As filed with the Securities and Exchange Commission on April 1, 2024
Securities Act Registration No. 333-
United States
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C. 20549
Form
REGISTRATION STATEMENT
| REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 |
| ☐ | PRE-EFFECTIVE AMENDMENT NO. |
| ☐ | POST-EFFECTIVE AMENDMENT NO. |
and/or
| ☐ | REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 |
| ☐ | AMENDMENT NO. |
Registrant Exact Name as Specified in Charter
Address of Principal Executive Offices (Number, Street, City, State, Zip Code)
Registrant’s Telephone Number, including Area Code
Name and Address (Number, Street, City, State, Zip Code) of Agent for Service
Copies of Communications to:
| David A. Hearth Paul Hastings LLP 101 California Street, 48th Floor San Francisco, California 94111 (415) 856-7000 |
R.
William Burns Paul Hastings LLP 600 Travis Street, 58th Floor Houston, Texas 77002 (713) 860-7300 |
Paul D. Tropp, Esq. Ropes & Gray LLP 1211 Avenue of the Americas New York, NY 10036 (212) 596-9000 |
Approximate Date of Commencement of Proposed Public Offering:
| Check box if the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans. |
| Check box if any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933 (“Securities Act”), other than securities offered in connection with a dividend reinvestment plan. |
| Check box if this Form is a registration statement pursuant to General Instruction A.2 or a post-effective amendment thereto. |
| Check box if this Form is a registration statement pursuant to General Instruction B or a post-effective amendment thereto that will become effective upon filing with the Commission pursuant to Rule 462(e) under the Securities Act. |
| Check box if this Form is a post-effective amendment to a registration statement filed pursuant to General Instruction B to register additional securities or additional classes of securities pursuant to Rule 413(b) under the Securities Act. |
It is proposed that this filing will become effective (check appropriate box)
| When declared effective pursuant to section 8(c) of the Securities Act. |
If appropriate, check the following box:
| This [post-effective] amendment designates a new effective date for a previously filed [post-effective amendment] [registration statement]. |
| This Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is ___________. |
| This Form is a post-effective amendment filed pursuant to Rule 462(c)under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is ___________. |
| This Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, and the Securities Act registration statement number of the earlier effective registration statement for the same offering is ___________. |
Check each box that appropriately characterizes the Registrant:
| Registered Closed-End Fund (closed-end company that is registered under the Investment Company Act of 1940 (“Investment Company Act”)). |
| Business Development Company (closed-end company that intends or has elected to be regulated as a business development company under the Investment Company Act). |
| Interval Fund (Registered Closed-End Fund or a Business Development Company that makes periodic repurchase offers under Rule 23c-3 under the Investment Company Act). |
| A.2 Qualified (qualified to register securities pursuant to General Instruction A.2 of this Form). |
| Well-Known Seasoned Issuer (as defined by Rule 405 under the Securities Act). |
| Emerging Growth Company (as defined by Rule 12b-2 under the Securities Exchange Act of 1934). |
| If an Emerging Growth Company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of Securities Act. |
| New Registrant (registered or regulated under the Investment Company Act for less than 12 calendar months preceding this filing). |
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
SUBJECT TO COMPLETION DATED APRIL 1, 2024
PRELIMINARY PROSPECTUS
Kayne
Anderson BDC, Inc.
Common Stock
We are a business development company (“BDC”) that invests primarily in first lien senior secured loans with a secondary focus on unitranche and split-lien loans to private middle market companies. We are managed by our investment adviser, KA Credit Advisors, LLC (the “Advisor”), an indirect controlled subsidiary of Kayne Anderson Capital Advisors, L.P. (“Kayne Anderson”), a prominent alternative investment management firm. Our investment objective is to generate current income and, to a lesser extent, capital appreciation. See “Prospectus Summary—Kayne Anderson, Kayne Anderson Private Credit and The Advisor” for a discussion of the Advisor’s and Kayne Anderson’s roles in achieving our investment objective.
Under normal market conditions, we expect at least 90% of our portfolio (including investments purchased with proceeds from borrowings under credit facilities and issuances of senior unsecured notes) to be invested in first lien senior secured, unitranche and split-lien loans. Our investment decisions are made on a case-by-case basis. We expect that a majority of these debt investments will be made in “core middle market companies” (as defined in “Prospectus Summary—Investment Objective, Principal Strategy and Investment Structures”) and will have stated maturities of three to six years. We expect that the loans in which we principally invest will be to companies that are located in the United States. We determine the location of a company as being in the United States by (i) such company being organized under the laws of one of the states in the United States; or (ii) during its most recent fiscal year, such company derived at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed in the United States or has at least 50% of its assets in the United States.
We are an externally managed, non-diversified, closed-end management investment company that has elected to be regulated as a BDC under the Investment Company Act of 1940, as amended (“1940 Act”).
We have elected to be treated, and intend to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”) for U.S. federal income tax purposes. As a BDC and a RIC, we are required to comply with certain regulatory requirements.
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), and will be subject to reduced public company reporting requirements.
This is our initial public offering of shares of our common stock and all of the shares of common stock offered by this prospectus are being sold by us.
Our Board of Directors has approved an open market share repurchase plan, (the “Company 10b5-1 Plan”), to acquire up to $ million in the aggregate of our Common Stock within one year of the closing of this offering. See “The Company—Share Repurchase Plan.” The purchase of shares of Common Stock pursuant to the Company 10b5-1 Plan is intended to satisfy the conditions of Rule 10b5-1 and Rule 10b-18 under the Securities Exchange Act of 1934.
Our common stock has no history of public trading. We currently expect that the initial public offering price per share will be $ per share. We intend to apply to list our common stock on The New York Stock Exchange under the symbol “KBDC” on or promptly after the date of this prospectus.
If you invest in shares of our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of common stock and the pro forma net asset value per share of common stock immediately after the completion of this offering. Assuming an initial public offering price of $ per share, purchasers in this offering will experience dilution of approximately $ per share. See “Dilution” for more information.
Investing in shares of our common stock involves a high degree of risk, including credit risk and the risk of the use of leverage in the form of borrowings under credit facilities and issuances of senior unsecured notes, and is highly speculative. We also intend to further borrow under credit facilities and/or issue senior unsecured notes in the future in order to finance our investments. See “Risk Factors—Risks Relating to Our Business and Structure—We finance our investments with borrowings under credit facilities and issuances of senior unsecured notes, which will magnify the potential for gain or loss on amounts invested and may increase the risk of investing in us.” In addition, shares of closed-end investment companies, including BDCs, frequently trade at a discount to their net asset values. If shares of our common stock trade at a discount to our net asset value, purchasers in this offering will face increased risk of loss. Before buying any shares of our common stock, you should read the discussion of the material risks of investing in shares of our common stock, including the risk of leverage, in “Risk Factors” beginning on page 23 of this prospectus.
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We invest in debt that is typically not rated by any rating agency, but we believe that if such investments were rated, they would be below investment grade, which are sometimes referred to as “high yield bonds” or “junk bonds.” See “Risk Factors—Risks Relating to Our Investments—We invest in highly leveraged companies, which could cause us to lose all or a part of our investment in those companies.” In addition, we have a maturity policy between three to six years for our debt investments. See “Risk Factors—Risks Relating to Our Investments—Our prospective portfolio companies may be unable to repay or refinance outstanding principal on their loans at or prior to maturity.”
This prospectus contains important information about the Company that you should know before investing in shares of our common stock. Please read this prospectus before deciding whether to invest in our securities and retain it for future reference. We also file annual, quarterly, and current reports, proxy statements and other information about us with the United States Securities and Exchange Commission (the “SEC”), and such filings will be available upon written or oral request and without charge. You may request a free copy of this information about us or make stockholder inquiries, by calling us at (713) 493-2020 or by contacting us at 717 Texas Avenue, Suite 2200, Houston Texas, 77002. Such information about the Company also will be available for free on our website at www.kaynebdc.com. Information on our website is not incorporated into or a part of this prospectus, and you should not consider that information to be part of this prospectus. The SEC maintains a website (http://www.sec.gov) that contains material incorporated by reference and other information regarding the Company.
Neither the SEC nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
| Price to Public | Sales
load (underwriting discounts and commissions)(1) | Proceeds to us (2) | ||||||||||
| Per Share | $ | $ | $ | |||||||||
| Total | $ | $ | $ | |||||||||
| (1) | Because the sales load is an expense of the Company, our common stockholders will bear indirectly the sales load of this offering, which as a result will immediately reduce the net asset value of each common share purchased in this offering. See “Underwriters” for a more completed description of underwriting compensation. |
| (2) | We estimate that we will incur offering expenses of approximately $ million, or approximately $ per share for the number of shares in this offering, in connection with this offering. Our common stockholders will bear indirectly the offering expenses of this offering, which as a result will immediately reduce the net asset value of each common share purchased in this offering. For more information about such offering expenses, please see “Item 27. Other Expenses of Issuance and Distribution.” |
We have granted the underwriters an option to purchase up to an additional shares of our common stock from us, at the public offering price, less the sales load payable by us, within 30 days from the date of this prospectus. If the underwriters exercise their option in full, the total sales load will be $ million and total proceeds to us, before expenses, will be $ million.
The underwriters expect to deliver the common stock to purchasers on or about , 2024.
Joint Lead Book Running Managers
| Morgan Stanley | BofA Securities | Wells Fargo Securities | RBC Capital Markets |
Joint Book Running Managers
| UBS Investment Bank | Keefe, Bruyette & Woods |
| A Stifel Company |
Co-Managers
| SMBC Nikko | Regions Securities LLC | Academy Securities | Ramirez & Co., Inc. |
The date of this prospectus is , 2024.
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TABLE OF CONTENTS
Statistical and market data used in this prospectus has been obtained from governmental and independent industry sources and publications. Forward-looking information obtained from these sources is subject to the same qualifications and the additional uncertainties regarding the other forward-looking statements contained in this prospectus, for which the safe harbor provided in Section 27A of the Securities Act and Section 21E of the Exchange Act is not available. See “Cautionary Notice Regarding Forward-Looking Statements.”
You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information in this prospectus is accurate only as of the date on the front of this prospectus. Our business, financial condition and prospects may have changed since that date. To the extent required by applicable law, we will update this prospectus during the offering period to reflect material changes to the disclosure herein.
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Prospectus Summary
This summary highlights some of the information in this prospectus. It is not complete and may not contain all of the information that you may want to consider before investing in our common stock. You should read our entire prospectus before investing in our common stock. Throughout this prospectus we refer to Kayne Anderson BDC, Inc. as “we,” “us,” “our” or the “Company,” and to “KA Credit Advisors, LLC,” our investment advisor, as the “Advisor.”
Kayne Anderson BDC, Inc.
We are a business development company (“BDC”) that invests primarily in first lien senior secured loans, with a secondary focus on unitranche and split-lien loans to private middle market companies. We are managed by our investment advisor, KA Credit Advisors, LLC (the “Advisor”), an indirect controlled subsidiary of Kayne Anderson Capital Advisors, L.P. (“Kayne Anderson”), and the Advisor operates within Kayne Anderson’s private credit line of business (“KAPC”). Kayne Anderson is a prominent alternative investment management firm, focused on real estate, credit, infrastructure/energy and growth capital. Our Advisor is registered with the United States Securities and Exchange Commission (the “SEC”) under the Investment Advisers Act of 1940, as amended (the “Advisers Act”).
We are a Delaware corporation that commenced operations on February 5, 2021. We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a BDC under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for U.S. federal income tax purposes, we intend to qualify, annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).
We generally intend to distribute, out of assets legally available for distribution, 90 to 100% of our available earnings, on a quarterly or annual basis, as determined by our Board of Directors (the “Board”) in its sole discretion. The distributions we pay to our stockholders in a year may exceed our taxable income for that year and, accordingly, a portion of such distributions equal to such excess of distributions over taxable income may constitute a return of invested capital for federal income tax purposes. Such a return of capital (i.e., a distribution that represents a return of an investor’s original investment) would be nontaxable to the stockholder and would reduce its basis in its shares. As a result, income tax related to the portion of such distributions treated as return of capital would be deferred until any subsequent sale of shares of common stock. The specific tax characteristics of our distributions will be reported to stockholders after the end of the calendar year. See “Distributions” and “Certain U.S. Federal Income Tax Considerations.”
Investment Portfolio
Our portfolio is currently comprised of a broad mix of loans with diversity among investment size and industry focus. Our Advisor’s team of professionals conducts due diligence on prospective investments during the underwriting process and is involved in structuring the credit terms of substantially all of our investments. Once an investment has been made, our Advisor closely monitors portfolio investments and takes a proactive approach identifying and addressing sector or company specific risks. Our Advisor maintains a regular dialogue with portfolio company management teams (as well as their owners, the majority of whom are private equity firms, where applicable), reviews detailed operating and financial results on a regular basis (typically monthly or quarterly) and monitors current and projected liquidity needs, in addition to other portfolio management activities.
As of December 31, 2023, we had investments in 76 portfolio companies with an aggregate fair value of approximately $1,363 million, and unfunded commitments to these portfolio companies of $148 million, and our portfolio consisted of 97.1% first lien senior secured loans, 1.6% junior debt and 1.3% equity investments.
As of December 31, 2023, our weighted average yield of debt and income producing securities at fair value, and amortized cost was 12.5% and 12.7%, respectively, and 100% of our debt investments were at floating rates.
As of December 31, 2023, our portfolio was invested across 26 different industries (Global Industry Classification “GICS”, Level 3 – Industry). The largest industries in our portfolio as of December 31, 2023 were Trading Companies & Distributors, Food Products and Commercial Services & Supplies, which represented, as a percentage of our portfolio of long-term investments, 15.3%, 11.5% and 9.4%, respectively, based on fair value. The industries in which our portfolio companies operate may change over time.
As of December 31, 2023, our average position size based on commitment (at the portfolio company level) was $20.1 million, and the weighted average and median last twelve months (“LTM”) earnings before interest expense, income tax expense, depreciation and amortization (“EBITDA”) of our portfolio companies was $51.3 million and $39.5 million, respectively, based on fair value.
As of December 31, 2023, the weighted average loan-to-enterprise value (“LTEV”) of our debt investments at the time of our initial investment was 44.0%. LTEV represents the total par value of our debt investment relative to our estimate of the enterprise value of the underlying borrower.
As of December 31, 2023, we had one debt investment on non-accrual status, which represented 0.4% and 0.4% of total debt investments at cost and fair value, respectively.
As of December 31, 2023, our portfolio companies had an average leverage of 4.3x and average interest coverage of 2.7x, the calculations for which are based on the most recent quarter end or latest available information from the portfolio companies.
As of December 31, 2023, 100% of our debt investments included at least one financial maintenance covenant.
As a BDC, at least 70% of our assets must be the type of “qualifying” assets listed in Section 55(a) of the 1940 Act, as described herein, which are generally privately-offered securities issued by U.S. private or thinly-traded companies. We may also invest up to 30% of our portfolio opportunistically in “non-qualifying” portfolio investments. As of December 31, 2023, 4.8% of the Company’s total assets were in non-qualifying investments.
1
Investment Objective, Principal Strategy and Investment Structures
Our investment objective is to generate current income and, to a lesser extent, capital appreciation. Nearly all of our debt investments are in private middle market companies. We use “private” to refer to companies that are not traded on a securities exchange and define “middle market companies” as companies that, in general, generate between $10 million and $150 million of annual EBITDA. Further, we refer to companies that generate between $10 million and $50 million of annual EBITDA as “core middle market companies” and companies that generate between $50 million and $150 million of annual EBITDA as “upper middle market companies.” We typically adjust EBITDA for non-recurring and/or normalizing items to assess the financial performance of our borrowers over time.
We intend to achieve our investment objective by investing primarily in first lien senior secured loans, with a secondary focus on unitranche and split-lien loans to private middle market companies. Under normal market conditions, we expect at least 90% of our portfolio (including investments purchased with proceeds from borrowings under credit facilities and issuances of senior unsecured notes) to be invested in first lien senior secured, unitranche and split-lien loans. Our investment decisions are made on a case-by-case basis. We expect that a majority of these debt investments will be made in core middle market companies and will have stated maturities of three to six years. We expect that the loans in which we principally invest will be to companies that are located in the United States. We determine the location of a company as being in the United States by (i) such company being organized under the laws of one of the states in the United States; or (ii) during its most recent fiscal year, such company derived at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed in the United States or has at least 50% of its assets in the United States.
See “The Company—Investment Process Overview—Loan Origination” for a detailed description of our investment process and loan origination. See also “Risk Factors—Risks Relating to Our Business and Structure—We depend upon our Advisor and Administrator for our success and upon their access to the investment professionals and partners of Kayne Anderson and its affiliates. Any inability of the Advisor or the Administrator to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business, and “—Risks Relating to Our Investments—Limitations of investment due diligence in the private middle market companies in which we invest expose us to increased investment risk.”
We intend to principally invest in the following types of debt securities:
● | First lien debt: Typically senior on a lien basis to the other liabilities in the issuer’s capital structure with a first priority lien against substantially all assets of the borrower and often including a pledge of the capital stock of the business. The security interest ranks above the security interest of second lien lenders on those assets. These securities are typically floating rate investments priced with a spread to the reference rate (typically the Secured Overnight Financing Rate (“SOFR”)); | |
| ● | Split-lien debt: Typically includes (i) a first lien on fixed and intangible assets of the borrower and often including a pledge of the capital stock of the business and (ii) a second lien on working capital assets. Used in conjunction with an asset based lender who has a first lien on the borrower's working capital assets. These securities are typically floating rate investments priced with a spread to the reference rate (typically SOFR). | |
| ● | Unitranche debt: Combines features of first lien, second lien and subordinated debt, generally in a first lien position. These securities can generally be thought of as first lien investments beyond what may otherwise be considered “typical” first lien leverage levels, effectively representing a greater portion of the overall capitalization of the underlying business. These securities are typically structured as floating rate investments priced with a spread to the reference rate (typically SOFR). |
Senior secured debt often has restrictive covenants for the purpose of pursuing principal protection and repayment before junior creditors as covenants provide opportunities for lenders to take action following a covenant breach. The loans in which we principally invest will have financial maintenance covenants, which require borrowers to maintain certain financial performance criteria and financial ratios on a monthly or quarterly basis.
Currently, we partially finance our investments with leverage in the form of borrowings under credit facilities and issuances of senior unsecured notes. We also intend to further borrow under credit facilities and/or issue senior unsecured notes in the future in order to finance our investments. As of December 31, 2023, we had $695.8 million of indebtedness outstanding under our credit facilities and senior unsecured notes. See “Risk Factors—Risks Relating to Our Business and Structure—Provisions in our credit facilities and our senior unsecured notes contain various covenants, which, if not complied with, could accelerate our repayment obligations under such facilities, thereby materially and adversely affecting our liquidity, financial condition, results of operations and ability to pay distributions.” In accordance with the 1940 Act, we are required to meet a coverage ratio of total assets (less total liabilities other than indebtedness) to total borrowings and other senior securities of at least 150%. If this ratio declines below 150%, we cannot incur additional leverage and could be required to sell a portion of our investments to repay some leverage when it is disadvantageous to do so. See “Regulation” for a discussion of BDC regulation and other regulatory considerations. See also “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations.”
We invest in debt that is typically not rated by any rating agency, but we believe that if such investments were rated, they would be below investment grade, which are sometimes referred to as “high yield bonds” or “junk bonds.” See “Risk Factors—Risks Relating to Our Investments—We invest in highly leveraged companies, which could cause us to lose all or a part of our investment in those companies.” In addition, we have a maturity policy between three to six years for our debt investments. See “Risk Factors—Risks Relating to Our Investments—Our prospective portfolio companies may be unable to repay or refinance outstanding principal on their loans at or prior to maturity.”
2
Private Offerings
Between February 2021 and December 2023, we executed subscription agreements with investors on sixteen occasions as part of one continuous private placement offering obligating those investors to purchase shares of common stock representing total aggregate capital commitments of $1.047 billion. The execution of the subscription agreements were effected as part of one continuous private placement offering exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereunder. Pursuant to the private placement offering that began on February 5, 2021, we called capital under the terms of those subscription agreements and we issued shares of common stock to investors on twelve funding occasions between February 2021 and February 2024 in an aggregate amount of $777.0 million.
On March 22, 2024, we delivered the final capital call notice, which will result in the issuance of $269.9 million of additional shares of common stock in the private placement offering at a price per share of our expected NAV per share as of , 2024, which was $ . Following this final capital call and issuance of shares of our common stock, the investors’ obligations to purchase additional shares of common stock will be exhausted in the final closing expected to occur on or around April 2, 2024, and we will not have any remaining undrawn capital commitments. This final capital drawdown notice will complete our pre-initial public offering capital raise private placement offering exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereunder. Such capital raise is separate from and not conditioned on this offering. See also “The Company—Private Offerings.”
Kayne Anderson, Kayne Anderson Private Credit and The Advisor
Kayne Anderson
Founded in 1984, Kayne Anderson is a prominent alternative investment management firm which is registered with the SEC under the Advisers Act, focused on real estate, credit, infrastructure/energy and growth capital. Kayne Anderson provides corporate and management services (such as information technology, human resources, compliance and legal services) to the Advisor.
As of December 31, 2023, investment vehicles managed or advised by Kayne Anderson had over $34 billion in assets under management (“AUM”) for institutional investors, family offices, high net worth and retail clients. Kayne Anderson has over 330 professionals located across five offices across the U.S. The firm has approximately 140 investment professionals, approximately 35 of which are dedicated to credit investing.
Kayne Anderson Private Credit
KAPC is Kayne Anderson’s line of business focused on private credit that operates various fund vehicles targeting middle market first lien senior secured, unitranche, and split-lien loans. KAPC was established in 2011 and manages (indirectly through affiliates) AUM of approximately $6.5 billion related to middle market private credit as of December 31, 2023.
KAPC’s integrated and scaled platform combines direct loan origination, strong fundamental credit analysis and relative-value perspective.
The Advisor – KA Credit Advisors, LLC
Our investment activities are managed by our Advisor, an indirect controlled subsidiary of Kayne Anderson, and the Advisor operates within KAPC’s line of business. The Advisor is an investment advisor registered with the SEC under the Advisers Act pursuant to an investment advisory agreement between us and the Advisor (the “Investment Advisory Agreement”). In accordance with the Advisers Act, our Advisor is responsible for originating prospective investments, conducting research and due diligence investigations on potential investments, analyzing investment opportunities, negotiating and structuring investments and monitoring our investments and portfolio companies on an ongoing basis. The Advisor benefits from the scale and resources of Kayne Anderson and specifically KAPC.
