Investments

3 Months Ended

Mar. 31, 2024

Note 5. Investments

Fair Value Measurement and Disclosures

The following table shows the composition of our investment portfolio as of March 31, 2024, with the fair value disaggregated into the three levels of the fair value hierarchy in accordance with ASC 820:


					Fair Value Hierarchy
	Cost		Fair Value		Level 1		Level 2		Level 3
First Lien Secured Debt	$	2,125,753	$	2,111,478	$	—	$	—	$	2,111,478
Second Lien Secured Debt		15,366		13,459		—		7,900		5,559
Unsecured Debt		2,664		329		—		—		329
Structured Products and Other		42,647		35,639		—		—		35,639
Preferred Equity		25,802		32,752		—		—		32,752
Common Equity/Interests		339,330		158,920		1,514		—		157,406
Warrants		965		258		—		—		258
Total Investments	$	2,552,527	$	2,352,835	$	1,514	$	7,900	$	2,343,421
Money Market Fund	$	255	$	255	$	255	$	—	$	—
Total Cash Equivalents	$	255	$	255	$	255	$	—	$	—
Total Investments after Cash Equivalents	$	2,552,782	$	2,353,090	$	1,769	$	7,900	$	2,343,421

The following table shows the composition of our investment portfolio as of December 31, 2023, with the fair value disaggregated into the three levels of the fair value hierarchy in accordance with ASC 820:


					Fair Value Hierarchy
	Cost		Fair Value		Level 1		Level 2		Level 3
First Lien Secured Debt	$	2,093,887	$	2,075,031	$	—	$	—	$	2,075,031
Second Lien Secured Debt		46,274		31,887		—		—		31,887
Unsecured Debt		—		—		—		—		—
Structured Products and Other		44,993		41,333		—		—		41,333
Preferred Equity		25,685		32,405		—		—		32,405
Common Equity/Interests		326,914		153,344		1,217		—		152,127
Warrants		389		199		—		—		199
Total Investments	$	2,538,142	$	2,334,199	$	1,217	$	—	$	2,332,982
Money Market Fund	$	252	$	252	$	252	$	—	$	—
Total Investments after Cash Equivalents	$	2,538,394	$	2,334,451	$	1,469	$	—	$	2,332,982

The following table shows changes in the fair value of our Level 3 investments during the three months ended March 31, 2024:


	First Lien Secured Debt (2)			Second Lien Secured Debt (2)			Unsecured Debt			Structured Products and Other			Preferred Equity		Common Equity/Interests			Warrants			Total
Fair value as of December 31, 2023	$	2,075,031		$	31,887		$	—		$	41,333		$	32,405	$	152,127		$	199		$	2,332,982
Net realized gains (losses)		(6,464	)		273			—			—			—		359			—			(5,832	)
Net change in unrealized gains (losses)		4,581			12,296			(2,335	)		(3,347	)		231		(7,138	)		(517	)		3,771
Net amortization on investments		1,933			6			—			—			—		—			—			1,939
Purchases, including capitalized PIK (3)		154,876			146			—			—			116		1			—			155,139
Sales (3)		(118,479	)		(31,339	)		2,664			(2,347	)		—		12,057			576			(136,868	)
Transfers out of Level 3 (1)		—			(7,710	)		—			—			—		—			—			(7,710	)
Transfers into Level 3 (1)		—			—			—			—			—		—			—			—
Fair value as of March 31, 2024	$	2,111,478		$	5,559		$	329		$	35,639		$	32,752	$	157,406		$	258		$	2,343,421

Net change in unrealized gains (losses) on Level 3 investments still held as of March 31, 2024	$	(3,233	)	$	(594	)	$	(2,335	)	$	(3,346	)	$	231	$	5,856		$	(517	)	$	(3,938	)

(1)

Transfers out (if any) of Level 3 are due to an increase in the quantity and reliability of broker quotes obtained and transfers into (if any) Level 3 are due to a decrease in the quantity and reliability of broker quotes obtained as assessed by the Investment Adviser. Transfers are assumed to have occurred at the end of the period. There were no transfers between Level 1 and Level 2 fair value measurements during the period shown.

(2)

Includes unfunded commitments measured at fair value of $(3,976).

(3)

Includes reorganizations and restructuring of investments.

