Fair Value Measurements

3 Months Ended

Mar. 31, 2023

Note 9 – Fair Value Measurements

The Company’s assets recorded at fair value have been categorized based upon a fair value hierarchy in accordance with ASC Topic 820. Refer to "Note 2 — Summary of Significant Accounting Policies" for a discussion of the Company’s policies.

Investments measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations as of March 31, 2023 and December 31, 2022 (in thousands):


	As of March 31, 2023
	Level 1		Level 2		Level 3		Total
Portfolio Investments
Preferred Stock	$	12,785	$	—	$	22,099	$	34,884
Common Stock		1,044		—		921		1,965
Senior Secured Term Loans		—		—		1,060,495		1,060,495
Second Lien Term Loans		—		—		13,707		13,707
Warrants		—		79		14,212		14,291
Total Portfolio Investments		13,829		79		1,111,434		1,125,342
U.S. Treasury Bill		34,974		—		—		34,974
Total Investments	$	48,803	$	79	$	1,111,434	$	1,160,316


	As of December 31, 2022
	Level 1		Level 2		Level 3		Total
Portfolio Investments
Preferred Stock	$	12,335	$	—	$	347	$	12,682
Common Stock		501		1,422		1,174		3,097
Senior Secured Term Loans		—		—		1,080,121		1,080,121
Second Lien Term Loans		—		—		13,654		13,654
Warrants		—		105		16,650		16,755
Total Portfolio Investments		12,836		1,527		1,111,946		1,126,309
U.S. Treasury Bill		—		—		—		—
Total Investments	$	12,836	$	1,527	$	1,111,946	$	1,126,309

The Company transfers investments in and out of Levels 1, 2 and 3 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.

The following table presents a rollforward of Level 3 assets measured at fair value as of March 31, 2023 (in thousands):


	Preferred Stock			Common Stock			Senior Secured Term Loans			Second Lien Term Loans			Warrants			Total
Fair value at December 31, 2022	$	347		$	1,174		$	1,080,121		$	13,654		$	16,650		$	1,111,946
Transfers out of Level 3		—			—			—			—			—			—
Purchases of investments(1)		25,000			—			(12,505	)		—			376			12,871
PIK interest		—			—			3,584			171			—			3,755
Sales or repayments of investments(1)		—			—			(14,199	)		—			—			(14,199	)
Realized gain (loss)		—			—			—			—			(1,178	)		(1,178	)
Change in unrealized appreciation (depreciation)		(3,248	)		(253	)		658			(146	)		(1,636	)		(4,625	)
Amortization of fixed income premiums or accretion of discounts		—			—			2,836			28			—			2,864
Fair value at March 31, 2023	$	22,099		$	921		$	1,060,495		$	13,707		$	14,212		$	1,111,434
Change in unrealized appreciation (depreciation) on Level 3 investments still held as of March 31, 2023	$	(3,248	)	$	(253	)	$	865		$	(146	)	$	(2,930	)	$	(5,712	)

(1)

Net of reorganization and restructuring of investments.

The following table presents a rollforward of Level 3 assets measured at fair value as of March 31, 2022 (in thousands):


	Preferred Stock		Common Stock			Senior Secured Term Loans			Second Lien Term Loans		Warrants			Total
Fair value at December 31, 2021	$	1,332	$	—		$	623,054		$	12,873	$	20,087		$	657,346
Transfers out of Level 3		—		—			—			—		—			—
Purchases of investments(1)		—		4,551			80,371			—		598			85,520
PIK interest		—		—			1,187			150		—			1,337
Sales or repayments of investments(1)		—		—			(7,987	)		—		(262	)		(8,249	)
Realized gain (loss)		—		—			—			—		(267	)		(267	)
Change in unrealized appreciation (depreciation)		109		(3,202	)		(848	)		—		1,179			(2,762	)
Amortization of fixed income premiums or accretion of discounts		—		—			2,799			26		—			2,825
Fair Value at March 31, 2022	$	1,441	$	1,349		$	698,576		$	13,049	$	21,335		$	735,750
Change in unrealized appreciation (depreciation) on Level 3 investments still held as of March 31, 2022	$	109	$	(3,202	)	$	(2,651	)	$	—	$	858		$	(4,886	)

(1)

Net of reorganization and restructuring of investments.