The Advisor executes on our investment objective by (1) accessing the established loan sourcing channels developed by KAPC, which includes an extensive network of private equity firms, other middle market lenders, financial advisors, intermediaries and management teams, (2) selecting investments within our middle market company focus, (3) implementing KAPC’s underwriting process and (4) drawing upon its experience and resources and the broader Kayne Anderson network.
The principal executive offices of our Advisor are located at 717 Texas Avenue, Suite 2200, Houston, Texas 77002.
3
Corporate Structure
We are a Delaware corporation and commenced operations on February 5, 2021. The following chart depicts our ownership structure assuming closing of this offering:
| (1) | Assuming the underwriters do not exercise their option to purchase additional shares of common stock. |
| (2) | Includes Kayne Anderson, certain partners and employees of Kayne Anderson and certain directors and officers of the Company. |
| (3) | From time to time we may form wholly-owned subsidiaries to facilitate our normal course of business investing activities. |
4
Investment Advisory Agreement
On February 5, 2021, the Company entered into an investment advisory agreement (the “Investment Advisory Agreement”) with its Advisor. Pursuant to the Investment Advisory Agreement, the Company pays its Advisor a fee for investment advisory and management services consisting of two components—a base management fee and an incentive fee. The Advisor may, from time-to-time, grant waivers on the Company’s obligations, including waivers of the base management fee and/or incentive fee, pursuant to Section 3(c) of the Investment Advisory Agreement. Any base management fee or incentive fee so waived will not be subject to recoupment by the Advisor. The Investment Advisory Agreement automatically terminates in the event of its assignment, as defined in the 1940 Act, and may be terminated by either party without penalty upon 60 days’ prior written notice to the other. The Company may terminate the Investment Advisory Agreement upon 60 days' prior written notice to the Advisor: (i) upon the vote of the holders of a majority of the Company's outstanding voting securities, as defined in the 1940 Act, or (ii) by the vote of the independent directors of the Board. On March 7, 2023, the Board approved a one-year renewal of the Investment Advisory Agreement through March 15, 2024. The Investment Advisory Agreement will continue in effect from year to year after its current one-year term commencing on March 15, 2023 so long as its continuation is approved at least annually by our Board including a majority of Independent Directors or the vote of a majority of our outstanding voting securities.
On March 6, 2024, the Company entered into an amended and restated investment advisory agreement with the Advisor (the “Amended Investment Advisory Agreement”), which is effective upon the closing of this offering. The Amended Investment Advisory Agreement is materially the same as the Investment Advisory Agreement except, following this offering, the base management fee will be calculated at an annual rate of 1.00% and the incentive fee on income will be subject to a twelve-quarter lookback quarterly hurdle rate of 1.50% as opposed to a single quarter measurement and will become subject to an Incentive Fee Cap (as defined below) based on the Company’s Cumulative Pre-Incentive Fee Net Return (as defined below). The Amended Investment Advisory Agreement will not result in higher incentive fees (taking into account all fees payable during the calculation period) payable to the Advisor than the incentive fees that would have otherwise been payable to the Advisor under the Investment Advisory Agreement. See “Management and Other Agreements—Investment Advisory Agreement.”
The cost of both the management fee and the incentive fee under the Amended Investment Advisory Agreement will ultimately be borne by common stockholders. The Amended Investment Advisory Agreement was approved by the Board on March 6, 2024. Unless earlier terminated, the Amended Investment Advisory Agreement will renew automatically for successive annual periods, provided that such continuance is specifically approved at least annually by our Board including a majority of Independent Directors or the vote of a majority of our outstanding voting securities.
As discussed in more detail below, on March 6, 2024, the Advisor entered into the Amended Investment Advisory Agreement (effective upon the closing of this offering) to include a three-year total return lookback feature on the income incentive fee. This lookback feature provides that the Advisor’s income incentive fee may be reduced if the Company’s portfolio experiences aggregate write-downs or net capital losses during the applicable Trailing Twelve Quarters (as defined below). On March 6, 2024 the Advisor also entered into a fee waiver agreement (the “Fee Waiver Agreement”) for the waivers of (i) the income incentive fee for three calendar quarters commencing in the calendar quarter this offering is completed and (ii) a portion of the base management fee for one year following the completion of this offering. The Fee Waiver Agreement will become effective upon the closing of this offering. Amounts waived by the Advisor pursuant to the Fee Waiver Agreement are not subject to recoupment by the Advisor. The waivers of the base management fee and incentive income fee pursuant to the Fee Waiver Agreement may only be terminated by the Board and may not be terminated by the Advisor. The Fee Waiver Agreement is contractual in nature.
As described in more detail below, under the Amended and Restated Investment Advisory Agreement, upon the closing of this offering, (i) the base management fee will increase from 0.90% of the fair market value of the Company’s investments to 1.00% of the fair market value of the Company’s investments (prior to taking into account the effect of the Fee Waiver Agreement) and (ii) the income incentive fee will increase from 10.0% to 15.0% (prior to taking into account the effect of the Fee Waiver Agreement). As a result, the Advisor stands to benefit from the consummation of this offering resulting in an increase in the base management fee and income incentive fee (prior to taking into account the effect of the Fee Waiver Agreement), which would increase the expenses borne by our common stockholders. The Adviser, therefore, has an interest in facilitating the Company’s completion of this offering. See “Potential Conflicts of Interest.”
Base Management Fee
Effective upon the closing of this offering, the base management fee pursuant to the Amended Investment Advisory Agreement will be calculated at an annual rate of 1.00% of the fair market value of the Company’s investments. If this offering occurs on a date other than the first day of a calendar quarter, the base management fee will be calculated for such calendar quarter at a weighted rate based on the fee rates applicable before and after the closing of this offering based on the number of days in such calendar quarter before and after the closing of this offering. Pursuant to the Fee Waiver Agreement effective upon the closing of this offering, the Advisor has implemented a waiver of the base management fee at an annual rate of 0.25% for one year following the completion of this offering.
Prior to the closing of this offering, the base management fee is calculated at an annual rate of 0.90% of the fair market value of the Company’s investments.
The base management fee under the Amended Investment Advisory Agreement will be payable quarterly in arrears and calculated based on the average of the Company’s fair market value of investments, at the end of the two most recently completed calendar quarters, including, in each case, assets purchased with borrowings under credit facilities and issuances of senior unsecured notes, but excluding cash, U.S. government securities and commercial paper instruments maturing within one year of purchase. Base management fees for any partial quarter will be appropriately pro-rated.
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Incentive Fee
The Company will also pay the Advisor an incentive fee. The incentive fee will consist of two parts—an incentive fee on income and an incentive fee on capital gains. Described in more detail below, these components of the incentive fee will be largely independent of each other with the result that one component may be payable even if the other is not.
Incentive Fee on Income
The incentive fee based on income (the “income incentive fee”) under the Amended Investment Advisory Agreement is determined and paid quarterly in arrears in cash (subject to the limitations described in “Payment of Incentive Fees” below).
Under the Amended Investment Advisory Agreement, the first part of the income incentive fee is calculated and payable quarterly in arrears based on the Company’s pre-incentive fee net investment income as defined in the Amended Investment Advisory Agreement. Pre-incentive fee net investment income means, as the context requires, either the dollar value of, or percentage rate of return on the value of, the Company’s net assets at the beginning of each applicable calendar quarter from interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus the Company’s operating expenses accrued for the quarter (including the management fee, expenses payable under the Administration Agreement (as defined below), and any interest expense or fees on any credit facilities or senior unsecured notes and dividends paid on any issued and outstanding preferred shares, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with pay in kind (“PIK”) interest and zero coupon securities), accrued income that the Company has not yet received in cash. Pre-incentive fee net investment income excludes any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.
Pursuant to the Investment Advisory Agreement, the Company is required to pay an income incentive fee of 10.0% prior to the closing of this offering and 15.0% following the closing of this offering, with a 1.50% quarterly hurdle and 100% catch-up. Pursuant to the Fee Waiver Agreement, the Advisor has waived its right to receive an income incentive fee during the three calendar quarters commencing with the calendar quarter in which this offering is completed and amounts waived by the Advisor pursuant to the Fee Waiver Agreement are not subject to recoupment by the Advisor.
Following the closing of this offering, the Company will pay the Advisor an income incentive fee based on its aggregate pre-incentive fee net investment income (as described above), with respect to (i) the calendar quarter ending , 2024 (the “First Calendar Quarter”) and (ii) each subsequent calendar quarter, with the then, current calendar quarter and the eleven preceding calendar quarters beginning with the calendar quarter after the First Calendar Quarter (or the appropriate portion thereof in the case of any of the Company’s first eleven calendar quarters that commence after the First Calendar Quarter) (those calendar quarters after the First Calendar Quarter, the “Trailing Twelve Quarters”).
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For the First Calendar Quarter, pre-incentive fee net investment income in respect of the First Calendar Quarter will be compared to a hurdle rate of 1.50% (6.00% annualized). The income incentive fee for the First Calendar Quarter will be determined as follows:
| ● | no income incentive fee is payable to the Advisor if the aggregate pre-incentive fee net investment income for the First Calendar Quarter does not exceed that hurdle rate; |
| ● | 100% of the aggregate pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds that hurdle rate, but is less than a quarterly rate of 1.6667% for the portion of the First Calendar Quarter before the initial public offering and a quarterly rate of 1.7647% for the portion of the First Calendar Quarter after the initial public offering, referred to the “catch-up.” The “catch-up” is meant to provide the Advisor with approximately 10.0% of the Company’s pre-incentive fee net investment income for the portion of the First Calendar Quarter before the initial public offering and 15.0% for the balance of that First Calendar Quarter, as if the hurdle rate did not apply; and |
| ● | 10.0% of the aggregate pre-incentive fee net investment income, if any, that exceeds a quarterly rate of 1.6667% for the portion of the First Calendar Quarter before the initial public offering and 15.0% of the aggregate pre-incentive fee net investment income, if any, that exceeds a quarterly rate of 1.7647% for the balance of the First Calendar Quarter. |
Commencing with the calendar quarter beginning immediately after the First Calendar Quarter, subject to the Incentive Fee Cap (described below), the pre-incentive fee net investment income in respect of the relevant Trailing Twelve Quarters will be compared to a “Hurdle Rate” equal to the product of (i) the hurdle rate of 1.50% per quarter (6.00% annualized) and (ii) the sum of our net assets at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters. The income incentive fee for each calendar quarter will be determined as follows:
| ● | no income incentive fee is payable to the Advisor in any calendar quarter in which aggregate pre-incentive fee net investment income in respect of the relevant Trailing Twelve Quarters does not exceed the Hurdle Rate; |
| ● | 100% of the aggregate pre-incentive fee net investment income in respect of the Trailing Twelve Quarters with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the Hurdle Rate, but is less than or equal to an amount, which we refer to as the “Catch-up Amount,” determined on a quarterly basis by multiplying 1.7647% by the Company’s net asset value at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters (after making appropriate adjustments to the Company’s net asset value at the beginning of each applicable calendar quarter for all issuances by the Company of shares of its common stock, including issuances pursuant to its dividend reinvestment plan, and distributions during the applicable calendar quarter); and |
| ● | 15.0% of the aggregate pre-incentive fee net investment income in respect of the Trailing Twelve Quarters that exceeds the Catch-up Amount. |
Commencing with the quarter that begins immediately after the First Calendar Quarter, each income incentive fee will be subject to an “Incentive Fee Cap” that in respect of any calendar quarter is an amount equal to 15.0% of the Cumulative Pre-Incentive Fee Net Return (as defined herein) during the Trailing Twelve Quarters less the aggregate income incentive fees that were paid to the Advisor in the preceding eleven calendar quarters (or portion thereof) comprising the relevant Trailing Twelve Quarters. In the event the Incentive Fee Cap is zero or a negative value then no income incentive fee shall be payable and if the Incentive Fee Cap is less than the amount of income incentive fee that would otherwise be payable, the amount of income incentive fee shall be reduced to an amount equal to the Incentive Fee Cap.
“Cumulative Pre-Incentive Fee Net Return” means (x) with respect to the First Calendar Quarter, the sum of pre-incentive fee net investment income in respect of the First Calendar Quarter, (y) with respect to the relevant Trailing Twelve Quarters, the pre-incentive fee net investment income in respect of the relevant Trailing Twelve Quarters minus any Net Capital Loss (as defined below), if any, in respect of the relevant Trailing Twelve Quarters. If, in any quarter, the Incentive Fee Cap is zero or a negative value, the Company will pay no income incentive fee to the Advisor for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is a positive value but is less than the income incentive fee that is payable to the Advisor for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an income incentive fee to the Advisor equal to the Incentive Fee Cap for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is equal to or greater than the income incentive fee that is payable to the Advisor for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an income incentive fee to the Advisor equal to the incentive fee calculated as described above for such quarter without regard to the Incentive Fee Cap.
“Net Capital Loss” in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, in such period and (ii) aggregate capital gains, whether realized or unrealized, in such period.
These calculations are prorated for any period of less than three months and adjusted for any share issuances or repurchases during the relevant quarter. In no event will the amendments to the income incentive fee to include the three year income and total return lookback features allow the Advisor to receive greater cumulative income incentive fees under the Amended Investment Advisory Agreement than it would have under the Investment Advisory Agreement. Amounts waived by the Advisor pursuant to the Fee Waiver Agreement are not subject to recoupment by the Advisor.
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Incentive Fee on Capital Gains
The incentive fee on capital gains (the “capital gains incentive fee”) will be calculated and payable in arrears in cash as follows:
| ● | After this offering: 15.0% of the Company’s realized capital gains, if any, on a cumulative basis from formation through the end of a given calendar year or upon termination of the Investment Advisory Agreement, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees. |
| ● | Prior to this offering: 10.0% of the Company’s realized capital gains, if any, on a cumulative basis from formation through (a) the day before this offering, (b) upon consummation of a Liquidity Event or (c) upon the termination of the Investment Advisory Agreement, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees. For the purpose of computing the capital gain incentive fee, the calculation methodology will look through derivative financial instruments or swaps as if we owned the reference assets directly. |
Payment of Incentive Fees
Prior to this offering, any incentive fees earned by the Advisor shall accrue as earned but only become payable in cash to the Advisor upon closing of this offering. As of December 31, 2023, the Company had incurred incentive fees of $14.2 million that will become payable upon closing of this offering. To the extent the Company does not complete this offering, the incentive fees will be payable to the Advisor (a) upon consummation of a sale of the Company or (b) once substantially all the proceeds from a Company liquidation payable to the Company’s stockholders have been distributed to such stockholders.
The Administrator
On February 5, 2021, the Company entered into an administration agreement the (“Administration Agreement”) with its Advisor, which serves as its administrator (the “Administrator”) and will provide or oversee the performance of its required administrative services and professional services rendered by others, which will include (but are not limited to), accounting, payment of our expenses, legal, compliance, operations, technology and investor relations, preparation and filing of its tax returns, and preparation of financial reports provided to its stockholders and filed with the SEC. On March 6, 2024, the Board approved a one-year renewal of the Administration Agreement through March 15, 2025.
The Company will reimburse the Administrator for its costs and expenses incurred in performing its obligations under the Administration Agreement, which may include, after completion of this offering, its allocable portion of office facilities, overhead, and compensation paid to or compensatory distributions received by its officers (including our Chief Compliance Officer and Chief Financial Officer) and its respective staff who provide services to the Company. As the Company reimburses the Administrator for its expenses, such costs (including the costs of the sub-administrator) will be ultimately borne by common stockholders. The Administrator does not receive compensation from the Company other than reimbursement of its expenses. The Administration Agreement may be terminated by either party with 60 days’ written notice.
Since the inception of the Company, the Administrator has engaged a sub-administrator to assist the Administrator in performing certain of its administrative duties. Since the inception of the Company, the Administrator has not sought reimbursement of its expenses other than expenses incurred by the sub-administrator. However, the Administrator has a contractual right to seek reimbursement for its costs and expenses incurred in performing its obligations under the Administration Agreement and may do so in the future. On March 28, 2023, the Administrator engaged Ultimus Fund Solutions, LLC under a sub-administration agreement. Under the terms of the sub-administration agreement, Ultimus Fund Solutions, LLC will provide fund administration and fund accounting services. Since March 28, 2023, the Company has paid fees to Ultimus Fund Solutions, LLC, which constitute reimbursable expenses under the Administration Agreement. The Administrator may enter into additional sub-administration agreements with third-parties to perform other administrative and professional services on behalf of the Administrator. See “Management and Other Agreements—Investment Advisory Agreement.”
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Policies and Procedures for Managing Conflicts
The Advisor and the Administrator have a fiduciary duty to the Company under the 1940 Act, including with respect to the receipt of compensation. The Advisor and its affiliates have policies and procedures in place designed to manage the potential conflicts of interest between our Advisor’s fiduciary obligations to us and its similar fiduciary obligations to other clients. For example, such policies and procedures are designed to ensure that investment opportunities are generally allocated on a pro rata basis based on each account’s capital available for investment. An investment opportunity that is suitable for multiple clients of our Advisor and its affiliates may not be capable of being shared among some or all of such clients and affiliates due to the limited scale of the opportunity or other factors, including regulatory restrictions imposed by the 1940 Act. We can offer no assurance that the efforts of our Advisor and its affiliates to allocate any particular investment opportunity fairly among all clients for whom such opportunity is appropriate will result in an allocation of all or part of such opportunity to us. Our investors should not expect all conflicts of interest to be resolved in our favor.
Allocation of Investment Opportunities and Exemptive Relief
We make investments alongside certain entities and accounts advised by our Advisor and its affiliates. Under the 1940 Act, we are prohibited from knowingly participating in certain joint transactions with our affiliates without the prior approval of the independent directors and, in some cases, prior approval by the SEC. However, we generally make investments alongside affiliated entities and accounts pursuant to exemptive relief granted by the SEC to us, our Advisor, and certain affiliates of ours on February 4, 2020. Pursuant to such exemptive relief, and subject to certain conditions, we are permitted to co-invest in the same security with our affiliates in a manner that is consistent with our investment objective, investment strategy, regulatory consideration and other relevant factors. If opportunities arise that would otherwise be appropriate for us and an affiliate to purchase different securities in the same issuer, our Advisor will need to decide which account will proceed with such investment. Our Advisor’s investment allocation policy incorporates the conditions of exemptive relief to seek to ensure that investment opportunities are allocated in a manner that is fair and equitable.
Corporate Information
Our principal executive offices are located at 717 Texas Avenue, Suite 2200, Houston, Texas, 77002 and our telephone number is (713) 493-2020. Our corporate website is located at www.kaynebdc.com. Information on our website and the SEC’s website is not incorporated into or a part of this prospectus.
Implications of Being an Emerging Growth Company
We are an emerging growth company as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) and we are eligible to take advantage of certain specified reduced disclosure and other requirements that are otherwise generally applicable to public companies that are not “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). We expect to remain an emerging growth company for up to five years following the completion of this offering or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues equal or exceed $1.235 billion, (ii) December 31 of the fiscal year that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act of 1934, as amended (the “Exchange Act”), which would occur if the market value of our common stock that is held by non-affiliates exceeds $700.0 million as of the last business day of our most recently completed second fiscal quarter and we have been publicly reporting for at least 12 months or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the preceding three-year period.
DGCL
The General Corporation Law of the State of Delaware, as amended (the “DGCL”), contains provisions that may discourage, delay or make more difficult a change in control of us or the removal of our directors. Our certificate of incorporation and bylaws contain provisions that limit liability and provide for indemnification of our directors and officers. These provisions and others which we may adopt also may have the effect of deterring hostile takeovers or delaying changes in control or management. We are subject to Section 203 of the DGCL, the application of which is subject to any applicable requirements of the 1940 Act. See “Description of Our Capital Stock—Provisions of the DGCL and Our Certificate of Incorporation and Bylaws.”
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Recent Developments
Declared Dividends
On March 6, 2024, our Board declared a distribution of $0.40 per share, for stockholders of record on March 29, 2024 payable on April 17, 2024.
On , our Board declared a distribution of $ per share, for stockholders of record on payable on or before . This distribution is only payable if this offering has commenced on or before .
Private Offerings
On March 22, 2024, we delivered the final capital call notice, which will result in the issuance of $269.9 million of common stock in the private placement offering at a price per share of our expected NAV per share as of , 2024, which was $ . Following this final capital call and issuance of shares of our common stock, the investors’ obligations to purchase additional shares of common stock will be exhausted in a final closing expected to occur on or around April 2, 2024. See “The Company—Private Offerings.”
Preliminary Estimates of Results as of March 31, 2024
We estimate that our NAV per share as of March 31, 2024 will be between $ per share and $ per share.
We estimate our net investment income per share for the three months ended March 31, 2024 will be between $ per share and $ per share, calculated using weighted average shares for the three-months ended March 31, 2024.
The preliminary estimates at and for the three-months ended March 31, 2024 set forth above are based on our management’s preliminary determinations and current expectations as of the date hereof, and such information is inherently uncertain. The preliminary financial estimates provided herein have been prepared by, and are the responsibility of, management. Neither PricewaterhouseCoopers LLP, our independent registered public accounting firm, nor any other independent accountants has audited, reviewed, compiled, or performed any procedures with respect to the preliminary financial data set forth above. Accordingly, PricewaterhouseCoopers LLP does not express an opinion or any form of assurance with respect thereto and assumes no responsibility for, and disclaims any association with, this information.
The preliminary estimates may not align with our actual results of operations for the period, which will not be known until we complete our customary financial quarter-end closing and related internal controls over financial reporting, final determination of the fair value of our portfolio investments, final adjustments, execution of our disclosure controls and procedures and other developments arising between now and the time that our financial results for the three-months ended March 31, 2024 are finalized. As a result, actual results could differ materially from these preliminary estimates based on adjustments made during our quarter-end closing and audit procedures. In addition, the information set forth above does not include all of the information regarding our financial condition and results of operations for the three-months ended March 31, 2024 that may be important to investors. See “Risk Factors—Risks Relating to Our Common Stock—There are material limitations with making available preliminary estimates of our financial results at and for the three-months ended March 31, 2024 prior to the completion of our and our auditor’s financial review procedures for such period” for more information.
