Fair Value Measurement

3 Months Ended

Mar. 31, 2024

4. FAIR VALUE MEASUREMENT

The fair value of a financial instrument is the amount that would be received to sell an asset or would be paid to transfer a liability in an orderly transaction between market participants at the measurement date (i.e., the exit price).

The fair value hierarchy under ASC 820 prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The levels used for classifying investments are not necessarily an indication of the risk associated with investing in these securities. The three levels of the fair value hierarchy are as follows:

Basis of Fair Value Measurement

Level 1 Investments valued using unadjusted quoted prices in active markets for identical assets.

Level 2 Investments valued using other unadjusted observable market inputs, e.g. quoted prices in markets that are not active or quotes for comparable instruments.

Level 3 Investments that are valued using quotes and other observable market data to the extent available, but which also take into consideration one or more unobservable inputs that are significant to the valuation taken as a whole.

A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Note 2 should be read in conjunction with the information outlined below.

The table below presents the valuation techniques and the nature of significant inputs generally used in determining the fair value of Level 2 and Level 3 Instruments.

Level 2 Instruments Valuation Techniques and Significant Inputs

      Equity, Bank Loans, Corporate Debt, and Other Debt Obligations

      The types of instruments that trade in markets that are not considered to be active but are valued based on quoted market prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency may include commercial paper, most government agency obligations, certain corporate debt securities, certain mortgage-backed securities, certain bank loans, less liquid publicly-listed equities, certain state and municipal obligations, certain money market instruments and certain loan commitments.
Valuations of Level 2 debt and equity instruments can be verified to quoted prices, broker or dealer quotations or alternative pricing sources with reasonable levels of price transparency.  Consideration is given to the nature of the quotations (e.g. indicative or firm) and the relationship of recent market activity to the prices provided from alternative pricing sources.

Level 3 Instruments Valuation Techniques and Significant Inputs


Bank Loans, Corporate Debt, and Other Debt Obligations		Valuations are generally based on discounted cash flow techniques, for which the significant inputs are the amount and timing of expected future cash flows, market yields and recovery assumptions. The significant inputs are generally determined based on an analysis of market comparables, transactions in similar instruments and/or recovery and liquidation analyses.
Equity		Recent third-party investments or pending transactions are considered to be the best evidence for any change in fair value. When these are not available, the following valuation methodologies are used, as appropriate and available:


		▪ Transactions in similar instruments; ▪ Discounted cash flow techniques; ▪ Third party appraisals; and ▪ Industry multiples and public comparables. Evidence includes recent or pending reorganizations (for example, merger proposals, tender offers and debt restructurings) and significant changes in financial metrics, including: ▪ Current financial performance as compared to projected performance; ▪ Capitalization rates and multiples; and ▪ Market yields implied by transactions of similar or related assets.

As noted above, the income and market approaches were used in the determination of fair value of certain Level 3 assets as of March 31, 2024 and December 31, 2023. The significant unobservable inputs used in the income approach are the discount rate or market yield used to discount the estimated future cash flows expected to be received from the underlying investment, which include both future principal and interest payments. An increase in the discount rate or market yield would result in a decrease in the fair value. Included in the consideration and selection of discount rates is risk of default, rating of the investment (if any), call provisions and comparable company valuations. The significant unobservable inputs used in the market approach are based on market comparable transactions and market multiples of publicly traded comparable companies. Increases or decreases in market multiples would result in an increase or decrease, respectively, in the fair value.

The following summarizes the Company’s investment assets categorized within the fair value hierarchy as of March 31, 2024:


Type of Investment	Level 1		Level 2		Level 3		Total
Asset
Debt	$	-	$	94,815	$	118,396	$	213,211
Equity/Other		10,409		-		36,026		46,435
Short Term Investments		8,335		-		-		8,335
Total	$	18,744	$	94,815	$	154,422	$	267,981
Investment measured at net asset value(1)								3,214
Total Investments, at fair value							$	271,195

(1)

Certain investments that are measured at fair value using net asset value (“NAV”) have not been categorized in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amount presented in the Consolidated Statements of Assets and Liabilities.

The following summarizes the Company’s investment assets categorized within the fair value hierarchy as of December 31, 2023:


Assets	Level 1		Level 2		Level 3		Total
Debt	$	-	$	78,054	$	122,693	$	200,747
Equity/Other		6,770		-		20,044		26,814
Short Term Investments		10,807		-		-		10,807
Total	$	17,577	$	78,054	$	142,737	$	238,368
Investment measured at net asset value(1)								3,051
Total Investments, at fair value							$	241,419

The following is a reconciliation of Level 3 assets for the three months ended March 31, 2024:


Level 3	Beginning Balance as of January 1, 2024		Net Transfers In/Out			Purchases(1)		Net Realized Gain (Loss)		Net Change in Unrealized Appreciation (Depreciation)(2)			Sales and Settlements(1)			Net Amortization of Premium/ Discount		Ending Balance as of March 31, 2024
Debt	$	122,693	$	(12,039	)	$	13,743	$	22	$	(4,913	)	$	(1,182	)	$	72	$	118,396
Equity/Other		20,044		1,449			15,829		-		(1,304	)		-			8		36,026
Total investment assets	$	142,737	$	(10,590	)	$	29,572	$	22	$	(6,217	)	$	(1,182	)	$	80	$	154,422

