Quarterly report pursuant to Section 13 or 15(d)

INVESTMENTS

v3.24.0.1
INVESTMENTS
3 Months Ended
Dec. 31, 2023
Investments, Debt and Equity Securities [Abstract]  
INVESTMENTS INVESTMENTS
Fair Value
In accordance with ASC 820, the fair value of each investment is determined to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between willing market participants on the measurement date. This fair value definition focuses on exit price in the principal, or most advantageous, market and prioritizes, within a measurement of fair value, the use of market-based inputs over entity-specific inputs. ASC 820 also establishes the following three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of a financial instrument as of the measurement date.
Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical financial instruments in active markets;
Level 2 — inputs to the valuation methodology include quoted prices for similar financial instruments in active or inactive markets, and inputs that are observable for the financial instrument, either directly or indirectly, for substantially the full term of the financial instrument. Level 2 inputs are in those markets for which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers; and
Level 3 — inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs are those inputs that reflect assumptions that market participants would use when pricing the financial instrument and can include the Valuation Team’s assumptions based upon the best available information.
When a determination is made to classify our investments within Level 3 of the valuation hierarchy, such determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable, or Level 3, inputs, observable inputs (or components that are actively quoted and can be validated to external sources). The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. Investments in funds measured using NAV as a practical expedient are not categorized within the fair value hierarchy.
As of December 31, 2023 and September 30, 2023, all of our investments were valued using Level 3 inputs within the ASC 820 fair value hierarchy, except for our investment in Funko Acquisition Holdings, LLC (“Funko”), which was valued using Level 2 inputs, and our investment in Leeds Novamark Capital I, L.P. (“Leeds”), which was valued using NAV as a practical expedient.
We transfer investments in and out of Level 1, 2, and 3 of the valuation hierarchy as of the beginning balance sheet date, based on changes in the use of observable and unobservable inputs utilized to perform the valuation for the period. During the three months ended December 31, 2023 and 2022, there were no investments transferred into or out of Levels 1, 2 or 3 of the valuation hierarchy.
As of December 31, 2023 and September 30, 2023, our investments, by security type, at fair value were categorized as follows within the ASC 820 fair value hierarchy:
Fair Value Measurements
Fair Value
Quoted Prices in
Active Markets
for Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
As of December 31, 2023:
Secured first lien debt
$ 546,602  $ —  $ —  $ 546,602 
Secured second lien debt
126,571  —  —  126,571 
Unsecured debt
23  —  — 

23 
Preferred equity
29,722  —  — 

29,722 
Common equity/equivalents
46,821 
(A)
—  22 
(B)
46,799 
Total Investments as of December 31, 2023
$ 749,739  $   $ 22  $ 749,717 
Fair Value Measurements
Fair Value
Quoted Prices in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
As of September 30, 2023:
Secured first lien debt
$ 510,701  $ —  $ —  $ 510,701 
Secured second lien debt
127,854  —  —  127,854 
Unsecured debt
24  —  — 

24 
Preferred equity
26,855  —  — 

26,855 
Common equity/equivalents
39,150 
(A)
— 

22 
(B)
39,128 
Total Investments as of September 30, 2023
$ 704,584  $   $ 22  $ 704,562 
(A)Excludes our investment in Leeds with a fair value of $0.2 million and $0.2 million as of December 31, 2023 and September 30, 2023, respectively. Leeds was valued using NAV as a practical expedient.
(B)Fair value was determined based on the closing market price of shares of Funko, Inc. (our units in Funko can be converted into common shares of Funko, Inc.) at the reporting date less a discount for lack of marketability as our investment was subject to certain restrictions.
The following table presents our portfolio investments, valued using Level 3 inputs within the ASC 820 fair value hierarchy and carried at fair value as of December 31, 2023 and September 30, 2023, by caption on our accompanying Consolidated Statements of Assets and Liabilities and by security type:
Total Recurring Fair Value Measurements Reported in
Consolidated Statements of Assets and Liabilities
Using Significant Unobservable Inputs (Level 3)
December 31, 2023 September 30, 2023
Non-Control/Non-Affiliate Investments
Secured first lien debt $ 529,003  $ 491,686 
Secured second lien debt 119,146  120,429 
Unsecured debt 23  24 
Preferred equity 24,589  21,733 
Common equity/equivalents 35,477 
(A)
29,419 
(B)
Total Non-Control/Non-Affiliate Investments
$ 708,238  $ 663,291 
Affiliate Investments
Secured first lien debt $ 2,829  $ 2,895 
Preferred equity 5,133  5,122 
Common equity/equivalents 2,754  2,404 
Total Affiliate Investments $ 10,716  $ 10,421 
Control Investments
Secured first lien debt $ 14,770  $ 16,120 
Secured second lien debt 7,425  7,425 
Common equity/equivalents 8,568  7,305 
Total Control Investments
$ 30,763  $ 30,850 
Total Investments at Fair Value Using Level 3 Inputs $ 749,717  $ 704,562 