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Summary of Principal Risk Factors
Investing in our shares of common stock involves a number of significant risks. You should carefully consider information found in the section entitled “Risk Factors” and elsewhere in this prospectus. Some of the risks involved in investing in our shares of common stock include:
Principal Risks Relating to Our Business and Structure
| ● | We have a limited operating history and may not replicate the historical results achieved by other entities managed by members of the Advisor’s investment committee, the Advisor or its affiliates. |
| ● | We use leverage pursuant to borrowings under credit facilities and issuances of senior unsecured notes to finance our investments and changes in interest rates will affect our cost of capital and net investment income. |
| ● | We depend upon our Advisor and Administrator for our success and upon their access to the investment professionals and partners of Kayne Anderson and its affiliates. Any inability of the Advisor or the Administrator to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business. |
| ● | Our financial condition, results of operations and cash flows depend on our ability to manage our business and future growth effectively. |
| ● | There are significant potential conflicts of interest that could affect our investment returns, including conflicts related to obligations the Advisor’s investment committee, the Advisor or its affiliates have to other clients and conflicts related to fees and expenses of such other clients. |
| ● | We generally may make investments that could give rise to a conflict of interest and our ability to enter into transactions with our affiliates will be restricted. |
| ● | We operate in a highly competitive market for investment opportunities, which could reduce returns and result in losses. |
| ● | We will be subject to corporate-level income tax if we are unable to qualify as a RIC. |
| ● | We finance our investments with borrowings under credit facilities and issuances of senior unsecured notes, which will magnify the potential for gain or loss on amounts invested and may increase the risk of investing in us. |
| ● | Adverse developments in the credit markets may impair our ability to enter into new credit facilities or our ability to issue senior unsecured notes. |
| ● | The majority of our portfolio investments are recorded at fair value as determined in good faith by our Advisor and, as a result, there may be uncertainty as to the value of our portfolio investments. |
| ● | Our Board may change our investment objective, operating policies and strategies without prior notice or stockholder approval, and we may temporarily deviate from our regular investment strategy. |
| ● | Efforts to comply with the Exchange Act and the Sarbanes-Oxley Act will involve significant expenditures, and non-compliance would adversely affect us and the value of our shares of common stock. |
| ● | We are highly dependent on information systems, and cybersecurity risks and cyber incidents may adversely affect our business or the business of our portfolio companies, which may, in turn, negatively affect the value of our shares of common stock and our ability to pay distributions. |
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Principal Risks Relating to Our Investments
| ● | Rising interest rates could affect the value of our investments and make it more difficult for portfolio companies to make periodic payments on their loans. |
| ● | Our business is dependent on bank relationships and recent strain on the banking system may adversely impact us. |
| ● | Limitations of investment due diligence in the private middle market companies in which we invest expose us to increased investment risk. |
| ● | We invest in highly leveraged companies, which could cause us to lose all or a part of our investment in those companies. |
| ● | We are subject to risks associated with our investments in unitranche secured loans and securities, including the potential loss of all or part of such investments. |
| ● | Our investments in securities that are rated below investment grade (i.e. “junk bonds”) may be risky and we could lose all or part of our investments. |
| ● | Defaults by our portfolio companies, including defaults relating to collateral, will harm our operating results. |
| ● | The lack of liquidity in our investments may adversely affect our business. |
| ● | Our prospective portfolio companies may prepay loans, which may reduce our yields if capital returned cannot be invested in transactions with equal or greater expected yields. |
| ● | Our prospective portfolio companies may be unable to repay or refinance outstanding principal on their loans at or prior to maturity. |
| ● | Our portfolio may be concentrated in a limited number of portfolio companies and industries, which will subject us to a risk of significant loss if any of these companies defaults on its obligations under any of its debt instruments or if there is a downturn in a particular industry. |
| ● | There is no assurance that portfolio company management will be able to operate their companies in accordance with our expectations. |
| ● | Our investments in the Trading Companies & Distributors industry face considerable uncertainties including significant regulatory challenges. |
Risks Relating to Our Common Stock
| ● | Prior to this offering, there has been no public market for our shares of common stock, and we cannot assure you that a market for our shares of common stock will develop or that the market price of our shares of common stock will not decline following the offering. Our share of common stock price may be volatile and may fluctuate substantially. |
| ● | Sales of substantial amounts of our shares of common stock in the public market may have an adverse effect on the market price of our shares of common stock. |
| ● | Trading in our shares may be limited and our shares may trade below NAV. |
| ● | During extended periods of capital market disruption and instability, there is a risk that you may not receive distributions or that our distributions may not grow over time and a portion of our distributions may be a return of capital. |
| ● | Our stockholders may experience dilution in their ownership percentage. |
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THE OFFERING SUMMARY
|
Common Stock Offered by Us |
shares (or shares if the underwriters exercise their option to purchase additional shares of our common stock). |
| Common Stock to be Outstanding after this Offering | shares (or shares if the underwriters exercise their option to purchase additional shares of our common stock). |
| Use of Proceeds | Our net proceeds from this offering will be approximately $ , or approximately $ if the underwriters exercise their option to purchase additional shares of our common stock, based on an offering price of $ per share.
We intend to use the net proceeds from this offering to pay down some of our borrowings under credit facilities and to make investments in accordance with our investment objectives.
See “Use of Proceeds.” |
| Indication of Interest | Certain officers, employees, business associates and related persons of Kayne Anderson, as well as certain institutional investors affiliated with Kayne Anderson, have expressed indications of interest to purchase up to an aggregate of $ million of shares of our common stock in this offering at the initial public offering price. However, because indications of interest are not binding agreements or commitments to purchase, one or all of these potential investors may determine to purchase more, fewer or no shares in this offering. Accordingly, investors should not rely on such indications of interest as evidence that this offering is more likely to be successful. |
| Proposed Symbol on the New York Stock Exchange | “KBDC” |
| Distributions | We generally intend to distribute, out of assets legally available for distribution, 90 to 100% of our available earnings, on a quarterly or annual basis, as determined by our Board in its sole discretion. The distributions we pay to our stockholders in a year may exceed our taxable income for that year and, accordingly, a portion of such distributions equal to such excess of distributions over taxable income may constitute a return of invested capital for federal income tax purposes. Such a return of capital (i.e., a distribution that represents a return of an investor’s original investment) would be nontaxable to the stockholder and would reduce its basis in its shares. As a result, income tax related to the portion of such distributions treated as return of capital would be deferred until any subsequent sale of shares of common stock. The specific tax characteristics of our distributions will be reported to stockholders after the end of the calendar year. See “Distributions” and “Certain U.S. Federal Income Tax Considerations.” |
| Taxation | We have elected to be treated as a RIC for U.S. federal income tax purposes, and we intend to operate in a manner so as to continue to qualify for the tax treatment applicable to RICs. Our tax treatment as a RIC will enable us to deduct qualifying distributions to our stockholders, so that we will be subject to corporate-level U.S. federal income taxation only in respect of earnings that we retain and do not distribute.
To maintain our status as a RIC and to avoid being subject to corporate-level U.S. federal income taxation on our earnings, we must, among other things:
● maintain our election under the 1940 Act to be treated as a BDC;
● derive in each taxable year at least 90% of our gross income from dividends, interest, gains from the sale or other disposition of stock or securities and other specified categories of investment income; and
● maintain diversified holdings.
|
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In addition, to receive tax treatment as a RIC, we must distribute (or be treated as distributing) in each taxable year dividends for tax purposes equal to at least 90% of the sum of our investment company taxable income (which is generally our ordinary income plus the excess, if any, of our realized net short-term capital gains over our realized net long-term capital losses) and net tax-exempt income for that taxable year.
As a RIC, we generally will not be subject to corporate-level U.S. federal income tax on our investment company taxable income and net capital gains that we distribute to stockholders. If we fail to distribute our investment company taxable income or net capital gains on a timely basis, we will be subject to a non-deductible 4% U.S. federal excise tax. See “Distributions” and “Certain U.S. Federal Income Tax Considerations.”
| |
| Leverage | As a BDC, we are permitted under the 1940 Act to make borrowings under credit facilities and issue senior unsecured notes to finance a portion of our investments. As a result, we are exposed to the risks of leverage, which may be considered a speculative investment technique.
We finance our investments with leverage in the form of borrowings under credit facilities and issuances of senior unsecured notes. We also intend to further borrow under credit facilities and/or issue senior unsecured notes in the future in order to finance our investments. In accordance with the 1940 Act, we are required to meet a coverage ratio of total assets (less total liabilities other than indebtedness) to total borrowings and other senior securities of at least 150%. If this ratio declines below 150%, we cannot incur additional leverage and could be required to sell a portion of our investments to repay some leverage when it is disadvantageous to do so.
Our common stockholders bear the burden of any increase in our expenses as a result of our use of leverage, including interest expenses and any increase in the base management fee payable to the Advisor.
As of December 31, 2023, we have $75 million of senior unsecured notes outstanding, with $25 million of 8.65% Series A Notes due June 2027 (the “Series A Notes”) and $50 million of 8.74% Series B Notes due June 2028 (the “Series B Notes”, and collectively with the Series A Notes, the “Notes”).
As of December 31, 2023, the amount of total debt outstanding under the Credit Facilities (as defined herein) was $620.8 million. The Corporate Credit Facility (as defined herein) has a maturity date of February 18, 2027 and an interest rate equal to Term SOFR (a forward-looking rate based on SOFR futures) plus an applicable spread of 2.35% per annum or an “alternate base rate” (as defined in the agreements governing the Corporate Credit Facility) plus an applicable spread of 1.25%. The Revolving Funding Facility (as defined herein) has a stated maturity date of February 18, 2027 and an interest rate equal to daily SOFR plus 2.75% per annum. The Revolving Funding Facility II (as defined herein) has a stated maturity date of December 22, 2028 and an interest rate equal to 3-month term SOFR plus 2.70% per annum. The Subscription Credit Facility (as defined herein) has a maturity date of December 31, 2024 and an interest rate equal to SOFR plus 2.25% per annum (subject to a 0.275% SOFR floor).
As of December 31, 2023, our asset coverage ratio was 198%. Following the receipt of proceeds from the capital call drawdown notice we delivered on and from this offering and the repayment of borrowings under our credit facilities upon receipt of these proceeds, we expect our asset coverage ratio to be approximately % based on the value of our total assets as of , 2023.
|
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| Share Repurchase Plan | Our Board has approved an open market share repurchase program (the “Company 10b5-1 Plan”), pursuant to which the Company may purchase up to $ million in the aggregate of our outstanding shares of common stock in the open market within one year of the closing of this offering. See “The Company—Share Repurchase Plan.” The purchase of shares under the Company 10b5-1 Plan will be conducted in accordance with the guidelines and conditions of Rule 10b5-1 and Rule 10b-18 under the Exchange Act. See “Risk Factors —Risks Relating to Our Business and Structure—Purchases of shares of our common stock by us under our open market repurchase program, including the Company Rule 10b5-1 Plan, may result in the price of shares of our common stock being higher than the price that otherwise might exist in the open market and are subject to our ability to finance such repurchases.” |
| Dividend reinvestment plan | We have adopted an “opt-out” dividend reinvestment plan (“DRIP”) that provides for the reinvestment of dividends and other distributions on behalf of our stockholders unless a stockholder elects to receive cash. See “Dividend Reinvestment Plan.” |
| Investment Advisory Fees | The Company pays its Advisor a fee for investment advisory and management services consisting of two components—a base management fee and an incentive fee. The cost of both the management fee and the incentive fee under the Amended Investment Advisory Agreement will ultimately be borne by common stockholders.
Base Management Fee
Effective upon the closing of this offering, the base management fee pursuant to the Amended Investment Advisory Agreement will be calculated at an annual rate of 1.00% of the fair market value of the Company’s investments. If this offering occurs on a date other than the first day of a calendar quarter, the base management fee will be calculated for such calendar quarter at a weighted rate based on the fee rates applicable before and after the closing of this offering based on the number of days in such calendar quarter before and after the closing of this offering. Pursuant to the Fee Waiver Agreement effective upon the closing of this offering, the Advisor has implemented a waiver of the base management fee at an annual rate of 0.25% for one year following the completion of this offering.
Prior to the closing of this offering, the base management fee is calculated at an annual rate of 0.90% of the fair market value of the Company’s investments.
The base management fee under the Amended Investment Advisory Agreement will be payable quarterly in arrears and calculated based on the average of the Company’s fair market value of investments, at the end of the two most recently completed calendar quarters, including, in each case, assets purchased with borrowings under credit facilities and issuances of senior unsecured notes, but excluding cash, U.S. government securities and commercial paper instruments maturing within one year of purchase. Base management fees for any partial quarter will be appropriately pro-rated. The base management fee waiver may only be terminated by the Board and may not be terminated by the Advisor.
Incentive Fee
The Company will also pay the Advisor an incentive fee. The incentive fee will consist of two parts—an incentive fee on income and an incentive fee on capital gains. Described in more detail below, these components of the incentive fee will be largely independent of each other with the result that one component may be payable even if the other is not. |
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|
Incentive Fee on Income
The incentive fee based on income (the “income incentive fee”) under the Amended Investment Advisory Agreement is determined and paid quarterly in arrears in cash (subject to the limitations described in “Payment of Incentive Fees” below).
Under the Amended Investment Advisory Agreement, the first part of the income incentive fee is calculated and payable quarterly in arrears based on the Company’s pre-incentive fee net investment income as defined in the Amended Investment Advisory Agreement. Pre-incentive fee net investment income means, as the context requires, either the dollar value of, or percentage rate of return on the value of, the Company’s net assets at the beginning of each applicable calendar quarter from interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus the Company’s operating expenses accrued for the quarter (including the management fee, expenses payable under the Administration Agreement (as defined below), and any interest expense or fees on any credit facilities or senior unsecured notes and dividends paid on any issued and outstanding preferred shares, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with pay in kind (“PIK”) interest and zero coupon securities), accrued income that the Company has not yet received in cash. Pre-incentive fee net investment income excludes any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.
Pursuant to the Investment Advisory Agreement, the Company is required to pay an income incentive fee of 10.0% prior to the closing of this offering and 15.0% following the closing of this offering, with a 1.50% quarterly hurdle and 100% catch-up. Pursuant to the Fee Waiver Agreement, the Advisor has waived its right to receive an income incentive fee during the three calendar quarters commencing with the calendar quarter in which this offering is completed and amounts waived by the Advisor pursuant to the Fee Waiver Agreement are not subject to recoupment by the Advisor. The incentive income fee waiver may only be terminated by the Board and may not be terminated by the Advisor.
Following the closing of this offering, the Company will pay the Advisor an income incentive fee based on its aggregate pre-incentive fee net investment income (as described above), with respect to (i) the First Calendar Quarter and (ii) each subsequent calendar quarter, with the then current calendar quarter and the eleven preceding calendar quarters beginning with the calendar quarter after the First Calendar Quarter (or the appropriate portion thereof in the case of any of the Company’s first eleven calendar quarters that commence after the First Calendar Quarter) (those calendar quarters after the First Calendar Quarter, the “Trailing Twelve Quarters”).
For the First Calendar Quarter, pre-incentive fee net investment income in respect of the First Calendar Quarter will be compared to a hurdle rate of 1.50% (6.00% annualized). The income incentive fee for the First Calendar Quarter will be determined as follows: |
| ● | no income incentive fee is payable to the Advisor if the aggregate pre-incentive fee net investment income for the First Calendar Quarter does not exceed that hurdle rate; |
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| ● | 100% of the aggregate pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds that hurdle rate, but is less than a quarterly rate of 1.6667% for the portion of the First Calendar Quarter before the initial public offering and a quarterly rate of 1.7647% for the portion of the First Calendar Quarter after the initial public offering, referred to the “catch-up.” The “catch-up” is meant to provide the Advisor with approximately 10.0% of the Company’s pre-incentive fee net investment income for the portion of the First Calendar Quarter before the initial public offering and 15.0% for the balance of that First Calendar Quarter, as if the hurdle rate did not apply; and | ||
| ● | 10.0% of the aggregate pre-incentive fee net investment income, if any, that exceeds a quarterly rate of 1.6667% for the portion of the First Calendar Quarter before the initial public offering and 15.0% of the aggregate pre-incentive fee net investment income, if any, that exceeds a quarterly rate of 1.7647% for the balance of the First Calendar Quarter. | ||
| Commencing with the calendar quarter beginning immediately after the First Calendar Quarter, subject to the Incentive Fee Cap (described below), the pre-incentive fee net investment income in respect of the relevant Trailing Twelve Quarters will be compared to a “Hurdle Rate” equal to the product of (i) the hurdle rate of 1.50% per quarter (6.00% annualized) and (ii) the sum of our net assets at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters. The income incentive fee for each calendar quarter will be determined as follows: | |||
| ● | no income incentive fee is payable to the Advisor in any calendar quarter in which aggregate pre-incentive fee net investment income in respect of the relevant Trailing Twelve Quarters does not exceed the Hurdle Rate; | ||
| ● | 100% of the aggregate pre-incentive fee net investment income in respect of the Trailing Twelve Quarters with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the Hurdle Rate, but is less than or equal to an amount, which we refer to as the “Catch-up Amount,” determined on a quarterly basis by multiplying 1.7647% by the Company’s net asset value at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters (after making appropriate adjustments to the Company’s net asset value at the beginning of each applicable calendar quarter for all issuances by the Company of shares of its common stock, including issuances pursuant to its dividend reinvestment plan, and distributions during the applicable calendar quarter); and |
| ● | 15.0% of the aggregate pre-incentive fee net investment income in respect of the Trailing Twelve Quarters that exceeds the Catch-up Amount. |
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Commencing with the quarter that begins immediately after the First Calendar Quarter, each income incentive fee will be subject to an “Incentive Fee Cap” that in respect of any calendar quarter is an amount equal to 15.0% of the Cumulative Pre-Incentive Fee Net Return (as defined herein) during the Trailing Twelve Quarters less the aggregate income incentive fees that were paid to the Advisor in the preceding eleven calendar quarters (or portion thereof) comprising the relevant Trailing Twelve Quarters. In the event the Incentive Fee Cap is zero or a negative value then no income incentive fee shall be payable and if the Incentive Fee Cap is less than the amount of income incentive fee that would otherwise be payable, the amount of income incentive fee shall be reduced to an amount equal to the Incentive Fee Cap.
“Cumulative Pre-Incentive Fee Net Return” means (x) with respect to the First Calendar Quarter, the sum of pre-incentive fee net investment income in respect of the First Calendar Quarter, (y) with respect to the relevant Trailing Twelve Quarters, the pre-incentive fee net investment income in respect of the relevant Trailing Twelve Quarters minus any Net Capital Loss (as defined below), if any, in respect of the relevant Trailing Twelve Quarters. If, in any quarter, the Incentive Fee Cap is zero or a negative value, the Company will pay no income incentive fee to the Advisor for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is a positive value but is less than the income incentive fee that is payable to the Advisor for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an income incentive fee to the Advisor equal to the Incentive Fee Cap for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is equal to or greater than the income incentive fee that is payable to the Advisor for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an income incentive fee to the Advisor equal to the incentive fee calculated as described above for such quarter without regard to the Incentive Fee Cap.
“Net Capital Loss” in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, in such period and (ii) aggregate capital gains, whether realized or unrealized, in such period.
These calculations are prorated for any period of less than three months and adjusted for any share issuances or repurchases during the relevant quarter. In no event will the amendments to the income incentive fee to include the three year income and total return lookback features allow the Advisor to receive greater cumulative income incentive fees under the Amended Investment Advisory Agreement than it would have under the Investment Advisory Agreement. Amounts waived by the Advisor pursuant to the Fee Waiver Agreement are not subject to recoupment by the Advisor. |
Incentive Fee on Capital Gains
The incentive fee on capital gains (the “capital gains incentive fee”) will be calculated and payable in arrears in cash as follows: |
| ● | After this offering: 15.0% of the Company’s realized capital gains, if any, on a cumulative basis from formation through the end of a given calendar year or upon termination of the Investment Advisory Agreement, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees. |
| ● | Prior to this offering: 10.0% of the Company’s realized capital gains, if any, on a cumulative basis from formation through (a) the day before this offering, (b) upon consummation of a Liquidity Event or (c) upon the termination of the Investment Advisory Agreement, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees. For the purpose of computing the capital gain incentive fee, the calculation methodology will look through derivative financial instruments or swaps as if we owned the reference assets directly. |
Payment of Incentive Fees
Prior to this offering, any incentive fees earned by the Advisor shall accrue as earned but only become payable in cash to the Advisor upon closing of this offering. As of December 31, 2023, the Company had incurred incentive fees of $14.2 million that will become payable upon closing of this offering. To the extent the Company does not complete this offering, the incentive fees will be payable to the Advisor (a) upon consummation of a sale of the Company or (b) once substantially all the proceeds from a Company liquidation payable to the Company’s stockholders have been distributed to such stockholders.
See “Management and Other Agreements—Investment Advisory Agreement.” |
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| Administration Agreement |
The Company entered into the Administration Agreement with its Advisor, which serves as its Administrator and will provide or oversee the performance of its required administrative services and professional services rendered by others, which will include (but are not limited to), accounting, payment of our expenses, legal, compliance, operations, technology and investor relations, preparation and filing of its tax returns, and preparation of financial reports provided to its stockholders and filed with the SEC.
On March 6, 2024, the Board approved a one-year renewal of the Administration Agreement through March 15, 2025. |
The Company will reimburse the Administrator for its costs and expenses incurred in performing its obligations under the Administration Agreement, which may include, after completion of this offering, its allocable portion of office facilities, overhead, and compensation paid to or compensatory distributions received by its officers (including our Chief Compliance Officer and Chief Financial Officer) and its respective staff who provide services to the Company. As the Company reimburses the Administrator for its expenses, such costs (including the costs of the sub-administrator) will be ultimately borne by common stockholders. The Administrator does not receive compensation from the Company other than reimbursement of its expenses. The Administration Agreement may be terminated by either party with 60 days’ written notice.
Since the inception of the Company, the Administrator has engaged a sub-administrator to assist the Administrator in performing certain of its administrative duties. Since the inception of the Company, the Administrator has not sought reimbursement of its expenses other than expenses incurred by the sub-administrator. However, the Administrator has a contractual right to seek reimbursement for its costs and expenses incurred in performing its obligations under the Administration Agreement and may do so in the future. On March 28, 2023, the Administrator engaged Ultimus Fund Solutions, LLC under a sub-administration agreement. Under the terms of the sub-administration agreement, Ultimus Fund Solutions, LLC will provide fund administration and fund accounting services. Since March 28, 2023, the Company has paid fees to Ultimus Fund Solutions, LLC, which constitute reimbursable expenses under the Administration Agreement. The Administrator may enter into additional sub-administration agreements with third-parties to perform other administrative and professional services on behalf of the Administrator.
