stockholders and our Independent Directors. In addition, 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% immediately after each time we incur indebtedness. The debt capital that will be available, if any, may be at a higher cost and on less favorable terms and conditions in the future. Any inability to raise capital could have a negative effect on our business, financial condition and results of operations.

A prolonged period of market illiquidity may cause us to reduce the volume of loans and debt securities we originate and/or fund and adversely affect the value of our portfolio investments, which could have a material and adverse effect on our business, financial condition, results of operations and cash flows.

***Adverse developments in the credit markets may impair our ability to enter into new debt financing arrangements and otherwise negatively impact our current debt financing arrangements.***

In past economic downturns, such as the financial crisis in the United States that began in mid-2007 and during other times of extreme market volatility, many commercial banks and other financial institutions stopped lending or significantly curtailed their lending activity. In addition, in an effort to stem losses and reduce their exposure to segments of the economy deemed to be high risk, some financial institutions limited refinancing and loan modification transactions and reviewed the terms of existing facilities to identify bases for accelerating the maturity of existing lending facilities. If these conditions recur, for example as a result of the COVID-19 outbreak, it may be difficult for us to enter into a new credit or other borrowing facility, obtain other financing to finance the growth of our investments, or refinance any outstanding indebtedness on acceptable economic terms, or at all.

So far, the COVID-19 outbreak has resulted in, and until fully resolved is likely to continue to result in, among other things, increased draws by borrowers on revolving lines of credit and increased requests by borrowers for amendments, modifications and waivers of their credit agreements to avoid default or change payment terms, increased defaults by such borrowers and/or increased difficulty in obtaining refinancing at the maturity dates of their loans. In addition, the duration and effectiveness of responsive measures implemented by governments and central banks cannot be predicted. The commencement, continuation, or cessation of government and central bank policies and economic stimulus programs, including changes in monetary policy involving interest rate adjustments or governmental policies, may contribute to the development of or result in an increase in market volatility, illiquidity and other adverse effects that could negatively impact the credit markets and the Company.

***The expected discontinuation of LIBOR could have a significant impact on our business.***

In July 2017, the head of the United Kingdom Financial Conduct Authority announced the intention to phase out the use of LIBOR by the end of 2021. Such announcement indicates that the continuation of LIBOR and other Reference Rates on the current basis cannot and will not be guaranteed after 2021. This announcement and any additional regulatory or market changes may have an adverse impact on our portfolio companies, our performance or our financial condition. Any replacement rate that is chosen may be less favorable than the current rates. Until the announcement of the replacement rate, our portfolio companies may continue to invest in instruments that reference LIBOR or otherwise use LIBOR due to favorable liquidity or pricing.

The expected discontinuation of LIBOR could have a significant impact on our business. We anticipate significant operational challenges for the transition away from LIBOR including, amending existing loan agreements with borrowers on investments that may have not been modified with fallback language and adding effective fallback language to new agreements in the event that LIBOR is discontinued before maturity. There may also be additional issues associated with our current processes and information systems that will need to be identified and evaluated by us. Due to the uncertainty of the replacement for LIBOR, the potential effect of any such event on our cost of capital and net investment income cannot yet be determined. Further changes or reforms to the determination or supervision of LIBOR may result in a sudden or prolonged increase or decrease in reported LIBOR, which could have an adverse impact on the market value for or value of any LIBOR-linked securities, loans, and other financial obligations or extensions of credit held by or due to us and could have a material adverse effect on our business, financial condition and results of operations.

In advance of 2021, regulators and market participants will seek to work together to identify or develop successor reference rates and how the calculation of associated spreads (if any) should be adjusted. The Federal Reserve Board, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, is considering replacing U.S. dollar LIBOR with a new index calculated by short term repurchase agreements, backed by U.S. Treasury securities, called the Secured Overnight Financing Rate (“SOFR”). The first publication of SOFR was released in April 2018. Whether or not SOFR attains market traction as a LIBOR replacement remains a question and the future of LIBOR at this time is uncertain. Additionally, prior to 2021, it is expected that industry trade associations and participants will focus on the transition mechanisms by which the reference rates and spreads (if any) in existing contracts or instruments may be amended, whether through marketwide protocols, fallback contractual provisions, bespoke negotiations or amendments or otherwise. Nonetheless, the termination of LIBOR presents risks to us and our portfolio companies. At this time, it is not possible to exhaustively identify or predict the effect of any such changes, any establishment of alternative reference rates or any other reforms that may be enacted in the United Kingdom or elsewhere.

Filed May 4, 2020.
Source: SEC EDGAR, the filing index for accession 0001104659-20-056299. Last ingested by Listed: Nov 10, 2026, 04:19 ET. No prices; not investment advice.