The following table provides quantitative information regarding Level 3 fair value measurements as of March 31, 2023 (in thousands):


Description	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Preferred Stock	$	278	Recent private market and merger and acquisition transaction prices	N/A	N/A
		21,821	PWERM	Discount rate	28.0% - 28.0% (28.0%)
Common Stock		921	Recent private market and merger and acquisition transaction prices	N/A	N/A
Senior Secured Term Loans(1)		1,031,181	Discounted Cash Flow analysis	Discount rate	11.5% - 24.9% (15.5%)
			Market approach	Origination yield	10.5% - 16.6% (13.1%)
		29,314	PWERM	Discount rate	30.0% - 39.7% (35.9%)
Second Lien Term Loans (1)		13,707	Discounted Cash Flow analysis	Discount rate	16.8% - 16.8% (16.8%)
			Market approach	Origination yield	14.8% - 14.8% (14.8%)
Warrants(2)		9,859	Option pricing model	Risk-free interest rate	3.7% - 5.2% (4.6%)
				Average industry volatility	30.0% - 97.2% (51.8%)
				Estimated time to exit	0.5 - 5.0 (2.6 years)
				Revenue multiples	1.14x - 45.10x (3.77x)
		4,353	PWERM	Discount rate	20.0% - 40.0% (33.7%)
				Revenue multiples	2.32x - 198.68x (17.65x)
Total Level 3 Investments	$	1,111,434

The following table provides quantitative information regarding Level 3 fair value measurements as of December 31, 2022 (in thousands):


Description	Fair Value		Valuation Technique	Unobservable Inputs	Range (Weighted Average)
Preferred Stock	$	347	Recent private market and merger and acquisition transaction prices	N/A	N/A
Common Stock		1,174	Recent private market and merger and acquisition transaction prices	N/A	N/A
Senior Secured Term Loans(1)		1,053,748	Discounted Cash Flow analysis	Discount rate	11.1% - 28.0% (15.2%)
			Market approach	Origination yield	10.5% - 19.3% (12.9%)
		26,373	PWERM	Discount rate	27.4% - 37.4% (30.9%)
Second Lien Term Loans (1)		13,654	Discounted Cash Flow analysis	Discount rate	16.1% - 16.1% (16.1%)
			Market approach	Origination yield	12.2% - 12.2% (12.2%)
Warrants(2)		10,246	Option pricing model	Risk-free interest rate	2.7% - 4.9% (4.3%)
				Average industry volatility	25.0% - 98.4% (49.0%)
				Estimated time to exit	0.5 - 5.0 (2.2 years)
				Revenue multiples	1.16x - 88.63x (5.47x)
		6,404	PWERM	Discount rate	20.0% - 40.0% (34.6%)
				Revenue multiples	2.35x - 199.38x (13.10x)
Total Level 3 Investments	$	1,111,946

(1)

The significant unobservable inputs used in the fair value measurement of the Company’s debt securities are origination yields and discount rates. The origination yield is defined as the initial market price of an investment in a hypothetical market to hypothetical market participants where buyers and sellers are willing participants. The discount rate is related to company-specific characteristics such as underlying investment performance, projected cash flows, and other characteristics of the investment. Significant increases (decreases) in the inputs in isolation may result in a significantly higher (lower) fair value measurement, depending on the materiality of the investment. However, a significantly higher or lower fair value measurement of any of the Company’s portfolio investments may occur regardless of whether there is a significant increase (decrease) in the unobservable inputs.

(2)

The significant unobservable inputs used in the fair value measurement of the Company’s warrant and equity-related securities are inputs used in the OPM, which include industry volatility, risk free interest rate and estimated time to exit. The Equity Allocation model and the Black Scholes model were the main OPMs used during the period ended March 31, 2023 and the year ended December 31, 2022. Probability Weighted Expected Return Models (“PWERM”) and other techniques were used as determined appropriate. Significant increases (decreases) in the inputs in isolation would result in a significantly higher (lower) fair value measurement, depending on the materiality of the investment. However, a significantly higher or lower fair value measurement of any of the Company’s portfolio investments may occur regardless of whether there is a significant increase (decrease) in the unobservable inputs. For some investments, additional consideration may be given to data from the last round of financing or merger/acquisition events near the measurement date.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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