See “Management and Other Agreements —Administration Agreement.” |
| Trading at a Discount | Shares of closed-end investment companies, including BDCs frequently trade at a discount to their net asset value. We are not generally able to issue and sell our common stock at a price below our net asset value per share unless we have stockholder approval. The risk that our shares may trade at a discount to our net asset value is separate and distinct from the risk that our net asset value per share may decline. We cannot predict whether our shares will trade above, at or below net asset value. See “Risk Factors.” |
| Sub-Administrator, Fund Accountant and Custodian, Transfer and Dividend Paying Agents and Registrar | Wilmington Trust, N.A. serves as our custodian. Ultimus Fund Solutions, LLC acts as our sub-administrator and fund accountant. Equiniti Trust Company, LLC acts as our transfer agent and dividend disbursing agent for our shares of common stock. |
| Available Information |
This prospectus constitutes part of a registration statement on Form N-2 that we have filed with the SEC under the Securities Act. This registration statement contains additional information about us and the shares of our common stock being offered by this prospectus. We also are required to file annual, quarterly and current periodic reports, proxy statements and other information meeting the informational requirements of the Exchange Act with the SEC. This information is available on the SEC’s website at www.sec.gov.
We make available on our website (www.kaynebdc.com) our annual reports on Form 10-K, quarterly reports on Form 10-Q and our current reports on Form 8-K. The SEC also maintains a website that contains such information. The reference to our website is an inactive textual reference only and the information contained on our website and in our reports filed with the SEC is not a part of this registration statement.
You may also obtain such information free of charge by contacting us in writing at 717 Texas Avenue, Suite 2200, Houston, Texas 77002, Attention: Kayne Anderson BDC, Inc., or by phone at (713) 493-2020. |
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FEES AND EXPENSES
The following table is intended to assist you in understanding the costs and expenses that you will bear directly or indirectly. We caution you that some of the percentages indicated in the table below are estimates and may vary. The expenses shown in the table under “Annual Expenses” are based on estimated amounts for our current fiscal year and assume that we issue shares of common stock in the offering, based on an offering price of $ per share. The following table should not be considered a representation of our future expenses. Actual expenses may be greater or less than shown. Except where the context suggests otherwise, whenever this prospectus contains a reference to fees or expenses paid by “us” or “the Company” or that “we” will pay fees or expenses, you will indirectly bear these fees or expenses as an investor in the Company.
Stockholder Transaction Expenses: | ||||
| Sales Load (as a percentage of offering price) (1) | ||||
| Offering expenses (as a percentage of offering price) (2) | ||||
| Dividend Reinvestment Plan Fees (3) | $ | (3) | ||
| Total Stockholder Transaction Expenses (as a percentage of offering price) | % | |||
| Annual Expenses (as a percentage of net assets attributable to common stock) (4) | ||||
| Management Fees (5) | ||||
| Incentive Fees (6) | ||||
| Interest Payments on Borrowed Funds (7) | ||||
| Other Expenses (8) | ||||
| Total Annual Expenses | ||||
| Management Fee Waiver (9) | ||||
| Total Net Annual Expenses | ||||
| (1) |
| (2) |
| (3) | Participants in the dividend reinvestment plan may withdraw at any time by giving notice to the DRIP administrator. There is no brokerage charge for reinvestment of dividends or distributions in common stock. However, all participants will pay a pro rata share of brokerage commissions incurred by the DRIP administrator when it makes open market purchases. If a DRIP participant elects to have the DRIP Administrator sell its shares in connection with a withdrawal from the DRIP, the DRIP administrator is authorized to deduct a $15 transaction fee plus a $0.10 per share brokerage commission from the proceeds.
The expenses of the dividend reinvestment plan are included in “other expenses” in the table above. Our common stockholders will ultimately bear indirectly the DRIP administrator’s fees. For additional information, see “Dividend Reinvestment Plan.” |
| (4) | Net assets employed as the denominator for expense ratio computation is $ million. |
| (5) | Includes management fees paid by Kayne Anderson BDC Financing, LLC (“KABDCF”) and Kayne Anderson BDC Financing II, LLC (“KABDCF II”), respectively.
Upon completion of this offering, the base management fee will be calculated at an annual rate of 1.00% of the fair market value of our investments including, in each case, assets purchased with borrowings under credit facilities and issuances of senior unsecured notes, but excluding cash, U.S. government securities and commercial paper instruments maturing within one year of purchase. See “Management and Other Agreements—Investment Advisory Agreement—Base Management Fee” |
| (6) |
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| (7) |
| (8) |
| (9) |
Example
The following example demonstrates the projected dollar amount of total cumulative expenses over various periods with respect to a hypothetical investment in our shares of common stock. In calculating the following expense amounts, we have assumed that our annual operating expenses would remain at the levels set forth in the table above. Offering expenses are included in the following example.
| 1 Year | 3 Years | 5 Years | 10 Years | |||||||||||||
| You would pay the following expenses on a $1,000 investment, assuming a 5% annual return resulting entirely from net realized capital gains(1) | ||||||||||||||||
| You would pay the following expenses on a $1,000 investment, assuming a 5% annual return resulting entirely from net investment income (2) | ||||||||||||||||
| (1) |
| (2) |
While the example assumes, as required by the SEC, a 5% annual return, our performance will vary and may result in a return greater or less than 5%. There is no incentive compensation either on income or on capital gains under our Investment Advisory Agreement assuming a 5% annual return and therefore it is not included in the example. If we achieve sufficient returns on our investments, including through the realization of capital gains, to trigger an incentive compensation of a material amount, our distributions to our stockholders and our expenses would likely be higher. In addition, while the example assumes reinvestment of all dividends and distributions at net asset value, participants in our DRIP will receive a number of shares of our common stock, determined by . See “Dividend Reinvestment Plan” for additional information regarding our DRIP.
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FINANCIAL HIGHLIGHTS
The following table of financial highlights is intended to help a prospective investor understand the Company’s financial performance for the periods shown. The financial data set forth in the following table as of and for the years ended December 31, 2023, 2022 and 2021 are derived from our consolidated financial statements, which have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm whose reports thereon are included in this prospectus. You should read these financial highlights in conjunction with our consolidated financial statements and notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this prospectus.
Amounts in thousands, except share and per share amounts:
For
the years ended | ||||||||||||
| Per Common Share Operating Performance (1) | 2023 | 2022 | 2021 | |||||||||
| Net Asset Value, Beginning of Period(2) | $ | 16.50 | $ | 16.22 | $ | 14.86 | ||||||
| Results of Operations: | ||||||||||||
| Net Investment Income | 2.16 | 1.48 | 0.94 | |||||||||
| Net Realized and Unrealized Gain (Loss) on Investments(3) | (0.18 | ) | 0.14 | 1.28 | ||||||||
| Net Increase (Decrease) in Net Assets Resulting from Operations | 1.98 | 1.62 | 2.22 | |||||||||
| Distributions to Common Stockholders Distributions | (2.06 | ) | (1.34 | ) | (0.86 | ) | ||||||
| Net Decrease in Net Assets Resulting from Distributions | (2.06 | ) | (1.34 | ) | (0.86 | ) | ||||||
| Net Asset Value, End of Period | $ | 16.42 | $ | 16.50 | $ | 16.22 | ||||||
| Shares Outstanding, End of Period | 41,603,666 | 35,879,291 | 19,227,902 | |||||||||
| Long-Term Investments, at Fair Value, End of Period | $ | 1,363,498 | $ | 1,165,119 | $ | 578,445 | ||||||
| Ratio/Supplemental Data | ||||||||||||
| Net assets, end of period | $ | 683,056 | $ | 592,041 | $ | 311,969 | ||||||
| Weighted-average shares outstanding | 39,250,232 | 27,184,302 | 10,718,083 | |||||||||
| Total Return(4) | 12.5 | % | 10.3 | % | 14.2 | % | ||||||
| Portfolio turnover | 15.5 | % | 17.6 | % | 31.3 | % | ||||||
| Ratio of operating expenses to average net assets(5) | 11.9 | % | 7.9 | % | 5.8 | % | ||||||
| Ratio of net investment income (loss) to average net assets(5) | 13.3 | % | 9.1 | % | 6.8 | % | ||||||
| (1) | The per common share data was derived by using weighted average shares outstanding. |
| (2) | On February 5, 2021, the initial offering price of $15.00 per share less $0.14 per share of organizational costs. |
| (3) | Realized and unrealized gains and losses per share in this caption are balancing amounts necessary to reconcile the change in net asset value per share for the period and may not reconcile with the aggregate gains and losses in the Consolidated Statement of Operations due to share transactions during the period.
For the years ended December 31, 2023, 2022 and 2021, such share transactions include the effect of share issuances of $0.00, $0.04 and $0.19 per share, respectively. During these periods, shares were issued at prices that reflect the aggregate amount of the Company’s initial organizational and offering expenses. As a result, investors subscribing after the initial capital call are allocated organizational expenses consistently with all stockholders. |
| (4) | Total return is calculated as the change in net asset value (“NAV”) per share during the period, plus distributions per share (if any), divided by the beginning NAV per share. The calculation also assumes reinvestment of dividends at actual prices pursuant to the Company’s dividend reinvestment plan. Total return is not annualized. |
| (5) | The ratios reflect an annualized amount, except in the case of non-recurring expenses (e.g. initial organizational expense of $175 for the period February 5, 2021 (commencement of operations) through December 31, 2021). |
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RISK FACTORS
Investing in our shares of common stock involves a number of significant risks. Before you invest in our shares of common stock, you should be aware of various risks, including those described below. If any of the following events occur, our business, financial condition, results of operations and cash flows could be materially and adversely affected. In such case, our NAV could decline, and you may lose all or part of your investment. The risk factors described below are the principal risk factors associated with an investment in us as well as those factors generally associated with an investment company with investment objectives, investment policies, capital structure or trading markets similar to ours.
Risks Relating to Our Business and Structure
We have a limited operating history and may not replicate the historical results achieved by other entities managed by members of the Advisor’s investment committee, the Advisor or its affiliates.
We commenced operations in February 2021. We are subject to all of the business risks and uncertainties associated with any new business, including the risk that we will not achieve our investment objective, that we will not qualify or maintain our qualification to be treated as a RIC, and that the value of your investment could decline substantially.
The 1940 Act and the Code impose numerous constraints on the operations of BDCs and RICs that do not apply to certain other investment vehicles managed by our Advisor and its affiliates. BDCs are required, for example, to invest at least 70% of their total assets primarily in securities of U.S. private or thinly traded public companies, cash, cash equivalents, U.S. government securities and other high-quality debt instruments that mature in one year or less from the date of investment. Moreover, qualification for taxation as a RIC requires satisfaction of source-of-income, asset diversification and distribution requirements. Our Advisor has a limited operating history under these constraints, which may hinder our ability to take advantage of attractive investment opportunities and to achieve our investment objective.
Furthermore, our investments may differ from those of existing accounts that are or have been managed by members of the Advisor’s investment committee, the Advisor or affiliates of the Advisor. We cannot assure you that we will replicate the historical results achieved for other KAPC funds managed by members of the Advisor’s investment committee, and we caution you that our investment returns could be substantially lower than the returns achieved by them in prior periods. Additionally, all or a portion of the prior results may have been achieved in particular market conditions, which may never be repeated. Moreover, current or future market volatility and regulatory uncertainty may have an adverse impact on our future performance.
We use leverage pursuant to borrowings under credit facilities and issuances of senior unsecured notes to finance our investments and changes in interest rates will affect our cost of capital and net investment income.
We use leverage pursuant to borrowings under credit facilities and issuances of senior unsecured notes and intend to further borrow under credit facilities and/or issue senior unsecured notes in the future in order to finance our investments. As a result, our net investment income will depend, in part, upon the difference between the rate at which we borrow under credit facilities and senior unsecured notes and the rate at which we invest these funds. In addition, we anticipate that many of our debt investments and borrowings under credit facilities will have floating interest rates that reset on a periodic basis, and many of our investments will be subject to interest rate floors. As a result, a significant change in market interest rates could have a material adverse effect on our net investment income. See “Risks Relating to Our Investments—Rising interest rates could affect the value of our investments and make it more difficult for portfolio companies to make periodic payments on their loans.”
In periods of rising interest rates, our cost of funds will increase because we expect that the interest rates on the majority of amounts we borrow will be floating, which could reduce our net investment income to the extent any of our debt investments have fixed interest rates. We may use interest rate risk management techniques in an effort to limit our exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act and applicable commodities laws. These activities may limit our ability to benefit from lower interest rates with respect to hedged borrowings. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations. See “Risks Relating to Our Investments—We are subject to risks under hedging transactions and our ability to enter into transactions involving derivatives and financial commitment transactions may be limited.”
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Downgrades of the U.S. credit rating, impending automatic spending cuts or government shutdowns could negatively impact our liquidity, financial condition and earnings.
The U.S. debt ceiling and budget deficit concerns have increased the possibility of credit-rating downgrades or a recession in the United States. Although U.S. lawmakers passed legislation to raise the federal debt ceiling on multiple occasions, including, most recently, in June 2023, ratings agencies have lowered, and threatened to lower the long-term sovereign credit rating on the United States. The legislation suspends the debt ceiling through early 2025 unless Congress takes legislative action to further extend or defer it.
The impact of the increased debt ceiling and/or downgrades to the U.S. government’s sovereign credit rating or its perceived creditworthiness could adversely affect the U.S. and global financial markets and economic conditions. Absent further quantitative easing by the U.S. Federal Reserve, these developments could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt markets on favorable terms. In addition, disagreement over the federal budget has caused the U.S. federal government to shut down for periods of time. Continued adverse political and economic conditions could have a material adverse effect on our business, financial condition and results of operations.
The alternative reference rates that have replaced LIBOR in our credit arrangements and other financial instruments may not yield the same or similar economic results as LIBOR over the life of such transactions.
The London Interbank Offered Rate (“LIBOR”) is an index rate that historically was widely used in lending transactions and was a common reference rate for setting the floating interest rate on private loans. LIBOR was typically the reference rate used in floating-rate loans extended to our portfolio companies.
The ICE Benchmark Administration (“IBA”) (the entity that is responsible for calculating LIBOR) ceased providing overnight, one, three, six and twelve months USD LIBOR tenors on June 30, 2023. In addition, the United Kingdom’s Financial Conduct Authority (“FCA”), which oversees the IBA, now prohibits entities supervised by the FCA from using LIBOR, including USD LIBOR, except in very limited circumstances.
In the United States, the SOFR is the preferred alternative rate for LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. SOFR is published by the Federal Reserve Bank of New York each U.S. Government Securities Business Day, for transactions made on the immediately preceding U.S. Government Securities Business Day. Alternative reference rates that may replace LIBOR, including SOFR for USD transactions, may not yield the same or similar economic results as LIBOR over the lives of such transactions.
As of the filing date of this prospectus, substantially all of our loans that referenced LIBOR have been amended to reference the forward-looking term rate published by CME Group Benchmark Administration Limited based on the secured overnight financing rate (“CME Term SOFR”). CME Term SOFR rates are forward-looking rates that are derived by compounding projected overnight SOFR rates over one, three, and six months taking into account the values of multiple consecutive, executed, one-month and three-month CME Group traded SOFR futures contracts and, in some cases, over-the-counter SOFR Overnight Indexed Swaps as an indicator of CME Term SOFR reference rate values. CME Term SOFR and the inputs on which it is based are derived from SOFR. Because CME Term SOFR is a relatively new market rate, there will likely be no established trading market for credit agreements or other financial instruments when they are issued, and an established market may never develop or may not be liquid. Market terms for instruments referencing CME Term SOFR rates may be lower than those of later-issued CME Term SOFR indexed instruments. Similarly, if CME Term SOFR does not prove to be widely used, the trading price of instruments referencing CME Term SOFR may be lower than those of instruments indexed to indices that are more widely used.
There can be no guarantee that SOFR will not be discontinued or fundamentally altered in a manner that is materially adverse to the interests of investors in loans referencing SOFR. If the manner in which SOFR or CME Term SOFR is calculated is changed, that change may result in a reduction of the amount of interest payable on such loans and the trading prices of the SOFR Loans. In addition, there can be no guarantee that loans referencing SOFR or CME Term SOFR will continue to reference those rates until maturity or that, in the future, our loans will reference benchmark rates other than CME Term SOFR. Should any of these events occur, our loans, and the yield generated thereby, could be affected. Specifically, the anticipated yield on our loans may not be fully realized and our loans may be subject to increased pricing volatility and market risk.
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We depend upon our Advisor and Administrator for our success and upon their access to the investment professionals and partners of Kayne Anderson and its affiliates. Any inability of the Advisor or the Administrator to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business.
Our portfolio is subject to management risk because it is actively managed. Our Advisor applies investment techniques and risk analyses in making investment decisions for us, but there can be no guarantee that they will produce the desired results. We depend upon, and intend to rely significantly on, the Advisor’s and its affiliates’ relationships with private equity sponsors, financial intermediaries, direct lending institutions and other counterparties that are active in our markets.
We do not have any internal management capacity or employees. We depend upon Kayne Anderson’s key personnel for our future success and upon their access to certain individuals and investment opportunities to execute on our investment objective. In particular, we depend on the diligence, skill and network of business contacts of our portfolio managers, who evaluate, negotiate, structure, close and monitor our investments. These individuals manage a number of investment vehicles on behalf of Kayne Anderson and, as a result, do not devote all of their time to managing us, which could negatively impact our performance. Furthermore, these individuals do not have long-term employment contracts with Kayne Anderson, although they do have equity interests and other financial incentives to remain with Kayne Anderson. We also depend on the senior management of Kayne Anderson. The departure of any of our portfolio managers or the senior management of Kayne Anderson could have a material adverse effect on our ability to achieve our investment objective. In addition, we can offer no assurance that our Advisor will remain our investment advisor or that we will continue to have access to Kayne Anderson’s industry contacts and deal flow. This could have a material adverse effect on our financial condition, results of operations and cash flows.
We depend on the diligence, skill and network of business contacts of the professionals available to our Administrator to carry out the administrative functions necessary for us to operate, including the ability to select and engage sub-administrators and third-party service providers. We can offer no assurance, however, that the professionals of the Administrator will continue to provide administrative services to us. Furthermore, if the Advisor fails to maintain such relationships, or to develop new relationships with other sources of investment opportunities, we will not be able to grow our investment portfolio. This could have a material adverse effect on our financial condition, results of operations and cash flows.
Our financial condition, results of operations and cash flows depend on our ability to manage our business and future growth effectively.
Our ability to achieve our investment objective depends on our ability to manage our business and grow, which depends, in turn, on the Advisor’s ability to identify, invest in and monitor companies that meet our investment selection criteria. Accomplishing this result on a cost-effective basis is largely a function of the Advisor’s structuring of the investment process, its ability to provide competent, attentive and efficient services to us and our access to financing on acceptable terms. The management team of the Advisor has substantial responsibilities under our Investment Advisor Agreement. We can offer no assurance that any current or future employees of the Advisor will contribute effectively to the work of, or remain associated with, the Advisor. We caution you that the principals of our Advisor or Administrator may also be called upon to provide and currently do provide managerial assistance to portfolio companies and other investment vehicles, including other BDCs, which are managed by affiliates of the Advisor. Such demands on their time may distract them or slow our rate of investment. Any failure to manage our future growth effectively could have a material adverse effect on our business, financial condition and results of operations.
The Advisor may frequently be required to make investment analyses and decisions on an expedited basis in order to take advantage of investment opportunities, and our Advisor may not have knowledge of all circumstances that could impact an investment by the Company.
Investment analyses and decisions by the Advisor may frequently be required to be undertaken on an expedited basis to take advantage of investment opportunities, and the Advisor may not have knowledge of all circumstances that could adversely affect an investment by us. Moreover, there can be no assurance that our due diligence processes will uncover all relevant facts that would be material to an investment decision. Before making an investment, we will assess the strength of the underlying assets and other factors that we believe are material to the performance of the investment. In making the assessment and otherwise conducting customary due diligence, we will rely on the resources available to us and, in some cases, an investigation by third parties. This process is particularly important and highly subjective.
We may make investments in, or loans to, companies which are not subject to public company reporting requirements including requirements regarding preparation of financial statements and our portfolio companies may utilize divergent reporting standards that may make it difficult for the Advisor to accurately assess the prior performance of a portfolio company. We will, therefore, depend upon the compliance by investment companies with their contractual reporting obligations. As a result, the evaluation of potential investments and our ability to perform due diligence on, and effectively monitor investments, may be impeded, and we may not realize the returns which we expect on any particular investment. In the event of fraud by any company in which we invest or with respect to which we make a loan, we may suffer a partial or total loss of the amounts invested in that company.
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There are significant potential conflicts of interest that could affect our investment returns, including conflicts related to obligations the Advisor’s investment committee, the Advisor or its affiliates have to other clients and conflicts related to fees and expenses of such other clients, the valuation process for certain portfolio holdings of ours, other arrangements with the Advisor or its affiliates, and the Advisor’s recommendations given to us may differ from those rendered to their other clients.
As a result of our arrangements with the Advisor and its affiliates and the Advisor’s investment committee, there may be times when the Advisor or such persons have interests that differ from those of our stockholders, giving rise to a conflict of interest.