The following is a reconciliation of Level 3 assets for the year ended December 31, 2023:


Level 3	Beginning Balance as of January 1, 2023		Net Transfers In/Out			Purchases(1)		Net Realized Gain (Loss)			Net Change in Unrealized Appreciation (Depreciation)(2)		Sales and Settlements(1)			Net Amortization of Premium/ Discount		Ending Balance as of December 31, 2023
Debt	$	104,333	$	(8,858	)	$	127,395	$	(5,910	)	$	6,253	$	(100,885	)	$	365	$	122,693
Equity/Other		32,044		-			19,191		(3,273	)		2,962		(30,880	)		-		20,044
Total investment assets	$	136,377	$	(8,858	)	$	146,586	$	(9,183	)	$	9,215	$	(131,765	)	$	365	$	142,737

(1)

Purchases may include new deals, additional fundings (inclusive of those on revolving credit facilities), refinancings, capitalized PIK income, and securities received in corporate actions and restructurings. Sales and Settlements may include scheduled principal payments, prepayments, sales and repayments (inclusive of those on revolving credit facilities), and securities delivered in corporate actions and restructuring of investments.

(2)

The net change in unrealized appreciation relating to Level 3 assets still held at March 31, 2024 totaled $(6,628) consisting of the following: $(4,913) related to debt investments and $(1,715) related to equity investments. The net change in unrealized depreciation relating to Level 3 assets still held at December 31, 2023 totaled $(2,538) consisting of the following: $(2,178) related to debt investments and $(360) relating to equity/other.

Two investments with an aggregate fair value of $16,300 were transferred from Level 3 to Level 2 as a result of increased pricing transparency during the three months ended March 31, 2024.

Two investments with an aggregate fair value of $8,858 were transferred from Level 3 to Level 2 as a result of increased pricing transparency during the year ended December 31, 2023.

The following tables below present the ranges of significant unobservable inputs used to value the Company’s Level 3 assets as of March 31, 2024 and December 31, 2023, respectively. These ranges represent the significant unobservable inputs that were used in the valuation of each type of instrument, but they do not represent a range of values for any one instrument. For example, the lowest yield in 1st Lien Debt is appropriate for valuing that specific debt investment, but may not be appropriate for valuing any other debt investments in this asset class. Accordingly, the ranges of inputs presented below do not represent uncertainty in, or possible ranges of, fair value measurements of the Company’s Level 3 assets.


As of March 31, 2024
Investment Type	Fair value		Valuation Technique(1)	Unobservable Input(1)	Range (Weighted Average)(2)
Debt	$	71,402	Income Approach	Discount Rate	9.86% - 23.13% (15.25%)
		28,732	Recent Transaction
		9,836	Market Approach	Earnings Multiple	0.12 - 9.00 (2.67)
		8,426	Income Approach	Implied Yield	3.07% - 18.58% (10.35%)
Total Debt	$	118,396

Equity/Other	$	20,853	Recent Transaction
		10,840	Income Approach	Discount Rate	21.00% - 25.00% (23.00%)
		4,284	Market Approach	Earnings Multiple	0.10 - 8.75 (6.43)
		49	Asset Recovery / Liquidation (3)
Total Equity/Other	$	36,026


As of December 31, 2023
Investment Type	Fair value		Valuation Technique(1)	Unobservable Input(1)	Range (Weighted Average)(2)
Debt	$	69,579	Income Approach	Discount Rate	8.77% - 56.16% (18.31%)
		28,733	Recent Transaction
		9,268	Market Approach	Earnings Multiple	0.50 - 8.75 (1.95)
		9,001	Income Approach	Implied Yield	3.24% - 18.59% (10.92%)
		6,112	Asset Recovery / Liquidation(3)
Total Debt	$	122,693

Equity/Other	$	17,477	Recent Transaction
		2,513	Market Approach	Earnings Multiple	0.10 - 8.75 (4.92)
		54	Asset Recovery / Liquidation(3)
Total Equity/Other	$	20,044

(1)

The fair value of any one instrument may be determined using multiple valuation techniques or unobservable inputs.

(2)

Weighted average for an asset category consisting of multiple investments is calculated by weighting the significant unobservable input by the relative fair value of the investment. The range and weighted average for an asset category consisting of a single investment represents the significant unobservable input used in the fair value of the investment.

(3)

Investments valued using the asset recovery or liquidation technique include investments for which valuation is based on current financial data without a discount rate applied.

The Company values investments in private funds using NAV as reported by each fund’s investment manager. The private funds calculate NAV in a manner consistent with the measurement principles of FASB Accounting Standards Codification Topic 946, Financial Services – Investment Companies, as of the valuation date. Investments valued using NAV as a practical expedient are not categorized within the fair value hierarchy.

As of March 31, 2024 the Company held an investment in one private fund valued using NAV as a practical expedient. The Company has no unfunded commitments with respect to this investment. Withdrawals from the investment are permitted annually and there is no set duration for the private fund.

- 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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