(A)Excludes our investments in Leeds and Funko with fair values of $0.2 million and $22 thousand, respectively, as of December 31, 2023. Leeds was valued using NAV as a practical expedient, and Funko was valued using Level 2 inputs.
(B)Excludes our investments in Leeds and Funko with fair values of $0.2 million and $22 thousand, respectively, as of September 30, 2023. Leeds was valued using NAV as a practical expedient, and Funko was valued using Level 2 inputs.
In accordance with ASC 820, the following table provides quantitative information about our Level 3 fair value measurements of our investments as of December 31, 2023 and September 30, 2023. The table below is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to our fair value measurements.
The weighted average calculations in the table below are based on the principal balances for all debt related calculations and on the cost basis for all equity related calculations for the particular input.
Quantitative Information about Level 3 Fair Value Measurements

Range / Weighted Average as of

December 31,
2023
September 30,
2023
Valuation
Techniques/
Methodologies
Unobservable
Input
December 31,
2023
September 30,
2023


Secured first lien debt
$ 491,137  $ 461,638 
Yield Analysis
Discount Rate
11.4% - 17.6%
/ 13.4%
11.8% - 29.9%
/ 14.8%

55,465  49,063 
TEV
EBITDA multiple
4.5x – 6.4x
/ 6.4x
4.7x – 6.8x
/ 6.7x


EBITDA
$1,068 - $18,154
/ $17,860
$995 - $14,002
/ $13,624


Revenue multiple
0.3x – 0.8x
/ 0.6x
0.3x – 0.8x
/ 0.6x


Revenue
$9,675 - $33,040
/ $17,731
$14,934 - $16,283
/ $15,361


Secured second lien debt
109,194  110,820 
Yield Analysis
Discount Rate
12.3% - 16.4%
/ 14.8%
12.5% - 15.6%
/ 14.5%

9,952  9,609 
Market Quote
IBP
79.0% - 94.0%
/ 85.2%
67.8% - 94.0%
/ 82.2%

7,425  7,425 
TEV
EBITDA multiple
5.3x – 5.3x
/ 5.3x
5.6x – 5.6x
/ 5.6x


EBITDA
$3,798 - $3,798
/ $3,798
$3,690 - $3,690
/ $3,690


Unsecured debt
23  24 
TEV
Revenue multiple
1.0x – 1.0x
/ 1.0x
1.0x – 1.0x
/ 1.0x


Revenue
$4,752 - $4,752
/ $4,752
$5,044 - $5,044
/ $5,044


Preferred and common equity / equivalents(A)
76,521  65,983 
TEV
EBITDA multiple
4.5x – 13.1x
/ 7.4x
4.7x – 13.0x
/ 6.9x


EBITDA
$1,068 -$127,874
/ $11,049
$995 -$112,841
/ $10,570


Revenue multiple
0.3x – 3.0x
/ 1.2x
0.3x– 3.0x
/ 1.2x


Revenue
$4,493 -$33,040
/ $16,517
$4,213 -$16,283
/ $14,959
Total Level 3 Investments, at Fair Value
$ 749,717  $ 704,562 
(A)Fair value as of December 31, 2023 excludes our investments in Leeds and Funko with fair values of $0.2 million and $22 thousand, respectively. Fair value as of September 30, 2023 excludes our investments in Leeds and Funko with fair values of $0.2 million and $22 thousand, respectively. Leeds was valued using NAV as a practical expedient and Funko was valued using Level 2 inputs as of both December 31, 2023 and September 30, 2023.