In particular, the following conflicts of interest may arise, among others:
| ● | the members of the Advisor’s investment committee serve or may serve as officers, directors or principals of entities that operate in the same or a related line of business as we do or of accounts sponsored or managed by the Advisor or its affiliates; |
| ● | the Advisor, its affiliates and its personnel may have obligations to other clients or investors in entities they manage, the fulfilment of which may not be in the best interests of us or our stockholders; |
| ● | our investment objective may overlap with the investment objectives of such affiliated accounts; |
| ● | certain of the Advisor’s other accounts may provide for higher management or incentive fees, greater expense reimbursements or overhead allocations, or permit affiliates of the Advisor to receive loan origination and other transaction fees; |
| ● | members of Kayne Anderson and its affiliates may serve on the boards of directors of and advise companies which may compete with our portfolio investments. Moreover, these other funds, separate accounts and other vehicles managed by Kayne Anderson and its affiliates may pursue investment opportunities that may also be suitable for us; and |
| ● | the participation of the Advisor’s investment professionals in our valuation process could result in a conflict of interest as the Advisor’s base management fee is based, in part, on the fair market value of our investments including assets purchased with borrowings under credit facilities and issuances of senior unsecured notes or other forms of leverage, excluding cash, U.S. government securities and commercial paper instruments maturing within one year of purchase, and our incentive fees will be based, in part, on unrealized gains and losses. |
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Additionally, the incentive fee payable by us to the Advisor may create an incentive for the Advisor to cause us to realize capital gains or losses that may not be in the best interests of us or our stockholders. Under the incentive fee structure, the Advisor benefits when we recognize capital gains and, because the Advisor determines when an investment is sold, the Advisor controls the timing of the recognition of such capital gains. Our Board is charged with protecting our stockholders’ interests by monitoring how the Advisor addresses these and other conflicts of interest associated with its management services and compensation.
The part of the management and incentive fees payable to Advisor that relates to our net investment income is computed and paid on income that may include interest income that has been accrued but not yet received in cash, such as market discount, debt instruments with paid-in-kind (“PIK”) interest, preferred stock with PIK dividends, zero coupon securities, and other deferred interest instruments and may create an incentive for the Advisor to make investments on our behalf that are riskier or more speculative than would be the case in the absence of such compensation arrangements. This fee structure may be considered to give rise to a conflict of interest for the Advisor to the extent that it may encourage the Advisor to favor debt financings that provide for deferred interest, rather than current cash payments of interest. Under these investments, we will accrue the interest over the life of the investment, but we will not receive the cash income from the investment until the end of the term. Our net investment income used to calculate the income portion of our investment fee, however, includes accrued interest. The Advisor may have an incentive to invest in deferred interest securities in circumstances where it would not have done so but for the opportunity to continue to earn the fees even when the issuers of the deferred interest securities would not be able to make actual cash payments to us on such securities. This risk could be increased because the Advisor is not obligated to reimburse us for any fees received even if we subsequently incur losses or never receive in cash the deferred income that was previously accrued.
The Advisor seeks to allocate investment opportunities among eligible accounts in a manner that is fair and equitable over time and consistent with its allocation policy. However, we can offer no assurance that such opportunities will be allocated to us fairly or equitably in the short-term, and there can be no assurance that we will be able to participate in all investment opportunities that are suitable to us.
The Advisor’s investment committee, the Advisor or its affiliates may, from time to time, possess material non-public information, limiting our investment discretion.
Principals of the Advisor and its affiliates and members of the Advisor’s investment committee may serve as directors of, or in a similar capacity with, companies in which we invest, the securities of which are purchased or sold on our behalf. In the event that material nonpublic information is obtained with respect to such companies, or we become subject to trading restrictions under the internal trading policies of those companies or as a result of applicable law or regulations (for example, the antifraud provisions for the federal securities laws), we could be prohibited for a period of time from purchasing or selling the securities of such companies, and this prohibition may have an adverse effect on us.
The Investment Advisory Agreement and the Administration Agreement were not negotiated on an arm’s-length basis and may not be as favorable to us as if they had been negotiated with an unaffiliated third party.
The Investment Advisory Agreement and the Administration Agreement were negotiated between related parties. Consequently, their terms, including fees payable to the Advisor, may not be as favorable to us as if they had been negotiated with an unaffiliated third party. For example, certain accounts managed by the Advisor have lower management, incentive or other fees than those charged under the Investment Advisory Agreement and/or a reduced ability to recover expenses and overhead than may be recovered by the Administrator under the Administration Agreement. In addition, we may choose not to enforce, or to enforce less vigorously, our rights and remedies under these agreements because of our desire to maintain our ongoing relationship with the Advisor, the Administrator and their respective affiliates. Any such decision, however, would breach our fiduciary obligations to our stockholders.
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We generally may make investments that could give rise to a conflict of interest and our ability to enter into transactions with our affiliates will be restricted.
We, along with our Advisor and certain of its affiliates, have obtained exemptive relief from the SEC to permit us to invest alongside certain entities and accounts advised by the Advisor and its affiliates subject to certain conditions.
Pursuant to such exemptive relief, and subject to certain conditions, we are permitted to co-invest in the same security with our affiliates in a manner that is consistent with our investment objective, investment strategy, regulatory consideration and other relevant factors. If opportunities arise that would otherwise be appropriate for us and an affiliate to purchase different securities in the same issuer, our Advisor will need to decide which account will proceed with such investment. Our Advisor’s investment allocation policy incorporates the conditions of exemptive relief to seek to ensure that investment opportunities are allocated in a manner that is fair and equitable. However, although the Advisor endeavors to fairly allocate investment opportunities in the long-run, we can offer no assurance that investment opportunities will be allocated to us fairly or equitably in the short-term.
We do not expect to invest in, or hold securities of, companies that are controlled by our affiliates’ other clients. If our affiliates’ other client or clients gain control over one of our portfolio companies, this may create conflicts of interest and subject us to certain restrictions under the 1940 Act. As a result of these conflicts and restrictions our Advisor may be unable to implement our investment strategies as effectively as they could have in the absence of such conflicts or restrictions. For example, as a result of a conflict or restriction, our Advisor may be unable to engage in certain transactions that they would otherwise pursue. In order to avoid these conflicts and restrictions, our Advisor may choose to exit these investments prematurely and, as a result, we may forgo positive returns associated with such investments. In addition, to the extent that another client holds a different class of securities than us as a result of such transactions, our interests may not be aligned. Our ability to enter into transactions with our affiliates may be restricted.
In situations where co-investment with affiliates’ other clients is not permitted under the 1940 Act and related rules, existing or future staff guidance, or the terms and conditions of exemptive relief that have been granted to our Advisor and its affiliates by the SEC, our Advisor will need to decide which client or clients will proceed with the investment. Generally, we will not have an entitlement to make a co-investment in these circumstances and, to the extent that another client elects to proceed with the investment, we will not be permitted to participate. Moreover, except in certain circumstances, we will be unable to invest in any issuer in which an affiliate’s other client holds a controlling interest. These restrictions may limit the scope of investment opportunities that would otherwise be available to us.
We will be prohibited under the 1940 Act from participating in certain transactions with certain affiliates of ours without the prior approval of a majority of our independent directors and, in some cases, the SEC. Any person that owns, directly or indirectly, 5% or more of our outstanding voting securities will be our affiliate for purposes of the 1940 Act, and we will generally be prohibited from buying or selling any securities from or to such affiliate on a principal basis, absent the prior approval of our Board and, in some cases, the SEC. The 1940 Act also prohibits certain “joint” transactions with certain affiliates of ours, which in certain circumstances could include investments in the same portfolio company (whether at the same or different times to the extent the transaction involves a joint investment), without prior approval of our Board and, in some cases, the SEC. If a person acquires more than 25% of our voting securities, we will be prohibited from buying or selling any security from or to such person or certain of that person’s affiliates, or entering into prohibited joint transactions with such persons, absent the prior approval of the SEC. Similar restrictions limit our ability to transact business with our officers or directors or their affiliates.
The SEC has interpreted the BDC regulations governing transactions with affiliates to prohibit certain “joint transactions” involving entities that share a common investment advisor. As a result of these restrictions, we may be prohibited from buying or selling any security from or to any portfolio company that is controlled by a fund managed by the Advisor or their respective affiliates except under certain circumstances or without the prior approval of the SEC, which may limit the scope of investment opportunities that would otherwise be available to us.
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We operate in a highly competitive market for investment opportunities, which could reduce returns and result in losses.
There will be competition for investments from numerous other potential investors, many of which will have significant financial resources. As a result, there can be no guarantee that a sufficient quantity of suitable investment opportunities for us will be found, that investments on favorable terms can be negotiated, or that we will be able to fully realize the value of our investments. Competition for investments may have the effect of increasing our costs and expenses or otherwise decreasing returns generated on underlying investments, thereby reducing our investment returns.
A number of entities compete with us to make the types of investments that we plan to make in middle market companies, including BDCs, traditional commercial banks, private investment funds, regional banking institutions, small business investment companies, investment banks and insurance companies. Additionally, with increased competition for investment opportunities, alternative investment vehicles such as hedge funds may seek to invest in areas they have not traditionally invested in or from which they had withdrawn during the economic downturn, including investing in middle market companies. We will compete with public and private funds, commercial and investment banks, commercial financing companies and, to the extent they provide an alternative form of financing, private equity and hedge funds. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, we believe some of our competitors may have access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than we do. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a BDC or the source of income, asset diversification and distribution requirements we must satisfy to qualify and maintain our qualification as a RIC. As a result of this competition, we may from time to time not be able to take advantage of attractive investment opportunities, and we may not be able to identify and make investments that are consistent with our investment objective.
With respect to the investments we make, we do not seek to compete based primarily on the interest rates we offer, and we believe that some of our competitors may make loans with interest rates that will be lower than the rates we offer. With respect to all investments, we may lose some investment opportunities if we do not match our competitors’ pricing, terms and structure. However, if we match our competitors’ pricing, terms and structure, we may experience decreased net interest income, lower yields and increased risk of credit loss. Although our Advisor allocates opportunities in accordance with its allocation policy, allocations to other accounts managed or sponsored by our Advisor or its affiliates reduce the amount and frequency of opportunities available to us and may not be in the best interests of us and our stockholders.
The competitive pressures we face may have a material adverse effect on our business, financial condition and results of operations.
We will be subject to corporate-level income tax if we are unable to qualify as a RIC.
We have elected, and intend to qualify annually thereafter, to be treated for U.S. federal income tax purposes as a RIC under Subchapter M of the Code; however, no assurance can be given that we will be able to qualify for and maintain RIC tax treatment. In order to qualify, and maintain qualification, as a RIC under the Code, we must meet certain source-of-income, asset diversification and distribution requirements. The distribution requirement for a RIC is satisfied if we distribute to our stockholders dividends for U.S. federal income tax purposes of an amount generally at least equal to the sum of 90% of our investment company taxable income, which is generally our net ordinary income plus the excess of our net short-term capital gains in excess of our net long-term capital losses, determined without regard to any deduction for dividends paid, and 90% of our net tax-exempt interest income, if any, to our stockholders on an annual basis. We are subject, to the extent we use debt financing, to certain asset coverage ratio requirements under the 1940 Act and financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to qualify as a RIC. If we are unable to obtain cash from other sources, we may fail to be subject to tax as a RIC and, thus, may be subject to corporate-level income tax. To qualify as a RIC, we must also meet certain asset diversification requirements at the end of each quarter of our taxable year. Failure to meet these requirements may result in our having to dispose of certain investments quickly in order to prevent the loss of our qualification as a RIC. Because a significant portion of our investments are in private or thinly traded public companies, any such dispositions could be made at disadvantageous prices and may result in substantial losses. If we fail to qualify as a RIC for any reason and become subject to corporate-level income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distributions to stockholders and the amount of our distributions and the amount of funds available for new investments. Such a failure would have a material adverse effect on us and our stockholders. See “Certain U.S. Federal Income Tax Considerations.”
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We may be subject to risks that may arise in connection with the rules under ERISA related to investment by ERISA Plans.
We intend to operate so that we will be an appropriate investment for employee benefit plans subject to Employee Retirement Income Security Act of 1974, as amended (“ERISA”). We will use reasonable efforts to conduct the Company’s affairs so that the assets of the Company will not be deemed to be “plan assets” for purposes of ERISA. Accordingly, there may be constraints on our ability to make or dispose of investments at optimal times (or to make certain investments at all).
We may have difficulty paying our required distributions if we recognize income before, or without, receiving cash representing such income.
For U.S. federal income tax purposes, we include in income certain amounts that we have not yet received in cash, such as the accretion of original issue discount (“OID”). This may arise if we receive warrants in connection with the making of a loan and in other circumstances, or through contracted PIK interest, which represents contractual interest added to the loan balance and due at the end of the loan term. Such OID, which could be significant relative to our overall investment activities or increases in loan balances as a result of contracted PIK arrangements, is included in income before we receive any corresponding cash payments. We also may be required to include in income certain other amounts that we do not receive in cash. We may be also subject to the following risks associated with PIK and OID investments:
| ● | The interest payments deferred on a PIK loan are subject to the risk that the borrower may default when the deferred payments are due in cash at the maturity of the loan; |
| ● | The interest rates on PIK loans are higher to reflect the time-value of money on deferred interest payments and the higher credit risk of borrowers who may need to defer interest payments; |
| ● | Market prices of OID instruments are more volatile because they are affected to a greater extent by interest rate changes than instruments that pay interest periodically in cash; |
| ● | PIK instruments may have unreliable valuations because the accruals require judgments about ultimate collectability of the deferred payments and the value of the associated collateral; |
| ● | Use of PIK and OID securities may provide certain benefits to our Advisor including increasing management fees. |
| ● | We may be required under the tax laws to make distributions of OID income to stockholders without receiving any cash. Such required cash distributions may have to be paid from borrowings, offering proceeds or the sale of our assets; and |
| ● | The required recognition of OID, including PIK, interest for U.S. federal income tax purposes may have a negative impact on liquidity, because it represents a non-cash component of our taxable income that must, nevertheless, be distributed in cash to investors to avoid it being subject to corporate level taxation. |
Part of the incentive fee payable by us that relates to our net investment income is computed and paid on income that may include interest that has been accrued but not yet received in cash, such as market discount, debt instruments with PIK interest, preferred stock with PIK dividends and zero coupon securities. If a portfolio company defaults on a loan that is structured to provide accrued interest, it is possible that accrued interest previously used in the calculation of the incentive fee will become uncollectible, and the Advisor will have no obligation to refund any fees it received in respect of such accrued income.
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Since in certain cases we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the requirement in a given taxable year to distribute to our stockholders dividends for U.S. federal income tax purposes an amount at least equal to the sum of 90% of our investment company taxable income, determined without regard to any deduction for dividends paid, and 90% of our net tax-exempt interest income, if any, to our stockholders to qualify and maintain our ability to be subject to tax as a RIC. In such a case, we may have to sell some of our investments at times we would not consider advantageous, raise additional debt or equity capital or reduce new investment originations to meet these distribution requirements. If we are not able to obtain such cash from other sources, we may fail to qualify as a RIC and thus be subject to corporate-level income tax. See “Certain U.S. Federal Income Tax Considerations.”
Regulations governing our operation as a BDC affect our ability to, and the way in which we, raise additional capital. As a BDC, the necessity of raising additional capital exposes us to risks, including the typical risks associated with leverage.
We intend to further borrow under credit facilities and/or issue senior unsecured notes and, may issue preferred stock in the future (although we do not anticipate issuing preferred stock in the next 12 months), which we refer to collectively as “senior securities,” up to the maximum amount permitted by the 1940 Act. Under the provisions of the 1940 Act, we are currently permitted to issue “senior securities,” including borrowing money from banks or other financial institutions, only in amounts such that our asset coverage, as defined in the 1940 Act, equals at least 150% of gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If we fail to comply with certain disclosure requirements, our asset coverage ratio under the 1940 Act would be 200%, which would decrease the amount of leverage we are able to incur.
Nevertheless, if the value of our assets declines, we may be unable to satisfy this ratio. If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when such sales may be disadvantageous. Also, any amounts that we use to service our indebtedness would not be available for distributions to holders of our shares of common stock. If we issue senior securities, we will be exposed to typical risks associated with leverage, including an increased risk of loss. In addition, if the value of the Company’s assets decreases, leverage will cause the Company’s net asset value to decline more sharply than it otherwise would have without leverage or with lower leverage. Similarly, any decrease in the Company’s revenue would cause its net income to decline more sharply than it would have if the Company had not borrowed or had borrowed less under the credit facilities.
In the absence of an event of default, no person or entity from which we borrow money has a veto right or voting power over our ability to set policy, make investment decisions or adopt investment strategies. If we issue preferred stock, which is another form of leverage, the preferred stock would rank “senior” to common stock in our capital structure, preferred stockholders would have separate voting rights on certain matters and might have other rights, preferences or privileges more favorable than those of our common stockholders, and the issuance of preferred stock could have the effect of delaying, deferring or preventing a transaction or a change of control that might involve a premium price for holders of our common stock or otherwise be in the best interest of our common stockholders. Holders of our common stock will directly or indirectly bear all of the costs associated with offering and servicing any preferred stock that we issue. In addition, any interests of preferred stockholders may not necessarily align with the interests of holders of our shares of common stock, and the rights of holders of shares of preferred stock to receive distributions would be senior to those of holders of shares of common stock. We do not, however, anticipate issuing preferred stock in the next 12 months.
We are not generally able to issue and sell our shares of common stock at a price below NAV per share. We may, however, sell our shares of common stock, or warrants, options or rights to acquire our shares of common stock, at a price below the then-current NAV per share of our common stock if our Board determines that such sale is in the best interests of us and our stockholders, and if our stockholders approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our Board, closely approximates the market value of such securities (less any distributing commission or discount). If we raise additional funds by issuing common stock or senior securities convertible into, or exchangeable for, our common stock, then the percentage ownership of our stockholders at that time will decrease, and holders of our common stock might experience dilution.
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We finance our investments with borrowings under credit facilities and issuances of senior unsecured notes, which will magnify the potential for gain or loss on amounts invested and may increase the risk of investing in us.
The use of leverage magnifies the potential for gain or loss on amounts invested. The use of leverage is generally considered a speculative investment technique and increases the risks associated with investing in our securities. The amount of leverage that we employ will depend on the Advisor’s and our Board’s assessment of market and other factors at the time of any proposed borrowing. We cannot assure you that we will be able to obtain credit at all or on terms acceptable to us. For example, due to the interplay of the 1940 Act restrictions on principal and joint transactions and the U.S. risk retention rules adopted pursuant to Section 941 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), as a BDC we are currently unable to enter into any securitization transactions. We cannot assure you that the SEC or any other regulatory authority will modify such regulations or provide administrative guidance that would permit us to enter into securitizations, whether on a timely basis or at all. We may issue senior debt securities to banks, insurance companies and other lenders. Lenders of these senior securities will have fixed dollar claims on our assets that are superior to the claims of our common stockholders, and we would expect such lenders to seek recovery against our assets in the event of a default. We may pledge up to 100% of our assets and may grant a security interest in all of our assets under the terms of any debt instruments we may enter into with lenders. In addition, under the terms of our credit facilities or future credit facilities we enter into, we are likely to be required by its terms to use the net proceeds of any investments that we sell to repay a portion of the amount borrowed under such facility or instrument before applying such net proceeds to any other uses. If the value of our assets decreases, leveraging would cause our NAV to decline more sharply than it otherwise would have had we not leveraged, thereby magnifying losses or eliminating our equity stake in a leveraged investment. Similarly, any decrease in our net investment income will cause our net income to decline more sharply than it would have had we not borrowed. Such a decline would also negatively affect our ability to make distributions on our common stock or any outstanding preferred stock. Our ability to service our debt depends largely on our financial performance and is subject to prevailing economic conditions and competitive pressures. Our common stockholders bear the burden of any increase in our expenses as a result of our use of leverage, including interest expenses and any increase in the base management fee payable to the Advisor.
As a BDC, we generally are required to meet a coverage ratio of total assets to total borrowings and other senior securities, which include our borrowings credit facilities and issuances of senior unsecured notes and any preferred stock that we may issue in the future (although we do not anticipate issuing preferred stock in the next 12 months). The current asset coverage ratio applicable to the Company is 150%. If this ratio were to decline below the then applicable minimum asset coverage ratio, we would be unable to incur additional debt and could be required to sell a portion of our investments to repay some debt when it is disadvantageous to do so. This could have a material adverse effect on our operations, and we may not be able to make distributions in amounts sufficient to maintain our status as a RIC, or at all.
The following table illustrates the effect of leverage on returns from an investment in our shares assuming various annual returns on our portfolio, net of expenses. The calculations in the table below are hypothetical, and actual returns may be higher or lower than those appearing in the table below:
| Effects of Leverage | ||||||||||||||||||||
| Assumed Return on Portfolio (Net of Expenses) | -10 | % | -5 | % | 0 | % | 5 | % | 10 | % | ||||||||||
| Corresponding return to common stockholder (1) | -28.9 | % | -18.9 | % | -8.9 | % | 1.1 | % | 11.1 | % | ||||||||||
| (1) | Based on (i) $1.4 billion in total assets as of December 31, 2023, (ii) $696 million in outstanding indebtedness as of December 31, 2023, (iii) $683 million in net assets as of December 31, 2023 and (iv) an annualized average interest rate, including fees (such as fees on undrawn amounts and amortization of financing costs), on our indebtedness, as of December 31, 2023, of 8.74%. |
Based on an outstanding indebtedness of $696 million as of December 31, 2023 and the weighted average effective annual interest rate, including fees (such as fees on undrawn amounts and amortization of financing costs), of 8.74% as of that date, our investment portfolio at fair value would have had to produce an annual return of approximately 4.46% to cover annual interest payments on the outstanding debt. For more information on our indebtedness, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Financial Condition, Liquidity and Capital Resources.”
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Provisions in our credit facilities and our senior unsecured notes contain various covenants, which, if not complied with, could accelerate our repayment obligations under such facilities, thereby materially and adversely affecting our liquidity, financial condition, results of operations and ability to pay distributions.
Our Credit Facilities (as defined herein) are backed by all or a portion of our loans and securities on which the lenders have a security interest. We may pledge up to 100% of our assets and may grant a security interest in all of our assets under the terms of any debt instrument we enter into with the lenders pursuant to our Credit Facilities. We expect that any security interests we grant will be set forth in a pledge and security agreement or other collateral arrangement and evidenced by the filing of financing statements by the agent for the lenders. In addition, we expect that the custodian for our securities serving as collateral for such loan would include in its electronic systems notices indicating the existence of such security interests and, following notice of occurrence of an event of default, if any, and during its continuance, will only accept transfer instructions with respect to any such securities from the lender or its designee. If we default under the terms of our Credit Facilities, the agent for the applicable lenders would be able to assume control of the timing of disposition of any or all of our assets securing such debt, which would have a material adverse effect on our business, financial condition, results of operations and cash flows.