The following table shows changes in the fair value of our Level 3 investments during the three months ended March 31, 2023:


	First Lien Secured Debt (2)			Second Lien Secured Debt (2)			Unsecured Debt			Structured Products and Other		Preferred Equity		Common Equity/Interests			Warrants			Total
Fair value as of December 31, 2022	$	2,130,309		$	70,919		$	50		$	9,413	$	35,557	$	149,314		$	474		$	2,396,036
Net realized gains (losses)		2,531			(1,128	)		—			—		—		367			—			1,770
Net change in unrealized gains (losses)		272			21,983			(2	)		1,383		1,004		(21,734	)		(13	)		2,893
Net amortization on investments		2,421			111			—			—		—		(36	)		—			2,496
Purchases, including capitalized PIK (3)		151,510			—			1			106		50		23,473			—			175,140
Sales (3)		(172,248	)		(22,528	)		(18	)		—		—		(23	)		—			(194,817	)
Transfers out of Level 3 (1)		—			—			—			—		—		—			—			—
Transfers into Level 3 (1)		—			—			—			—		—		—			—			—
Fair value as of March 31, 2023	$	2,114,795		$	69,357		$	31		$	10,902	$	36,611	$	151,361		$	461		$	2,383,518

Net change in unrealized gains (losses) on Level 3 investments still held as of March 31, 2023	$	620		$	(235	)	$	(2	)	$	1,384	$	1,004	$	(21,734	)	$	(14	)	$	(18,977	)

(1)

(2)

Includes unfunded commitments measured at fair value of $(4,006).

(3)

Includes reorganizations and restructuring of investments.

The following tables summarize the significant unobservable inputs the Company used to value its investments categorized within Level 3 as of March 31, 2024 and December 31, 2023. In addition to the techniques and inputs noted in the tables below, according to our valuation policy we may also use other valuation techniques and methodologies when determining our fair value measurements. The below tables are not intended to be all-inclusive, but rather provide information on the significant unobservable inputs as they relate to the Company’s determination of fair values.

The unobservable inputs used in the fair value measurement of our Level 3 investments as of March 31, 2024 were as follows:


				Quantitative Information about Level 3 Fair Value Measurements
Asset Category		Fair Value		Valuation Techniques/Methodologies	Unobservable Input	Range		Weighted Average (1)
First Lien Secured Debt	$		23,414	Market Comparable Technique	Comparable Multiple	3.5x	10.3x	6.8x
			65,536	Recent Transaction	Recent Transaction	N/A	N/A	N/A
			112,585	Recovery Analysis	Recoverable Amount	N/A	N/A	N/A
			1,909,943	Yield Analysis	Discount Rate	6.6%	21.5%	12.2%
Second Lien Secured Debt			5,559	Market Comparable Technique	Comparable Multiple	5.8x	5.8x	5.8x
Unsecured Debt			329	Yield Analysis	Discount Rate	11.3%	11.3%	11.3%
Structured Products and Other			35,639	Yield Analysis	Discount Rate	12.9%	15.6%	14.8%
Preferred Equity			32,006	Market Comparable Technique	Comparable Multiple	2.8x	13.2x	11.0x
			385	Recent Transaction	Recent Transaction	N/A	N/A	N/A
			—	Recovery Analysis	Recoverable Amount	N/A	N/A	N/A
			78	Residual Value	Residual Value	N/A	N/A	N/A
			283	Yield Analysis	Discount Rate	13.3%	13.3%	13.3%
Common Equity/Interests			15,658	Market Comparable Technique	Comparable Multiple	3.7x	27.0x	11.2x
			296	Option Pricing Model	Expected Volatility	35.0%	105.0%	57.7%
			374	Recent Transaction	Recent Transaction	N/A	N/A	N/A
			—	Recovery Analysis	Recoverable Amount	N/A	N/A	N/A
			120,050	Yield Analysis	Discount Rate	10.5%	13.2%	10.5%
			21,028	Estimated Proceeds	Estimated Proceeds	N/A	N/A	N/A
Warrants			258	Option Pricing Model	Expected Volatility	25.0%	50.0%	43.2%
Total Level 3 Investments	$		2,343,421

_________________

(1)

The weighted average information is generally derived by assigning each disclosed unobservable input a proportionate weight based on the fair value of the related investment. For the commodity price unobservable input, the weighted average price is an undiscounted price based upon the estimated production level from the underlying reserves.

The unobservable inputs used in the fair value measurement of our Level 3 investments as of December 31, 2023 were as follows:


				Quantitative Information about Level 3 Fair Value Measurements
Asset Category		Fair Value		Valuation Techniques/Methodologies	Unobservable Input	Range		Weighted Average (1)
First Lien Secured Debt	$		59,746	Recent Transaction	Recent Transaction	N/A	N/A	N/A
			111,468	Recovery Analysis	Recoverable Amount	N/A	N/A	N/A
			1,903,817	Yield Analysis	Discount Rate	6.6%	25.1%	12.2%
Second Lien Secured Debt			2,207	Market Comparable Technique	Comparable Multiple	8.5x	8.5x	8.5x
			238	Recovery Analysis	Recoverable Amount	N/A	N/A	N/A
			29,442	Yield Analysis	Discount Rate	13.7%	25.8%	17.3%
Structured Products and Other			41,333	Yield Analysis	Discount Rate	13.0%	15.6%	14.9%
Preferred Equity			31,950	Market Comparable Technique	Comparable Multiple	2.8x	12.5x	11.1x
			268	Recent Transaction	Recent Transaction	N/A	N/A	N/A
			—	Recovery Analysis	Recoverable Amount	N/A	N/A	N/A
			78	Residual Value	Residual Value	N/A	N/A	N/A
			109	Yield Analysis	Discount Rate	13.5%	13.5%	13.5%
Common Equity/Interests			12,898	Market Comparable Technique	Comparable Multiple	3.6x	26.0x	11.8x
			281	Option Pricing Model	Expected Volatility	30.0%	115.0%	59.1%
			125	Recent Transaction	Recent Transaction	N/A	N/A	N/A
			—	Recovery Analysis	Recoverable Amount	N/A	N/A	N/A
			117,454	Yield Analysis	Discount Rate	13.5%	14.3%	14.3%
			21,369	Estimated Proceeds	Estimated Proceeds	N/A	N/A	N/A
Warrants			199	Option Pricing Model	Expected Volatility	50.0%	50.0%	50.0%
Total Level 3 Investments	$		2,332,982

____________________

(1)

The significant unobservable inputs used in the fair value measurement of the Company’s debt and equity securities are primarily earnings before interest, taxes, depreciation and amortization (“EBITDA”) comparable multiples and market discount rates. The Company typically uses EBITDA comparable multiples on its equity securities to determine the fair value of investments. The Company uses market discount rates for debt securities to determine if the effective yield on a debt security is commensurate with the market yields for that type of debt security. If a debt security’s effective yield is significantly less than the market yield for a similar debt security with a similar credit profile, the resulting fair value of the debt security may be lower. For certain investments where fair value is derived based on a recovery analysis, the Company uses underlying commodity prices from third party market pricing services to determine the fair value and/or recoverable amount, which represents the proceeds expected to be collected through asset sales or liquidation. Further, for certain investments, the Company also considered the probability of future events which are not in management’s control. Significant increases or decreases in any of these inputs in isolation would result in a significantly lower or higher fair value measurement. The significant unobservable inputs used in the fair value measurement of the structured products include the discount rate applied in the valuation models in addition to default and recovery rates applied to projected cash flows in the valuation models. Specifically, when a discounted cash flow model is used to determine fair value, the significant input used in the valuation model is the discount rate applied to present value the projected cash flows. Increases in the discount rate can significantly lower the fair value of an investment; conversely decreases in the discount rate can significantly increase the fair value of an investment. The discount rate is determined based on the market rates an investor would expect for a similar investment with similar risks. For certain investments such as warrants, the Company may use an option pricing technique, of which the applicable method is the Black-Scholes Option Pricing Method (“BSM”), to perform valuations. The BSM is a model of price variation over time of financial instruments, such as equity, that is used to determine the price of call or put options. Various inputs are required but the primary unobservable input into the BSM model is the underlying asset volatility.

Investment Transactions

For the three months ended March 31, 2024 and 2023, purchases of investments on a trade date basis were $152,791 and $151,058, respectively.

For the three months ended March 31, 2024 and 2023, sales and repayments (including prepayments and unamortized fees) of investments on a trade date basis were $136,868 and $171,529 respectively.

PIK Income

The Company holds loans and other investments, including certain preferred equity investments, that have contractual PIK income. PIK income computed at the contractual rate is accrued into income and reflected as receivable up to the capitalization date. During the three months ended March 31, 2024 and 2023, PIK income earned was $2,029 and $784, respectively.

The following table shows the change in capitalized PIK balance for the three months ended March 31, 2024 and 2023:


	Three Months Ended March 31,
	2024		2023
PIK balance at beginning of period	$	24,485	$	21,534
PIK income capitalized		2,349		791
Adjustments due to investments exited or written off		—		—
PIK income received in cash		—		—
PIK balance at end of period	$	26,834	$	22,325

Dividend Income on CLOs and Structured Finance Products

The Company holds structured finance products and other investments. The CLO equity investments and structured finance products are entitled to recurring distributions which are generally equal to the excess cash flow generated from the underlying investments after payment of the contractual payments to debt holders and fund expenses. The Company records as dividend income the accretable yield from its beneficial interests in structured products such as CLOs based upon a number of cash flow assumptions that are subject to uncertainties and contingencies. During the three months ended March 31, 2024 and 2023, dividend income from structured products was $0 and $0, respectively

Investments on Non-Accrual Status

As of March 31, 2024, 0.9% of total investments at amortized cost, or 0.6% of total investments at fair value, were on non-accrual status. As of December 31, 2023, 1.2% of total investments at amortized cost, or 0.2% of total investments at fair value, were on non-accrual status.