Fair value measurements can be sensitive to changes in one or more of the valuation inputs. Changes in discount rates, EBITDA or EBITDA multiples (or revenue or revenue multiples), each in isolation, may change the fair value of certain of our investments. Generally, an increase/(decrease) in market yields, discount rates, or a (decrease)/increase in EBITDA or EBITDA multiples (or revenue or revenue multiples) may result in a (decrease)/increase, respectively, in the fair value of certain of our investments.
Changes in Level 3 Fair Value Measurements of Investments
The following tables provide the changes in fair value, broken out by security type, during the three months ended December 31, 2023 and 2022 for all investments for which we determine fair value using unobservable (Level 3) inputs.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Three months ended December 31, 2023 Secured
First Lien
Debt
Secured
Second Lien
Debt
Unsecured
Debt
Preferred
Equity
Common
Equity/
Equivalents
Total
Fair Value as of September 30, 2023
$ 510,701  $ 127,854  $ 24  $ 26,855  $ 39,128  $ 704,562 
Total gains (losses):
Net realized gain (loss)(A)
—  —  —  —  259  259 
Net unrealized appreciation (depreciation)(B)
6,996  (744) (1) (6,133) 7,955  8,073 
Reversal of prior period net depreciation (appreciation) on realization(B)
—  —  —  —  (283) (283)
New investments, repayments and settlements: (C)
Issuances/originations
50,024  185  —  9,000  —  59,209 
Settlements/repayments
(21,119) (724) —  —  —  (21,843)
Net proceeds from sales
—  —  —  —  (260) (260)
Transfers
—  —  —  —  —  — 
Fair Value as of December 31, 2023
$ 546,602  $ 126,571  $ 23  $ 29,722  $ 46,799  $ 749,717 

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
Three Months Ended December 31, 2022 Secured
First Lien
Debt
Secured
Second
Lien Debt
Unsecured
Debt
Preferred
Equity
Common
Equity/
Equivalents
Total
Fair Value as of September 30, 2022
$ 463,858  $ 115,928  $ 55  $ 27,046  $ 36,273  $ 643,160 
Total gains (losses):
Net realized gain (loss)(A)
—  —  (95) —  4,995  4,900 
Net unrealized appreciation (depreciation)(B)
(455) (544) (10) (906) (784) (2,699)
Reversal of prior period net depreciation (appreciation) on realization(B)
103  —  95  —  (4,995) (4,797)
New investments, repayments and settlements: (C)
Issuances/originations
11,475  182  —  —  500  12,157 
Settlements/repayments
(24,738) (811) —  —  —  (25,549)
Net proceeds from sales
—  —  —  —  (7,978) (7,978)
Transfers —  —  —  —  —  — 
Fair Value as of December 31, 2022
$ 450,243  $ 114,755  $ 45  $ 26,140  $ 28,011  $ 619,194 
(A)Included in net realized gain (loss) on investments on our accompanying Consolidated Statements of Operations for the corresponding period.
(B)Included in net unrealized appreciation (depreciation) on investments on our accompanying Consolidated Statements of Operations for the corresponding period.
(C)Includes increases in the cost basis of investments resulting from new portfolio investments, accretion of discounts, PIK, and other non-cash disbursements to portfolio companies, as well as decreases in the cost basis of investments resulting from principal repayments or sales, the amortization of premiums and acquisition costs and other cost-basis adjustments.
Investment Activity
Proprietary Investments
As of December 31, 2023 and September 30, 2023, we held 47 proprietary investments with an aggregate fair value of $739.9 million and $695.1 million, or 98.7% and 98.6% of the total investment portfolio at fair value, respectively. The following significant proprietary investment transactions occurred during the three months ended December 31, 2023:

In November 2023, we invested $11.0 million in Quality Environmental Midco, Inc. (“Quality”) through secured first lien debt and preferred equity. We also extended Quality a $2.0 million secured first lien line of credit commitment, which was unfunded as of December 31, 2023.
In November 2023, we extended Cafe Zupas, an existing portfolio company, a new $10.5 million secured first lien delayed draw term loan commitment, which was unfunded at close. We funded $1.4 million on the delayed draw term loan in December 2023. In addition, our existing term loan was paid down by $7.3 million.
In November 2023, our remaining investment in PIC 360, LLC was sold resulting in a net realized gain of $0.3 million.
In December 2023, we invested an additional $14.3 million in ALS Education, LLC, an existing portfolio company, through secured first lien debt.
In December 2023, we invested an additional $12.0 million in Leadpoint Business Services, LLC, an existing portfolio company, through secured first lien debt.
In December 2023, we invested an additional $7.0 million in Salt & Straw, LLC, an existing portfolio company, through preferred equity. We also increased our delayed draw term loan commitment to Salt & Straw, LLC by $2.9 million.
Syndicated Investments
As of December 31, 2023 and September 30, 2023, we held four syndicated investments with an aggregate fair value of $10.1 million and $9.7 million, or 1.3% and 1.4% of the total investment portfolio at fair value, respectively.
Investment Concentrations
As of December 31, 2023, our investment portfolio consisted of investments in 51 portfolio companies located in 24 states in 12 different industries, with an aggregate fair value of $750.0 million. The five largest investments at fair value as of December 31, 2023 totaled $185.7 million, or 24.8% of our total investment portfolio, as compared to the five largest investments at fair value as of September 30, 2023 totaling $176.9 million, or 25.1% of our total investment portfolio. As of December 31, 2023 and September 30, 2023, our average investment by obligor was $14.9 million and $14.2 million at cost, respectively.
The following table outlines our investments by security type as of December 31, 2023 and September 30, 2023:
December 31, 2023 September 30, 2023
Cost Fair Value Cost Fair Value
Secured first lien debt $ 558,281  73.5  % $ 546,602  72.9  % $ 529,376  73.3  % $ 510,701  72.5  %
Secured second lien debt 129,713  17.1  126,571  16.9  130,252  18.1  127,854  18.1 
Unsecured debt 198  0.0  23  0.0  198  0.0  24  0.0 
Total debt investments 688,192  90.6  673,196  89.8  659,826  91.4  638,579  90.6 
Preferred equity 44,617  5.9  29,722  3.9  35,617  4.9  26,855  3.8 
Common equity/equivalents 26,825  3.5  47,067  6.3  26,826  3.7  39,381  5.6 
Total equity investments
71,442  9.4  76,789  10.2  62,443  8.6  66,236  9.4 
Total Investments
$ 759,634  100.0  % $ 749,985  100.0  % $ 722,269  100.0  % $ 704,815  100.0  %
Our investments at fair value consisted of the following industry classifications as of December 31, 2023 and September 30, 2023:
December 31, 2023 September 30, 2023
Industry Classification Fair Value Percentage of
Total
Investments
Fair Value Percentage of
Total
Investments
Diversified/Conglomerate Service $ 163,817  21.8  % $ 135,060  19.2  %
Healthcare, Education, and Childcare 159,410  21.3  146,438  20.8 
Diversified/Conglomerate Manufacturing 158,612  21.1  158,061  22.4 
Aerospace and Defense 105,806  14.1  97,836  13.9 
Beverage, Food, and Tobacco 80,492  10.7  78,788  11.2 
Automobile 27,793  3.7  27,571  3.9 
Oil and Gas 23,662  3.2  27,830  3.9 
Personal and Non-Durable Consumer Products 14,162  1.9  14,576  2.1 
Machinery 6,216  0.9  6,411  0.9 
Other, < 2.0%
10,015  1.3  12,244  1.7 
Total Investments $ 749,985  100.0  % $ 704,815  100.0  %
Our investments at fair value were included in the following U.S. geographic regions as of December 31, 2023 and September 30, 2023:
December 31, 2023 September 30, 2023
Location
Fair Value
Percentage of
Total
Investments
Fair Value
Percentage of
Total Investments
South $ 289,458  38.6  % $ 273,181  38.8  %
West 242,651  32.4  224,235  31.8 
Midwest 154,155  20.5  145,122  20.6 
Northeast 63,721  8.5  62,277  8.8 
Total Investments $ 749,985  100.0  % $ 704,815  100.0  %
The geographic composition indicates the location of the headquarters for our portfolio companies. A portfolio company may have additional locations in other geographic regions.
Investment Principal Repayments
The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments, as of December 31, 2023:
Amount
For the remaining nine months ending September 30:
2024(A)
$ 21,950 
For the fiscal years ending September 30:
2025 42,960 

2026 140,846 

2027 253,699 

2028 185,178 

Thereafter 44,847 

Total contractual repayments
$ 689,480 

Adjustments to cost basis of debt investments (1,288)

Investments in equity securities 71,442 

Investments held as of December 31, 2023 at cost:
$ 759,634 
(A)Includes debt investments with contractual principal amounts totaling $0.2 million for which the maturity date has passed as of December 31, 2023.
Receivables from Portfolio Companies
Receivables from portfolio companies represent non-recurring costs incurred on behalf of such portfolio companies and are included in other assets on our accompanying Consolidated Statements of Assets and Liabilities. We generally maintain an allowance for uncollectible receivables from portfolio companies when the receivable balance becomes 90 days or more past due or if it is determined, based upon management’s judgment, that the portfolio company is unable to pay its obligations. We write off accounts receivable when we have exhausted collection efforts and have deemed the receivables uncollectible. As of December 31, 2023 and September 30, 2023, we had gross receivables from portfolio companies of $0.9 million and $0.8 million, respectively. The allowance for uncollectible receivables was $14 thousand and $9 thousand as of December 31, 2023 and September 30, 2023, respectively.