In addition, any security interests and/or negative covenants contained in our Credit Facilities limit our ability to create liens on assets to secure additional debt and make it difficult for us to restructure or refinance indebtedness at or prior to maturity. If our borrowing base under a credit facility decreases, we may be required to secure additional assets in an amount sufficient to cure any borrowing base deficiency. In the event that all of our assets are secured at the time of such a borrowing base deficiency, we could be required to repay indebtedness under our Credit Facilities or make deposits to a collection account, either of which could have a material adverse impact on our ability to fund future investments and to make distributions. We have made customary representations and warranties and are required to comply with various covenants, reporting requirements (including requirements relating to portfolio performance, required minimum portfolio yield and limitations on delinquencies and charge-offs) and other customary requirements for similar credit facilities.
Our 8.65% Series A Notes due June 2027 (the “Series A Notes”) and 8.74% Series B Notes due June 2028 (the “Series B Notes”, and collectively with the Series A Notes, the “Notes”) were issued under a note purchase agreement, dated June 29, 2023 (the “Note Purchase Agreement”). The Note Purchase Agreement contains certain representations and warranties, and various covenants and reporting requirements customary for agreements of this type, including, without limitation, information reporting, maintenance of our status as a BDC within the meaning of the 1940 Act, and certain restrictions with respect to transactions with affiliates, fundamental changes, changes of line of business and permitted liens. In addition, the Note Purchase Agreement contains the following financial covenants, which are measured as of each fiscal quarter-end: (a) maintaining a minimum shareholders’ equity and (b) maintaining a minimum asset coverage ratio.
Our continued compliance with the covenants contained under the Credit Facilities and the Note Purchase Agreement depends on many factors, some of which are beyond our control, and there can be no assurances that we will continue to comply with such covenants. Our failure to satisfy the respective covenants could result in foreclosure by the lenders under the applicable credit facility or governing instrument or acceleration by the applicable lenders or noteholders, which would accelerate our repayment obligations under the relevant agreement and thereby have a material adverse effect on our business, liquidity, financial condition, results of operations and ability to pay distributions to our stockholders. Because the Credit Facilities and the Note Purchase Agreement have, and any future credit facilities and documents governing the issuance of senior unsecured notes will likely have, customary cross-default provisions, if the indebtedness under the Credit Facilities or represented by the Series A Notes or the Series B Notes or under any future credit facility or senior unsecured note, is accelerated, we may be unable to repay or finance the amounts due.
Adverse developments in the credit markets may impair our ability to enter into new credit facilities or our ability to issue senior unsecured notes.
Following the passage of Dodd-Frank 2010, 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 routine refinancing and loan modification transactions and even reviewed the terms of existing facilities to identify bases for accelerating the maturity of existing lending facilities. To the extent these circumstances arise again in the future, it may be difficult for us to finance the growth of our investments on acceptable economic terms, or at all, and one or more of our credit facilities could be accelerated by the lenders.
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If we do not invest a sufficient portion of our assets in qualifying assets, we could fail to qualify as a BDC or be precluded from investing according to our current business strategy and such failure would decrease our operating flexibility.
As a BDC, we may not acquire any assets other than “qualifying assets” unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets.
In the future, we believe that most of our investments will constitute qualifying assets. However, we may be precluded from investing in what we believe are attractive investments if such investments are not qualifying assets for purposes of the 1940 Act. If we do not invest a sufficient portion of our assets in qualifying assets, we could violate the 1940 Act provisions applicable to BDCs. As a result of such violation, specific rules under the 1940 Act would significantly decrease our operating flexibility and could prevent us, for example, from making follow-on investments in existing portfolio companies (which could result in the dilution of our position) or could require us to dispose of investments at inappropriate times in order to come into compliance with the 1940 Act. If we need to dispose of such investments quickly, it could be difficult to dispose of such investments on favorable terms. We may not be able to find a buyer for such investments and, even if we do find a buyer, we may have to sell the investments at a substantial loss. Any such outcomes would have a material adverse effect on our business, financial condition, results of operations and cash flows.
The majority of our portfolio investments are recorded at fair value as determined in good faith by our Advisor and, as a result, there may be uncertainty as to the value of our portfolio investments.
The majority of our portfolio investments take the form of securities for which no market quotations are readily available. The fair value of securities and other investments that are not publicly traded may not be readily determinable, and we value these securities at fair value as determined in good faith by our Advisor, including to reflect significant events affecting the value of our securities. As discussed in more detail under “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Contractual Obligations -- Investment Valuation,” most, if not all, of our investments (other than cash and cash equivalents) are classified as Level 3 under ASC Topic 820. This means that our portfolio valuations are based on unobservable inputs and our own assumptions about how market participants would price the asset or liability in question. Inputs into the determination of fair value of our portfolio investments require significant management judgment or estimation. Even if observable market data are available, such information may be the result of consensus pricing information or broker quotes, which may include a disclaimer that the broker would not be held to such a price in an actual transaction. The non-binding nature of consensus pricing and/or quotes accompanied by disclaimers materially reduces the reliability of such information.
Our Level 3 investments will typically consist of instruments for which a liquid trading market does not exist. The fair value of these instruments may not be readily determinable. We will value these instruments in accordance with valuation procedures adopted by our Advisor. We intend to use the services of an independent valuation firm to review the fair value of certain instruments prepared by our Advisor. At least once annually, the valuation for each portfolio investment for which a market quote is not readily available will be reviewed by an independent valuation firm. The types of factors that the Advisor may consider in fair value pricing of our investments include, where relevant: the nature and realizable value of any collateral; the company’s ability to make interest payments, amortization payments (if any) and other fixed charges; the company’s historical and projected financial results; the markets in which the company does business; the estimated enterprise value of the company based on comparisons to publicly-traded securities, on discounted cash flows and other valuation methodologies; changes in the interest rate environments and the credit markets generally that may affect the price at which similar investments may be made; and other relevant factors. Because such valuations, and particularly valuations of non-traded instruments and private companies, are inherently uncertain, they may fluctuate over short periods of time and may be based on estimates. The determination of fair value by our Advisor may differ materially from the values that would have been used if a liquid trading market for these instruments existed. Our NAV could be adversely affected if the determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of such investments.
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We adjust quarterly (or as otherwise may be required by the 1940 Act in connection with the issuance of our shares) the valuation of our portfolio to reflect our Advisor’s determination of the fair value of each investment in our portfolio. Any changes in fair value are recorded in our consolidated statement of operations as net change in unrealized appreciation or depreciation.
Purchases of shares of our common stock by us under our open market repurchase program, including the Company Rule 10b5-1 Plan, may result in the price of shares of our common stock being higher than the price that otherwise might exist in the open market and are subject to our ability to finance such repurchases.
Our Board has authorized us to repurchase shares of our common stock through an open-market share repurchase program for up to $ million in the aggregate of shares of our common stock within one year of the closing of this offering. Pursuant to such authorization and concurrently with the closing of this offering, we intend to enter into the Company 10b5-1 Plan to acquire up to $ million in the aggregate of shares of our Common Stock, in accordance with the guidelines specified in Rule 10b-18 and Rule 10b5-1 of the Exchange Act. These activities may have the effect of maintaining the market price of shares our Common Stock or retarding a decline in the market price of the shares of our Common Stock, and, as a result, the price of our shares of Common Stock may be higher than the price that otherwise might exist in the open market.
In addition, we may further borrow under credit facilities and/or issue senior unsecured notes in the future in order to finance repurchases of shares. We can offer no assurance that we will be successful in obtaining suitable debt investments to finance purchases under the Company 10b5-1 Plan. Whether purchases will be made under the Company 10b5-1 Plan and how much will be purchased at any time is uncertain, dependent on prevailing market prices, trading volumes and our ability to finance repurchases, all of which we cannot predict.
New or modified laws or regulations governing our operations and government intervention in the credit markets generally may adversely affect our business.
We and our portfolio companies are subject to regulation by laws at the U.S. federal, state and local levels. These laws and regulations, as well as their interpretation, may change from time to time, including as the result of interpretive guidance or other directives from the U.S. President and others in the executive branch, and new laws, regulations and interpretations may also come into effect. Any such new or changed laws or regulations could have a material adverse effect on our business. In particular, Dodd-Frank has impacted many aspects of the financial services industry, and it requires the development and adoption of many implementing regulations over several years. The SEC has adopted final rules for over 60 mandatory rulemaking provisions under Dodd-Frank, with several additional rules proposed but not yet adopted. While the ultimate impact of Dodd-Frank on us and our portfolio companies may not be known for an extended period of time, Dodd-Frank, including the interpretation of the rules implementing its provisions and any future rules that may be adopted, along with other legislative and regulatory proposals directed at the financial services industry or affecting taxation that may be proposed in the future, may negatively impact the operations, cash flows or financial condition of us or our portfolio companies, impose additional costs on us or our portfolio companies, intensify the regulatory supervision of us or our portfolio companies or otherwise adversely affect our business or the business of our portfolio companies.
In addition, the central banks and, in particular, the U.S. Federal Reserve, have taken unprecedented steps since the financial crises of 2008-2009, the COVID-19 global pandemic and in response to inflationary pressures. On the other hand, recent governmental intervention could mean that the willingness of governmental bodies to take additional extraordinary action is diminished. It is impossible to predict if, how, and to what extent the United States and other governments would further intervene in credit markets. As a result, in the event of near-term major market disruptions, like those caused by the COVID-19 pandemic, there might be only limited additional government intervention, resulting in correspondingly greater market dislocation and materially greater market risk.
Additionally, changes to the laws and regulations governing our operations, including those associated with RICs, may cause us to alter our investment strategy in order to avail ourselves of new or different opportunities or result in the imposition of corporate-level taxes on us. Such changes could result in material differences to our strategies and plans and may shift our investment focus from the areas of expertise of the Advisor to other types of investments in which the Advisor may have little or no expertise or experience. Any such changes, if they occur, could have a material adverse effect on our results of operations and the value of your investment. If we invest in commodity interests in the future, the Advisor may determine not to use investment strategies that trigger additional regulation by the U.S. Commodity Futures Trading Commission (the “CFTC”), or may determine to operate subject to CFTC regulation, if applicable. If we or the Advisor were to operate subject to CFTC regulation, we may incur additional expenses and would be subject to additional regulation.
In addition, certain regulations applicable to debt securitizations implementing credit risk retention requirements that have taken effect in both the U.S. and in Europe may adversely affect or prevent us from entering into any future securitization transaction. The impact of these risk retention rules on the loan securitization market are uncertain, and such rules may cause an increase in our cost of funds under or may prevent us from completing any future securitization transactions. On October 21, 2014, U.S. risk retention rules adopted pursuant to Section 941 of Dodd-Frank, or the U.S. Risk Retention Rules, were issued. The U.S. Risk Retention Rules require the sponsor (directly or through a majority-owned affiliate) of a debt securitization subject to such rules, such as collateralized loan obligations, in the absence of an exemption, to retain an economic interest in the credit risk of the assets being securitized in the form of an eligible horizontal residual interest, an eligible vertical interest, or a combination thereof, in accordance with the requirements of the U.S. Risk Retention Rules. The U.S. Risk Retention Rules became effective December 24, 2016. Given the more attractive financing costs associated with these types of debt securitization as opposed to other types of financing available (such as traditional senior secured facilities), this would, in turn, increase our financing costs. Any associated increase in financing costs would ultimately be borne by our common stockholders.
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On May 24, 2018, the Economic Growth, Regulatory Relief, and Consumer Protection Act was enacted, which left the architecture and core features of Dodd-Frank intact but significantly recalibrated applicability thresholds, revised various post-crisis regulatory requirements, and provided targeted regulatory relief to certain financial institutions. Among the most significant of its amendments to Dodd-Frank were a substantial increase in the $50 billion asset threshold to $250 billion for automatic regulation of bank holding companies (“BHCs”) as “systemically important financial institutions” an exemption from the Volcker Rule for insured depository institutions with less than $10 billion in consolidated assets and lower levels of trading assets and liabilities, as well as amendments to the liquidity leverage ratio and supplementary leverage ratio requirements. In addition, effective October 1, 2020, the U.S. Federal Reserve, SEC and other federal agencies modified their regulations under the Volcker Rule to loosen the restrictions on financial institutions. The effects of these and any further rules or regulations that may be enacted by the Biden administration or future administrations, are and could be complex and far-reaching, and the change and any future laws or regulations or changes thereto could negatively impact our operations, cash flows or financial condition, impose additional costs on us, intensify the regulatory supervision of us or otherwise adversely affect our business, financial condition and results of operations.
Over the last several years, there also has been an increase in regulatory attention to the extension of credit outside of the traditional banking sector, raising the possibility that some portion of the non-bank financial sector will be subject to new regulation. While it cannot be known at this time whether any regulation will be implemented or what form it will take, increased regulation of non-bank credit extension could negatively impact our operations, cash flows or financial condition, impose additional costs on us, intensify the regulatory supervision of us or otherwise adversely affect our business, financial condition and results of operations.
Ongoing implementation of, or changes in, including changes in interpretation or enforcement of, laws and regulations could impose greater costs on us and on financial services companies and impact the value of assets we hold and our business, financial condition and results of operations. In addition, uncertainty regarding legislation and regulations affecting the financial services industry or taxation could also adversely impact our business or the business of our portfolio companies. If we do not comply with applicable laws and regulations, we could lose any licenses that we then hold for the conduct of our business and may be subject to civil fines and criminal penalties.
Our Board may change our investment objective, operating policies and strategies without prior notice or stockholder approval, and we may temporarily deviate from our regular investment strategy.
Our Board has the authority, except as otherwise provided in the 1940 Act, to modify or waive our investment objective and certain of our operating policies and strategies without prior notice and without stockholder approval. However, absent stockholder approval, we may not change the nature of our business so as to cease to be, or withdraw our election as, a BDC. We cannot predict the effect any changes to our current investment objective, operating policies and strategies would have on our business, operating results and the price value of our common stock. Nevertheless, any such changes could adversely affect our business and impair our ability to make distributions.
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The Advisor can resign on 60 days’ notice, and we may not be able to find a suitable replacement within that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.
The Advisor has the right to resign under the Investment Advisory Agreement at any time upon not less than 60 days’ written notice, whether we have found a replacement or not. If the Advisor resigns, we may not be able to find a new investment advisor or hire internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our business, financial condition, results of operations and cash flows as well as our ability to pay distributions are likely to be adversely affected and the value of our shares may decline. In addition, the coordination of our internal management and investment activities is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by the Advisor and its affiliates. Even if we are able to retain comparable management, whether internal or external, the integration of such management and their lack of familiarity with our investment objective may result in additional costs and time delays that may adversely affect our business, financial condition, results of operations and cash flows.
Efforts to comply with the Exchange Act and the Sarbanes-Oxley Act will involve significant expenditures, and non-compliance would adversely affect us and the value of our shares of common stock.
As a public entity, we are subject to the reporting requirements of the Exchange Act and requirements of the Sarbanes-Oxley Act. These requirements may place a strain on our systems and resources. The Exchange Act requires that we file annual, quarterly and current reports with respect to our business and financial condition. The Sarbanes-Oxley Act requires that we maintain effective disclosure controls and procedures and internal controls over financial reporting, which are discussed below.
We have implemented procedures, processes, policies and practices for the purpose of addressing such standards and requirements applicable to public companies. Our management will be required to report on our internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act. We will be required to review on an annual basis our internal control over financial reporting, and on a quarterly and annual basis to evaluate and disclose changes in our internal control over financial reporting. As a result, we expect to incur significant additional annual expenses related to these steps and, among other things, directors’ and officers’ liability insurance, director fees, reporting requirements of the SEC, expenses associated with corporate governance requirements, transfer agent fees, additional administrative expenses payable to the Administrator to compensate them for hiring additional accounting, legal and administrative personnel, increased auditing and legal fees and similar expenses. This process will also result in a diversion of management’s time and attention. We do not know when our evaluation, testing and remediation actions will be completed or its impact on our operations. In addition, we may be unable to ensure that the process is effective or that our internal control over financial reporting is or will be effective. In the event that we are unable to come into and maintain compliance with the Sarbanes-Oxley Act and related rules, we and the value of our securities would be adversely affected.
Our independent registered public accounting firm will not be required to attest to the effectiveness of our internal control over financial reporting until the date we are no longer an emerging growth company under the JOBS Act. Because we do not currently have comprehensive documentation of our internal control and have not yet tested our internal control in accordance with Section 404 of the Sarbanes-Oxley Act, we cannot conclude, as required by Section 404, that we do not have a material weakness in our internal control or a combination of significant deficiencies that could result in the conclusion that we have a material weakness in our internal control. If we are not able to implement the applicable requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner or with adequate compliance, our operations, financial reporting or financial results could be adversely affected. Matters impacting our internal controls may cause us to be unable to report our financial information on a timely basis and thereby subject us to adverse regulatory consequences, including sanctions by the SEC, and result in a breach of the covenants under the agreements governing any of our financing arrangements. There could also be a negative reaction in the financial markets due to a loss of investor confidence in us and the reliability of our financial statements. Confidence in the reliability of our financial statements could also suffer if we or our independent registered public accounting firm were to report a material weakness in our internal controls over financial reporting. This could materially adversely affect us.
Our internal control over financial reporting may not prevent or detect misstatements because of its inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed and we could fail to meet our financial reporting obligations.
We are highly dependent on information systems, and cybersecurity risks and cyber incidents may adversely affect our business or the business of our portfolio companies, which may, in turn, negatively affect the value of our shares of common stock and our ability to pay distributions.
Our business depends on the communications and information systems of our Advisor and its affiliates, our portfolio companies and third-party service providers. These systems are subject to potential cybersecurity attacks and incidents, including through adverse events that threaten the confidentiality, integrity or availability of our information resources. Cyber hacking could also cause significant disruption and harm to the companies in which we invest. Additionally, digital and network technologies (collectively, “cyber networks”) might be at risk of cyberattacks that could potentially seek unauthorized access to digital systems for purposes such as misappropriating sensitive information, corrupting data or causing operational disruption. Cyberattacks might potentially be carried out by persons using techniques that could range from efforts to electronically circumvent network security or overwhelm websites to intelligence gathering and social engineering functions aimed at obtaining information necessary to gain access. These attacks could involve gaining unauthorized access to our information systems for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption and result in disrupted operations, misstated or unreliable financial data, liability for stolen assets or information, increased cybersecurity protection and insurance costs, litigation and damage to our business relationships, any of which could, in turn, have a material adverse effect on our operating results and negatively affect the value of our securities and our ability to pay distributions to our stockholders.
As our reliance on technology has increased, so have the risks posed to our information systems, both internal and those provided by the Advisor and third-party service providers. In addition, we and the Advisor currently or in the future are expected to routinely transmit and receive personal, confidential and proprietary information by email and other electronic means. We and the Advisor may not be able to ensure secure capabilities with all of our clients, vendors, service providers, counterparties and other third parties to protect the confidentiality of the information.
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In addition, we, the Advisor and many of our third-party service providers currently have work from home policies. Such a policy of remote working could strain our technology resources and introduce operational risks, including heightened cybersecurity risks and other risks described above. Remote working environments may be less secure and more susceptible to hacking attacks, including phishing and social engineering attempts. There is no assurance that any efforts to mitigate cybersecurity risks undertaken by us or our Advisor will be effective. Network, system, application and data breaches as a result of cybersecurity risks or cyber incidents could result in operational disruptions or information misappropriation that could have a material adverse effect on our business, results of operations and financial condition of us and of our portfolio companies.
There may be trademark risk, as we do not own the Kayne Anderson name.
We do not own the Kayne Anderson name, but we are permitted to use it as part of our corporate name pursuant to a license agreement with the Advisor. Use of the name by other parties or the termination of the license agreement may harm our business.
Risks Relating to Our Investments
Rising interest rates could affect the value of our investments and make it more difficult for portfolio companies to make periodic payments on their loans.
Interest rate risk refers to the risk of market changes in interest rates. Interest rate changes affect the value of debt. In general, rising interest rates will negatively impact the price of fixed rate debt, and falling interest rates will have a positive effect on price. Adjustable-rate debt also reacts to interest rate changes in a similar manner, although generally to a lesser degree. Interest rate sensitivity is generally larger and less predictable in debt with uncertain payment or prepayment schedules. Further, rising interest rates make it more difficult for borrowers to repay debt, which could increase the risk of payment defaults. Any failure of one or more portfolio companies to repay or refinance its debt at or prior to maturity or the inability of one or more portfolio companies to make ongoing payments following an increase in contractual interest rates could have a material adverse effect on our business, financial condition, results of operations and cash flows.
During any period of higher-than-normal levels of inflation, such as the current inflationary environment, interest rates typically increase. Higher interest rates will increase the cost of our borrowings and may reduce returns to stockholders (including resulting in lower dividend payments by us). Further, in response to rising risk-free interest rates, market participants could require higher rates of interest on the types of loans and credit investments that we own, which would decrease the value of those investments.
In an effort to control inflation, the Federal Open Market Committee, the committee within the U.S. Federal Reserve that sets domestic monetary policy, raised the target range for the federal funds rate eleven times since March 2022 and to a current range of 5.25% to 5.50% as of January 2024. Rising rates generally have a negative impact on income-oriented investments such as those in which we invest and could be adversely impacted by these actions. There is no assurance that the actions being taken by the U.S. Federal Reserve will improve the outlook for long-term inflation or whether they might result in a recession. A recession could lead to declined employment, global demand destruction and/or business failures, which may result in a decline in the value of our portfolio. In addition, increased interest rates could increase our cost of borrowing and reduce the return on leverage to common stockholders.
Our business is dependent on bank relationships and recent strain on the banking system may adversely impact us.
The financial markets recently have encountered volatility associated with concerns about the balance sheets of banks, especially small and regional banks, which may have significant losses associated with investments that make it difficult to fund demands to withdraw deposits and other liquidity needs. Although the federal government has announced measures to assist these banks and protect depositors, some banks have already been impacted and others may be materially and adversely impacted. Our business is dependent on bank relationships and we are proactively monitoring the financial health of such bank relationships. Continued strain on the banking system may adversely impact our business, financial condition and results of operations. To the extent that our portfolio companies work with banks that are negatively impacted by the foregoing, such portfolio companies’ ability to access their own cash, cash equivalents and investments may be threatened. In addition, such affected portfolio companies may not be able to enter into new banking arrangements or credit facilities or receive the benefits of their existing banking arrangements or facilities. Any such developments could harm our business, financial condition, and operating results, and prevent us from fully implementing our investment plan. Continued strain on the banking system may adversely impact our business, financial condition and results of operations.
Limitations of investment due diligence in the private middle market companies in which we invest expose us to increased investment risk.
Our due diligence may not reveal all of a portfolio company’s liabilities and may not reveal other weaknesses in its business. We can offer no assurance that our due diligence processes will uncover all relevant facts that would be material to an investment decision. Before making an investment in, or a loan to, a company, the Advisor will assess the strength and skills of a company’s management and other factors that it believes are material to the performance of the investment.
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In making the assessment and otherwise conducting customary due diligence, the Advisor will rely on the resources available to it and, in some cases, an investigation by third parties. This process is particularly important and highly subjective with respect to newly organized entities because there may be little or no information publicly available about the entities.
We make investments in, or loans to, private middle market companies which are not subject to public company reporting requirements including requirements regarding preparation of financial statements and our portfolio companies may utilize divergent reporting standards that may make it difficult for the Advisor to accurately assess the prior performance of a portfolio company. We will, therefore, depend upon the compliance by such companies with their contractual reporting obligations. As a result, the evaluation of potential investments and our ability to perform due diligence on, and effectively monitor investments in private middle market companies, may be impeded, and we may not realize the returns which we expect on any particular investment. In the event of fraud by any company in which we invest or with respect to which we make a loan, we may suffer a partial or total loss of the amounts invested in that company.
We invest in highly leveraged companies, which could cause us to lose all or a part of our investment in those companies.
Investment in leveraged companies involves a number of significant risks. Leveraged companies in which we invest may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold. Such developments may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of our realizing any guarantees that we may have obtained in connection with our investment. In addition, leveraged companies may experience bankruptcy or similar financial distress that may adversely and permanently affect the issuer, in addition to risks associated with the duration and administrative costs of bankruptcy proceedings.
Smaller leveraged companies and middle market companies also may have less predictable operating results and may require substantial additional capital to support their operations, finance their expansion or maintain their competitive position. Middle market companies may have limited financial resources, may have difficulty accessing the capital markets to meet future capital needs and may be unable to meet their obligations under their debt securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of our realizing any guarantees we may have obtained in connection with our investment. In addition, such companies typically have shorter operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors’ actions and market conditions, as well as general economic downturns. Middle market companies are also more likely to depend on the management talents and efforts of a small group of persons, and the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us.
The debt that we invest in is typically not rated by any rating agency, but we believe that if such investments were rated, they would be below investment grade (rated lower than “Baa3” by Moody’s Investors Service, lower than “BBB-” by Fitch Ratings or lower than “BBB-” by Standard & Poor’s Ratings Services), which under the guidelines established by these entities is an indication of having predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. Bonds that are rated below investment grade are sometimes referred to as “high yield bonds” or “junk bonds.” Therefore, our investments will result in an above average amount of risk and volatility or loss of principal.
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We are subject to risks associated with our investments in unitranche secured loans and securities, including the potential loss of all or part of such investments.
We invest in unitranche secured loans, which are a combination of senior secured and junior secured debt in the same facility. Unitranche secured loans provide all of the debt needed to finance a leveraged buyout or other corporate transaction, both senior and junior, but generally in a first-lien position, while the borrower generally pays a blended, uniform interest rate rather than different rates for different tranches. Unitranche secured debt generally requires payments of both principal and interest throughout the life of the loan. Generally, we expect these securities to carry a blended yield that is between senior secured and junior debt interest rates. Unitranche secured loans provide a number of advantages for borrowers, including the following: simplified documentation, greater certainty of execution and reduced decision-making complexity throughout the life of the loan. In some cases, a portion of the total interest may accrue or be paid in kind. Because unitranche secured loans combine characteristics of senior and junior financing, unitranche secured loans have risks similar to the risks associated with senior secured and second-lien loans and junior debt in varying degrees according to the combination of loan characteristics of the unitranche secured loan.
Our investments in securities that are rated below investment grade (i.e. “junk bonds”) may be risky and we could lose all or part of our investments.
We invest in securities that are rated below investment grade by rating agencies or that would be rated below investment grade if they were rated. Below investment grade securities, which are often referred to as “junk,” have predominantly speculative characteristics with respect to the issuer’s capacity to pay interest and repay principal. They may also be difficult to value and illiquid. The major risks of below investment grade securities include:
Below investment grade securities may be issued by less creditworthy issuers. Issuers of below investment grade securities may have a larger amount of outstanding debt relative to their assets than issuers of investment grade securities. In the event of an issuer’s bankruptcy, claims of other creditors may have priority over the claims of holders of below investment grade securities, leaving few or no assets available to repay holders of below investment grade securities.
Prices of below investment grade securities are subject to extreme price fluctuations. Adverse changes in an issuer’s industry and general economic conditions may have a greater impact on the prices of below investment grade securities than on other higher-rated fixed-income securities.
Issuers of below investment grade securities may be unable to meet their interest or principal payment obligations because of an economic downturn, specific issuer developments, or the unavailability of additional financing.
Below investment grade securities frequently have redemption features that permit an issuer to repurchase the security from us before it matures. If the issuer redeems below investment grade securities, we may have to invest the proceeds in securities with lower yields and may lose income.
Below investment grade securities may be less liquid than higher-rated fixed-income securities, even under normal economic conditions. There are fewer dealers in the below investment grade securities market, and there may be significant differences in the prices quoted by the dealers. Judgment may play a greater role in valuing these securities and we may be unable to sell these securities at an advantageous time or price.
We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting issuer.
The credit rating of a high-yield security does not necessarily address its market value risk. Ratings and market value may change from time to time, positively or negatively, to reflect new developments regarding the issuer.
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Defaults by our portfolio companies, including defaults relating to collateral, will harm our operating results.
A portfolio company’s failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its assets, which could trigger cross-defaults under other agreements and jeopardize such company’s ability to meet its obligations under the debt securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company. In addition, lenders in certain cases can be subject to lender liability claims for actions taken by them when they become too involved in the borrower’s business or exercise control over a borrower. It is possible that we could become subject to a lender’s liability claim, including as a result of actions taken if we render managerial assistance to the borrower. Moreover, some of the loans in which we may invest may be “covenant-lite” loans. We use the term “covenant-lite” loans to refer generally to loans that do not have a complete set of financial maintenance covenants. Generally, “covenant-lite” loans provide borrower companies more freedom to negatively impact lenders because their covenants are incurrence-based, which means they are only tested and can only be breached following an affirmative action of the borrower, rather than by a deterioration in the borrower’s financial condition. Accordingly, to the extent we invest in “covenant-lite” loans, we may have fewer rights against a borrower and may have a greater risk of loss on such investments as compared to investments in or exposure to loans with financial maintenance covenants.
Certain debt investments that we make in portfolio companies, including portions of our split-lien loans, will be secured on a second priority basis by the same collateral securing senior debt of such companies. The first priority liens on the collateral will secure the portfolio company’s obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the portfolio company under the agreements governing the debt. The holders of obligations secured by the first priority liens on the collateral will generally control the liquidation of and be entitled to receive proceeds from any realization of the collateral to repay their obligations in full before us. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from the sale or sales of all of the collateral would be sufficient to satisfy the debt obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens on the collateral. If such proceeds are not sufficient to repay amounts outstanding under the debt obligations secured by the second priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the portfolio company’s remaining assets, if any.
We also make unsecured debt investments in portfolio companies, meaning that such investments will not benefit from any interest in collateral of such companies. Liens on such portfolio companies’ collateral, if any, will secure the portfolio company’s obligations under its outstanding secured debt and secure certain future debt that is permitted to be incurred by the portfolio company under its secured debt agreements. The holders of obligations secured by such liens will generally control the liquidation of, and be entitled to receive proceeds from, any realization of such collateral to repay their obligations in full before us. In addition, the value of such collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from sales of such collateral would be sufficient to satisfy our unsecured debt obligations after payment in full of all secured debt obligations. If such proceeds were not sufficient to repay the outstanding secured debt obligations, then our unsecured claims would rank equally with the unpaid portion of such secured creditors’ claims against the portfolio company’s remaining assets, if any.
The rights we may have with respect to the collateral securing any junior priority loans we make in our portfolio companies may also be limited pursuant to the terms of one or more intercreditor agreements that we enter into with the holders of senior debt. Under such an intercreditor agreement, at any time that senior obligations are outstanding, we may forfeit certain rights with respect to the collateral to the holders of these senior obligations. These rights may include the right to commence enforcement proceedings against the collateral, the right to control the conduct of such enforcement proceedings, the right to approve amendments to collateral documents, the right to release liens on the collateral and the right to waive past defaults under collateral documents. We may not have the ability to control or direct such actions, even if as a result our rights as junior lenders are adversely affected.
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The lack of liquidity and price decline in our investments may adversely affect our business, including by reducing our NAV through increased net unrealized depreciation.
We may invest in companies that are experiencing financial difficulties, which difficulties may never be overcome. Our investments will be illiquid in most cases, and there can be no assurance that we will be able to realize on such investments in a timely manner. A substantial portion of our investments in leveraged companies are and will be subject to legal and other restrictions on resale or will otherwise be less liquid than more broadly traded public securities. The illiquidity of these investments may make it difficult for us to sell such investments if the need arises.
As a BDC, we are required to carry our investments at market or fair value. If no market quote for market value is available or ascertainable, fair value is determined in good faith by our Advisor through a valuation methodology. As part of the valuation process, we may take into account the following types of factors, if relevant, in determining the fair value of our investments:
| ● | the enterprise value of the portfolio company; |
| ● | the nature and realizable value of any collateral; |
| ● | the company’s ability to make interest payments, amortization payments (if any) and other fixed charges; |
| ● | call features, put features and other relevant terms of the debt security; |
| ● | the company’s historical and projected financial results; |
| ● | the markets in which the portfolio company does business; and |
| ● | changes in the interest rate environment and the credit markets generally that may affect the price at which similar investments may be made in the future and other relevant factors. |
In addition, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our investments. We may also face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we, the Advisor or any of its affiliates have material nonpublic information regarding such portfolio company.
In addition, we generally expect to invest in securities, instruments and assets that are not, and are not expected to become, publicly traded. We will generally not be able to sell securities publicly unless the sale is registered under applicable securities laws, or unless an exemption from such registration requirements is available.
In certain cases, we may also be prohibited by contract from selling an investment for a period of time or otherwise be restricted from disposing of the investment. Furthermore, certain types of investments expected to be made may require a substantial length of time to realize a return or fully liquidate.
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 our valuation. We record decreases in the market values or fair values of our investments as unrealized depreciation. Declines in prices and liquidity in the corporate debt markets may result in significant net unrealized depreciation in our portfolio. The effect of all of these factors on our portfolio may reduce our NAV by increasing net unrealized depreciation in our portfolio. Depending on market conditions, we could incur substantial realized losses and may suffer additional unrealized losses in future periods, which could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Further, in connection with the disposition of an investment in a portfolio company, we may be required to make representations about the business and financial affairs of the portfolio company, or may be responsible for the contents of disclosure documents under applicable securities laws. We may also be required to indemnify the purchasers of such investment or underwriters to the extent that any such representations or disclosure documents turn out to be incorrect, inaccurate or misleading. These arrangements may result in contingent liabilities, for which we may establish reserves or escrows. However, we can offer no assurance that we will adequately reserve for our contingent liabilities and that such liabilities will not have an adverse effect on us. Such contingent liabilities might ultimately have to be funded by proceeds, including the return of capital, from our other investments.
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Our prospective portfolio companies may prepay loans, which may reduce our yields if capital returned cannot be invested in transactions with equal or greater expected yields.
The loans in our investment portfolio may be prepaid at any time, generally with little advance notice. Whether a loan is prepaid will depend both on the continued positive performance of the portfolio company and the existence of favorable financing market conditions that allow such company the ability to replace existing financing with less expensive capital. As market conditions change, we do not know when, and if, prepayment may be possible for each portfolio company. In some cases, the prepayment of a loan may reduce our achievable yield if the capital returned cannot be invested in transactions with equal or greater expected yields, which could have a material adverse effect on our business, financial condition and results of operations.
Our prospective portfolio companies may be unable to repay or refinance outstanding principal on their loans at or prior to maturity.
We have a maturity policy between three to six years for our debt investments. The portfolio companies in which we expect to invest may be unable to repay or refinance outstanding principal on their loans at or prior to maturity. This risk and the risk of default is increased to the extent that the loan documents do not require the portfolio companies to pay down the outstanding principal of such debt prior to maturity. As a result, once our investments mature we will need to seek new investments for such capital.
Any failure of one or more portfolio companies to repay or refinance its debt at or prior to maturity or the inability of one or more portfolio companies to make ongoing payments following an increase in contractual interest rates could have a material adverse effect on our business, financial condition, results of operations and cash flows.
Our investments in portfolio companies may expose us to environmental risks.
We may invest in companies engaged in the ownership (direct or indirect), operation, management or development of real properties that may contain hazardous or toxic substances, and, therefore, may be potentially liable for removal or remediation costs, as well as certain other costs, including governmental fines and liabilities for injuries to persons and property. The existence of any such material environmental liability could have a material adverse effect on the results of operations, cash flow and share price of any such portfolio company. As a result, our investment performance could suffer substantially.
There can be no guarantee that all costs and risks regarding compliance with environmental laws and regulations can be identified. New and more stringent environmental and health and safety laws, regulations and permit requirements or stricter interpretations of current laws or regulations could impose substantial additional costs on portfolio investment or potential investments. Compliance with such current or future environmental requirements does not ensure that the operations of the portfolio investments will not cause injury to the environment or to people under all circumstances or that the portfolio investments will not be required to incur additional unforeseen environmental expenditures. Moreover, failure to comply with any such requirements could have a material adverse effect on an investment, and we can offer no assurance that the portfolio investments will at all times comply with all applicable environmental laws, regulations and permit requirements.
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We are a non-diversified investment company within the meaning of the 1940 Act, and therefore we are not limited with respect to the proportion of our assets that may be invested in securities of a single issuer.
We are classified as a non-diversified investment company within the meaning of the 1940 Act, which means that we are not limited by the 1940 Act with respect to the proportion of our assets that we may invest in securities of a single issuer. To the extent that we assume large positions in the securities of a small number of issuers, our NAV may fluctuate to a greater extent than that of a diversified investment company as a result of changes in the financial condition or the market’s assessment of the issuer. We may also be more susceptible to any single economic or regulatory occurrence than a diversified investment company. Beyond our asset diversification requirements as a RIC under the Code, we do not have fixed guidelines for diversification, and our investments could be concentrated in relatively few portfolio companies.
Our portfolio may be concentrated in a limited number of portfolio companies and industries, which will subject us to a risk of significant loss if any of these companies defaults on its obligations under any of its debt instruments or if there is a downturn in a particular industry.
Our portfolio may be concentrated in a limited number of portfolio companies and industries. As a result, the aggregate returns we realize may be significantly and adversely affected if a small number of investments perform poorly or if we need to write down the value of any one investment. Additionally, while we are not targeting any specific industries, our investments may be concentrated in relatively few industries. For example, although we may classify the industries of our portfolio companies by end-market (such as health market or business services) and not by the products or services (such as software) directed to those end-markets, some of our portfolio companies may principally provide software products or services, which exposes us to downturns in that sector. As a result, a downturn in any particular industry in which we are invested could also significantly impact the aggregate returns we realize.
Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.
Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as “follow-on” investments, in seeking to:
| ● | increase or maintain in whole or in part our position as a creditor or equity ownership percentage in a portfolio company; |
| ● | exercise warrants, options or convertible securities that were acquired in the original or subsequent financing; or |
| ● | preserve or enhance the value of our investment. |
We have discretion to make follow-on investments, subject to the availability of capital resources. Failure on our part to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and our initial investment, or may result in a missed opportunity for us to increase our participation in a successful portfolio company. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we may not want to increase our level of risk, because we prefer other opportunities or because of regulatory or other considerations. Our ability to make follow-on investments may also be limited by the Advisor’s allocation policy.
Because we generally do not hold controlling equity interests in our portfolio companies, we may not be able to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments and there is no assurance that portfolio company management will be able to operate their companies in accordance with our expectations.
To the extent that we do not hold controlling equity interests in portfolio companies, we will have a limited ability to protect our position in such portfolio companies. We may also co-invest with third parties through partnerships, joint ventures or other entities. Such investments may involve risks in connection with such third-party involvement, including the possibility that a third-party co-investor may have economic or business interests or goals that are inconsistent with ours or may be in a position to take (or block) action in a manner contrary to our investment objective. In those circumstances where such third parties involve a management group, such third parties may receive compensation arrangements relating to such investments, including incentive compensation arrangements.
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Furthermore, the day-to-day operations of each portfolio company in which we invest will be the responsibility of that portfolio company’s management team. Although we will be responsible for monitoring the performance of each investment and generally intend to invest in portfolio companies operated by strong management, there can be no assurance that the existing management team, or any successor, will be able to operate any such portfolio company in accordance with our expectations. There can be no assurance that a portfolio company will be successful in retaining key members of its management team, the loss of whom could have a material adverse effect on us. Although we generally intend to invest in companies with strong management, there can be no assurance that the existing management of such companies will continue to operate a company successfully.
Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies and such portfolio companies may not generate sufficient cash flow to service their debt obligations to us.
We may invest a portion of our capital in second lien and subordinated loans issued by our portfolio companies. Our portfolio companies may have, or be permitted to incur, other debt that ranks equally with, or senior to, the debt securities in which we invest. Such subordinated investments are subject to greater risk of default than senior obligations as a result of adverse changes in the financial condition of the obligor or in general economic conditions. If we make a subordinated investment in a portfolio company, the portfolio company may be highly leveraged, and its relatively high debt-to-equity ratio may create increased risks that its operations might not generate sufficient cash flow to service all of its debt obligations. By their terms, such debt instruments may provide that the holders are entitled to receive payment of interest or principal on or before the dates on which we are entitled to receive payments in respect of the securities in which we invest. These debt instruments would usually prohibit the portfolio companies from paying interest on or repaying our investments in the event of and during the continuance of a default under such debt. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of securities ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution in respect of our investment. After repaying senior creditors, the portfolio company may not have any remaining assets to use for repaying its obligation to us where we are junior creditor. In the case of debt ranking equally with debt securities in which we invest, we would have to share any distributions on an equal and ratable basis with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company.
Additionally, certain loans that we make to portfolio companies may be secured on a second priority basis by the same collateral securing senior secured debt of such companies. The first priority liens on the collateral will secure the portfolio company’s obligations under any outstanding senior debt and may secure certain other future debt that may be permitted to be incurred by the portfolio company under the agreements governing the loans. The holders of obligations secured by first priority liens on the collateral will generally control the liquidation of, and be entitled to receive proceeds from, any realization of the collateral to repay their obligations in full before us. In addition, the value of the collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from sales of all of the collateral would be sufficient to satisfy the loan obligations secured by the second priority liens after payment in full of all obligations secured by the first priority liens on the collateral. If such proceeds were not sufficient to repay amounts outstanding under the loan obligations secured by the second priority liens, then we, to the extent not repaid from the proceeds of the sale of the collateral, will only have an unsecured claim against the portfolio company’s remaining assets, if any.
We may make unsecured loans to portfolio companies, meaning that such loans will not benefit from any interest in collateral of such companies. Liens on a portfolio company’s collateral, if any, will secure the portfolio company’s obligations under its outstanding secured debt and may secure certain future debt that is permitted to be incurred by the portfolio company under its secured loan agreements. The holders of obligations secured by such liens will generally control the liquidation of, and be entitled to receive proceeds from, any realization of such collateral to repay their obligations in full before us. In addition, the value of such collateral in the event of liquidation will depend on market and economic conditions, the availability of buyers and other factors. There can be no assurance that the proceeds, if any, from sales of such collateral would be sufficient to satisfy our unsecured loan obligations after payment in full of all loans secured by collateral. If such proceeds were not sufficient to repay the outstanding secured loan obligations, then our unsecured claims would rank equally with the unpaid portion of such secured creditors’ claims against the portfolio company’s remaining assets, if any.
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The rights we may have with respect to the collateral securing any junior priority loans we make to our portfolio companies may also be limited pursuant to the terms of one or more intercreditor agreements that we enter into with the holders of senior debt. Under a typical intercreditor agreement, at any time that obligations that have the benefit of the first priority liens are outstanding, any of the following actions that may be taken in respect of the collateral will be at the direction of the holders of the obligations secured by the first priority liens:
| ● | the ability to cause the commencement of enforcement proceedings against the collateral; |
| ● | the ability to control the conduct of such proceedings; |
| ● | the approval of amendments to collateral documents; |
| ● | releases of liens on the collateral; and |
| ● | waivers of past defaults under collateral documents. |
We may not have the ability to control or direct such actions, even if our rights as junior lenders are adversely affected.
The disposition of our investments may result in contingent liabilities.
A significant portion of our investments will involve private securities. In connection with the disposition of an investment in private securities, we may be required to make representations about the business and financial affairs of the portfolio company typical of those made in connection with the sale of a business. We may also be required to indemnify the purchasers of such investment to the extent that any such representations turn out to be inaccurate or with respect to potential liabilities. These arrangements may result in contingent liabilities that ultimately result in funding obligations that we must satisfy through our return of distributions previously made to us.
The Advisor’s and Administrator’s liability is limited, and we have agreed to indemnify each against certain liabilities, which may lead them to act in a riskier manner on our behalf than it would when acting for its own account.
Under the Investment Advisory Agreement, the Advisor does not assume any responsibility to us other than to render the services called for under that agreement, and it is not responsible for any action of our Board in following or declining to follow the Advisor’s advice or recommendations. Under the terms of the Investment Advisory Agreement, the Advisor, its officers, members, personnel and any person controlling or controlled by the Advisor are not liable to us, any subsidiary of ours, our directors, our stockholders or any subsidiary’s stockholders or partners for acts or omissions performed in accordance with and pursuant to the Investment Advisory Agreement, except those resulting from acts constituting willful misfeasance, bad faith, gross negligence or reckless disregard of the Advisor’s duties under the Investment Advisory Agreement. In addition, we have agreed to indemnify the Advisor and each of its officers, directors, members, managers and employees from and against any claims or liabilities, including reasonable legal fees and other expenses reasonably incurred, arising out of or in connection with our business and operations or any action taken or omitted on our behalf pursuant to authority granted by the Investment Advisory Agreement, except by reason of willful misfeasance, bad faith or gross negligence, in the performance of such person’s duties or by reason of reckless disregard of such person’s obligations and duties under the Investment Advisory Agreement. Similarly, the Administrator and certain specified parties providing administrative services pursuant to the relevant agreement are not liable to us or our stockholders for, and we have agreed to indemnify them for, any claims or losses arising out of the good faith performance of their duties or obligations, except by reason of willful misfeasance, bad faith or gross negligence, in the performance of such services or duties or by reason of reckless disregard of the Administrator or such person’s obligations and duties. These protections may lead the Advisor or the Administrator to act in a riskier manner when acting on our behalf than it would when acting for its own account.
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We are subject to risks under hedging transactions and our ability to enter into transactions involving derivatives and financial commitment transactions may be limited.
Though we do not engage in hedging transactions as a principal investment strategy, we may in the future engage in hedging transactions in the form of interest rate swaps, caps, collars and floors, intended to limit our exposure to interest rate fluctuations to the limited extent such transactions are permitted under the 1940 Act and applicable commodities laws. Engaging in hedging transactions would entail additional risks to our stockholders.
In addition, we are subject to legislation that limits our ability to enter into such transactions. For example, in August 2022, Rule 18f-4 under the 1940 Act, regarding the ability of a BDC (or a registered investment company) to use derivatives and other transactions that create future payment or delivery obligations (except reverse repurchase agreements and similar financing transactions), became effective. Under the rule, BDCs that make significant use of derivatives are required to operate subject to a value-at-risk leverage limit, adopt a derivatives risk management program and appoint a derivatives risk manager, and comply with various testing and board reporting requirements. These requirements apply unless the BDC qualifies as a “limited derivatives user,” as defined under the adopted rules. Under the rule, a BDC may enter into an unfunded commitment agreement that is not a derivatives transaction, such as an agreement to provide financing to a portfolio company, if the BDC has, among other things, a reasonable belief, at the time it enters into such an agreement, that it will have sufficient cash and cash equivalents to meet its obligations with respect to all of its unfunded commitment agreements, in each case as it becomes due. The Company intends to operate under the limited derivatives user exemption of Rule 18f-4 and has adopted written policies and procedures reasonably designed to manage the Company’s derivatives risk pursuant to Rule 18f-4. Collectively, these requirements may limit our ability to use derivatives and/or enter into certain other financial contracts. We qualify as a “limited derivatives user,” and as a result the requirements applicable to us under Rule 18f-4 may limit our ability to use derivatives and enter into certain other financial contracts. However, if we fail to qualify as a limited derivatives user and become subject to the additional requirements under Rule 18f-4, compliance with such requirements may increase cost of doing business, which could have a material adverse effect on our business, financial condition, results of operations, and cash flows. Future legislation or rules may modify how we treat derivatives and other financial arrangements for purposes of our compliance with the leverage limitations of the 1940 Act and, therefore, may increase or decrease the amount of leverage currently available to us under the 1940 Act, which may be materially adverse to us and our stockholders.
In each such case, we generally would seek to hedge against fluctuations of the relative values of our portfolio positions from changes in market interest rates. Hedging against a decline in the values of our portfolio positions would not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of the positions declined. However, such hedging could establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transactions could also limit the opportunity for gain if the values of the underlying portfolio positions increased. Moreover, it might not be possible to hedge against an exchange rate or interest rate fluctuation that was so generally anticipated that we would not be able to enter into a hedging transaction at an acceptable price. Use of a hedging transaction could involve counterparty credit risk.
The success of any hedging transactions we may enter into will depend on our ability to correctly predict movements in interest rates. Therefore, while we may enter into hedging transactions to seek to reduce interest rate risks, unanticipated changes in interest rates could result in poorer overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged could vary. Moreover, for a variety of reasons, we might not seek to (or be able to) establish a perfect correlation between the hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation could prevent us from achieving the intended hedge and expose us to risk of loss. Our ability to engage in hedging transactions may also be adversely affected by rules adopted by the CFTC.
We may not realize gains from our equity investments.
When we invest in loans, we may acquire warrants or other equity securities of portfolio companies as well. We may also invest in equity securities directly. To the extent we hold equity investments, we will seek to dispose of them and realize gains upon our disposition of them. However, the equity interests we receive may not appreciate in value and may decline in value. As a result, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.
To the extent that we borrow under credit facilities and issue senior unsecured notes, the potential for gain or loss on amounts invested in us will be magnified and may increase the risk of investing in us. Borrowings under credit facilities and issuances of senior unsecured notes may also adversely affect the return on our assets, reduce cash available to service our debt or for distribution to our stockholders, and result in losses.
The use of leverage in the form of borrowings under credit facilities and issuances of senior unsecured notes increases the volatility of investments by magnifying the potential for gain or loss on invested equity capital. Since we use leverage in the form of borrowings under credit facilities and issuances of senior unsecured notes to partially finance our investments, you will experience increased risks of investing in our securities. If the value of our assets decreases, leveraging will cause NAV to decline more sharply than it otherwise would if we had not borrowed under the credit facilities and issued senior unsecured notes. Similarly, any decrease in our income would cause net income to decline more sharply than it would have if we had not borrowed under the credit facilities and issued senior unsecured notes. Such a decline could negatively affect our ability to service our debt or make distributions to our stockholders. In addition, our stockholders will bear the burden of any increase in our expenses as a result of our use of leverage, including interest expenses and any increase in the management or incentive fees payable to our Advisor.
The amount of borrowings under credit facilities and issuances of senior unsecured notes depends on our Advisor’s and our Board’s assessment of market and other factors at the time of any proposed borrowing under credit facilities and issuance of senior unsecured notes. We can offer no assurance that leveraged financing will be available to us on favorable terms or at all. However, to the extent that we use leverage to finance our assets, our financing costs will reduce cash available for servicing our debt or distributions to stockholders. Moreover, we may not be able to meet our financing obligations and, to the extent that we cannot, we risk the loss of some or all of our assets to liquidation or sale to satisfy the obligations. In such an event, we may be forced to sell assets at significantly depressed prices due to market conditions or otherwise, which may result in losses.
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We are subject to risks associated with our investment and trading of liquid credit (i.e., broadly syndicated loans).
From time to time, we may invest in liquid credit (i.e., broadly syndicated loans) that may be traded in public or institutional financial markets for which there is a more active market than some of our other investments. These investments may expose us to various risks, including with respect to liquidity, price volatility, interest rate risk, ability to restructure in the event of distress, credit risks and less protective issuing documentation, than is the case with the loans to middle market companies that comprise nearly all of our debt investments. Certain of these instruments may be fixed rate assets, thereby exposing us to interest rate risk in the valuation of such investments. Additionally, the financial markets in which these assets may be traded are subject to significant volatility (including due to macroeconomic conditions), which may impact the value of such investments and our ability to sell such instruments without incurring losses. The foregoing may result in volatility in the valuation of our liquid credit investments, which would, in turn, impact our NAV. Similarly, a sudden and significant increase in market interest rates may increase the risk of payment defaults and cause a decline in the value of these investments and in our NAV. We may sell our liquid credit investments from time to time in order to generate proceeds for use in our investment program, and we may suffer losses in connection with any such sales, due to the foregoing factors. We may not realize gains from our liquid credit investments and any gains that we realize may not be sufficient to offset any other losses we experience.
Our investments in the Trading Companies & Distributors industry face considerable uncertainties including significant regulatory challenges.
Our investments in portfolio companies that operate in the Trading Companies & Distributors industry represent approximately 15.3% of our total portfolio as of December 31, 2023. Portfolio companies in the Trading Companies & Distributors sector are subject to many risks, including the negative impact of regulation, a competitive marketplace, decreased consumer demand and supply-chain disruptions. In recent years, supply-chain disruptions and global trade policies have had a negative impact on these industries and as Trading Companies & Distributors represent a significant portion of our investments, such adverse business and/or economic conditions have also impacted our portfolio. Adverse economic, business, or regulatory developments affecting the Trading Companies & Distributors sector, including trade policies, treaties and tariffs between the United States and other countries, could have a negative impact on the value of our investments in portfolio companies operating in this industry, and therefore could negatively impact our business and results of operations.
Risks Relating to Our Common Stock
There are material limitations with making available preliminary estimates of our financial results at and for the three-months ended March 31, 2024 prior to the completion of our and our auditor's financial review procedures for such period.
The preliminary financial estimates contained in the section entitled “Prospectus Summary—Recent Developments—Preliminary Estimates of Results as of March 31, 2024” are not a comprehensive statement of our financial results at and for the three-months ended March 31, 2024 and have not been audited, reviewed, compiled, examined or subject to any procedures by PricewaterhouseCoopers LLP, our independent registered public accounting firm, or any other independent accountants. Our consolidated financial statements for the quarter ended March 31, 2024 will not be available until after this offering is completed and, consequently, will not be available to you prior to making an investment decision. Our actual financial results at and for the three-months ended March 31, 2024 could differ materially from the preliminary financial estimates we have provided as a result of the completion of our customary financial closing procedures and related internal controls over financial reporting, final determination of the fair value of our portfolio investments, final adjustments, execution of our disclosures and control procedures and other developments arising between now and the time that our financial results for the quarter ended March 31, 2024 are finalized. The preliminary financial data included herein has been prepared by, and is the responsibility of, management. PricewaterhouseCoopers LLP has not audited, reviewed, compiled, examined or performed any procedures with respect to such preliminary estimates, and, accordingly, does not express an opinion or any other form of assurance with respect thereto. In addition, the preliminary financial estimates do not include all of the information regarding our financial condition and results of operations for the quarter ended March 31, 2024 that may be important to investors.
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Prior to this offering, there has been no public market for our shares of common stock, and we cannot assure you that a market for our shares of common stock will develop or that the market price of our shares of common stock will not decline following the offering. Our share of common stock price may be volatile and may fluctuate substantially.
We intend to apply to list our shares of common stock on The New York Stock Exchange under the symbol “KBDC.” We cannot assure you that a trading market will develop for our shares of common stock after this offering or, if one develops, that the trading market can be sustained. In addition, we cannot predict the prices at which our shares of common stock will trade. The offering price for our shares of common stock will be determined through our negotiations with the underwriters and may not bear any relationship to the market price at which it may trade after this offering. Shares of companies offered in an initial public offering often trade at a discount to the initial offering price due to underwriting discounts and commissions and related offering expenses. Also, shares of closed-end investment companies, including BDCs, frequently trade at a discount from their net asset value and our shares may also be discounted in the market. This characteristic of closed-end investment companies is separate and distinct from the risk that our net asset value per share may decline. We cannot predict whether our shares of common stock will trade at, above or below net asset value. The risk of loss associated with this characteristic of closed-end management investment companies may be greater for investors expecting to sell shares of common stock purchased in the offering soon after the offering. In addition, if our shares of common stock trade below its net asset value per share, we will generally not be able to sell additional shares of common stock to the public at its market price without first obtaining the approval of a majority of our stockholders (including a majority of our unaffiliated stockholders) and our independent directors for such issuance.
The market price and liquidity of the market for our shares of common stock may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include:
| ● | significant volatility in the market price and trading volume of securities of BDCs or other companies in the sector in which we operate, which are not necessarily related to the operating performance of these companies; |
| ● | changes in regulatory policies or tax guidelines, particularly with respect to RICs or BDCs; |
| ● | loss of RIC status; |
| ● | changes in earnings or variations in operating results; |
| ● | changes in the value of our portfolio of investments; |
| ● | any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts; |
| ● | departure of key personnel from our Advisor; |
| ● | operating performance of companies comparable to us; |
| ● | general economic trends and other external factors; and |
| ● | loss of a major funding source. |
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Sales of substantial amounts of our shares of common stock in the public market may have an adverse effect on the market price of our shares of common stock.
Upon completion of this offering, we will have shares of common stock outstanding (or shares of common stock if the underwriters’ exercise their option to purchase additional shares of common stock). The shares of common stock sold in the offering will be freely tradable without restriction or limitation under the Securities Act.
Any shares purchased in this offering or currently owned by our affiliates, as defined in the Securities Act, will be subject to the public information, manner of sale and volume limitations of Rule 144 under the Securities Act. The remaining shares of common stock that will be outstanding upon the completion of this offering will be “restricted securities” under the meaning of Rule 144 promulgated under the Securities Act and may only be sold if such sale is registered under the Securities Act or exempt from registration, including the exemption under Rule 144. See “Shares Eligible For Future Sale.”
In addition, the shares owned by our current stockholders are subject to lock-up restrictions, as further described in “Shares Eligible for Future Sale—Transfer and Resale Restrictions” and “Underwriters.”
Following this offering and the expiration of applicable lock-up periods, subject to applicable securities laws, sales of substantial amounts of our shares of common stock, or the perception that such sales could occur, could adversely affect the prevailing market prices for our shares of common stock. If this occurs, it could impair our ability to raise additional capital through the sale of equity securities should we desire to do so. We cannot predict what effect, if any, future sales of securities, or the availability of securities for future sales, will have on the market price of our shares of common stock prevailing from time to time.
Trading in our shares may be limited and our shares may trade below NAV.
We cannot assure you that a public trading market can be sustained. Shares of companies offered in an initial public offering often trade at a discount to the initial offering price due to underwriting discounts and related offering expenses. Also, shares of closed-end investment companies and BDCs frequently trade at a discount from their NAV. This characteristic of closed-end investment companies is separate and distinct from the risk that our NAV per share may decline. We cannot predict whether our shares of common stock will trade at, above or below NAV.
Certain provisions of the DGCL, our certificate of incorporation, bylaws, and actions of our Board could deter takeover attempts and have an adverse impact on the value of common stock.
The General Corporation Law of the State of Delaware, as amended (the “DGCL”), contains provisions that may discourage, delay or make more difficult a change in control of us or the removal of our directors. Our certificate of incorporation and bylaws contain provisions that limit liability and provide for indemnification of our directors and officers. These provisions and others which we may adopt also may have the effect of deterring hostile takeovers or delaying changes in control or management. We are subject to Section 203 of the DGCL, the application of which is subject to any applicable requirements of the 1940 Act. This section generally prohibits us from engaging in mergers and other business combinations with stockholders that beneficially own 15% or more of our voting stock, either individually or together with their affiliates, unless our directors or stockholders approve the business combination in the prescribed manner. Section 203 of the DGCL may discourage third parties from trying to acquire control of us and increase the difficulty of consummating such an offer.
We have also adopted measures that may make it difficult for a third party to obtain control of us, including provisions of our certificate of incorporation that classify our Board in three classes serving staggered three-year terms, and provisions of our certificate of incorporation authorizing our Board to classify or reclassify shares of our preferred stock in one or more classes or series, and to cause the issuance of additional shares of our stock. These provisions, as well as other provisions in our certificate of incorporation and bylaws, may delay, defer or prevent a transaction or a change in control in circumstances that could give our stockholders the opportunity to realize a premium of the NAV of our shares of common stock. See “Description of Our Capital Stock—Provisions of the DGCL and Our Certificate of Incorporation and Bylaws—Delaware Anti-takeover Law.”
During extended periods of capital market disruption and instability, there is a risk that you may not receive distributions or that our distributions may not grow over time and a portion of our distributions may be a return of capital.
We intend to make periodic distributions to our stockholders out of assets legally available for distribution. We cannot assure you that we will achieve investment results that will allow us to make a specified level of cash distributions or year-to-year increases in cash distributions. Our ability to pay distributions might be adversely affected by the impact of one or more of the risk factors described herein. Due to the asset coverage test applicable to us under the 1940 Act as a BDC, we may be limited in our ability to make distributions. If we declare a distribution and if more stockholders opt to receive cash distributions rather than participate in our DRIP, we may be forced to sell some of our investments in order to make cash distribution payments. To the extent we make distributions to stockholders that include a return of capital, such portion of the distribution essentially constitutes a return of the stockholder’s investment. Although such return of capital may not be taxable, such distributions may increase an investor’s tax liability for capital gains upon the future sale of our common stock.
A return of capital distribution may cause a stockholder to recognize a capital gain from the sale of our common stock even if the stockholder sells its shares for less than the original purchase price.
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Investing in our common stock may involve an above average degree of risk.
The investments we make in accordance with our investment objective may result in a higher amount of risk than alternative investment options and a higher risk of volatility or loss of principal. Our investments in portfolio companies involve higher levels of risk, and therefore, an investment in our shares may not be suitable for someone with lower risk tolerance. In addition, our common stock is intended for long-term investors who can accept the risks of investing primarily in illiquid loans and other debt or debt-like instruments and should not be treated as a trading vehicle.
A stockholder’s interest in us will be diluted if we issue additional shares, which could reduce the overall value of an investment in us.
Our stockholders do not have preemptive rights to any shares of common stock we issue in the future. To the extent that we issue additional equity interests at or below NAV your percentage ownership interest in us may be diluted and will be diluted as a result of the shares to be issued in this offering. In addition, depending upon the terms and pricing of any future and the value of our investments, you may also experience dilution in the book value and fair value of your shares of common stock.
Under the 1940 Act, we generally are prohibited from issuing or selling our shares of common stock at a price below NAV per share, which may be a disadvantage as compared with certain public companies. We may, however, sell our shares of common stock, or warrants, options, or rights to acquire our shares of common stock, at a price below the current NAV of our shares of common stock if our Board determines that such sale is in our best interests and the best interests of our stockholders, and our stockholders, including a majority of those stockholders that are not affiliated with us, approve such sale. In any such case, the price at which our securities are to be issued and sold may not be less than a price that, in the determination of our Board, closely approximates the fair value of such securities (less any distributing commission or discount). If we raise additional funds by issuing our shares of common stock or senior securities convertible into, or exchangeable for, our shares of common stock, then the percentage ownership of our stockholders at that time will decrease and you will experience dilution.
In addition, distributions declared in cash payable to stockholders that are participants in our DRIP will generally be automatically reinvested in our shares of common stock. As a result, stockholders that do not participate in our DRIP may experience dilution over time.
We may be subject to risks that arise from newly enacted federal tax legislation and our stockholders may receive our shares of common stock as dividends, which could result in adverse tax consequences to them.
The Inflation Reduction Act of 2022, among other things, introduced a 15% book minimum tax on larger corporations, a 1% excise tax on stock buybacks and increased investment in the Internal Revenue Service (the “IRS”) to aid in the enforcement of tax laws. The impact of such legislation, as well as federal tax legislation proposed but not yet enacted, on us, our stockholders and entities in which we may invest is uncertain. Prospective investors are urged to consult their tax advisors regarding the effects of the new legislation on an investment in the Company.
In particular, in order to satisfy the annual distribution requirement applicable to RICs, we will have the ability to declare a large portion of a dividend in our shares of common stock instead of in cash. As long as a portion of such dividend is paid in cash (which portion may be as low as 20% of such dividend) and certain requirements are met, the entire distribution will be treated as a dividend for U.S. federal income tax purposes. As a result, a stockholder generally would be subject to tax on 100% of the fair market value of the dividend on the date the dividend is received by the stockholder in the same manner as a cash dividend, even though most of the dividend was paid in our shares of common stock. We currently do not intend to pay dividends in our shares of common stock.
We may in the future determine to issue preferred stock, which could adversely affect the value of shares of Common Stock.
The issuance of preferred stock with dividend or conversion rights, liquidation preferences or other economic terms favorable to the holders of preferred stock could make an investment in shares of common stock less attractive. In addition, the dividends on any preferred stock we issue must be cumulative. Payment of dividends and repayment of the liquidation preference of preferred stock must take preference over any distributions or other payments to holders of common stock, and holders of preferred stock are not subject to any of our expenses or losses and are not entitled to participate in any income or appreciation in excess of their stated preference (other than convertible preferred stock that converts into shares of common stock). In addition, under the 1940 Act, preferred stock would constitute a “senior security” for purposes of the 150% asset coverage test. We do not currently anticipate issuing preferred stock.
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General Risk Factors
Global economic, political and market conditions, including uncertainty about the financial stability of the United States, could have a significant adverse effect on our business, financial condition and results of operations.
The current worldwide financial markets situation, as well as various social and political tensions in the United States and around the world (including wars and other forms of conflict, terrorist acts, security operations and catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes and global health epidemics), may contribute to increased market volatility, may have long term effects on the United States and worldwide financial markets, and may cause economic uncertainties or deterioration in the United States and worldwide.
For example, the COVID-19 pandemic adversely impacted global commercial activity and contributed to significant volatility in financial markets.
In addition, the large-scale invasion of Ukraine by Russia, and resulting market volatility, could adversely affect our business, financial condition or results of operations. In response to the conflict between Russia and Ukraine, the U.S. and other countries have imposed sanctions or other restrictive actions against Russia. The ongoing conflict and the rapidly evolving measures in response could be expected to have a negative impact on the economy and business activity globally and could have a material adverse effect on our portfolio companies and our business, financial condition, cash flows and results of operations. The severity and duration of the conflict and its impact on global economic and market conditions are impossible to predict. In addition, sanctions could also result in Russia taking counter measures or retaliatory actions which could adversely impact our business or the business of our portfolio companies, including, but not limited to, cyberattacks targeting private companies, individuals or other infrastructure upon which our business and the business of our portfolio companies rely.
In addition, the political reunification of China and Taiwan, over which China continues to claim sovereignty, is a highly complex issue that has included threats of invasion by China. Any escalation of hostility between China and/or Taiwan would likely have a significant adverse impact not only on the value of investments in both countries, but also on economies and financial markets globally.
In addition, the recent outbreak of hostilities in the Middle East and escalating tensions in the region may create volatility and disruption of global markets.
We do not currently have portfolio investments with direct exposure to the Middle East, China, Taiwan, Russia or Ukraine.
Political, social and economic uncertainty, including uncertainty related to the COVID-19 pandemic, creates and exacerbates risks.
Social, political, economic and other conditions and events (such as natural disasters, epidemics and pandemics, terrorism, conflicts and social unrest) will occur that create uncertainty and have significant impacts on issuers, industries, governments and other systems, including the financial markets, to which companies and their investments are exposed. As global systems, economies and financial markets are increasingly interconnected, events that once had only local impact are now more likely to have regional or even global effects. Events that occur in one country, region or financial market will, more frequently, adversely impact issuers in other countries, regions or markets, including in established markets such as the U.S. Such risks include the large-scale invasion of Ukraine by Russia that began in February 2022, heightened tensions between China and Taiwan, the recent outbreak of hostilities in the Middle East, or the effect on world leaders and governments of global health pandemics, such as the COVID-19 pandemic. These impacts can be exacerbated by failures of governments and societies to adequately respond to an emerging event or threat. We do not currently have portfolio investments with direct exposure to the Middle East, China, Taiwan, Russia or Ukraine.
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.
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For example, the COVID-19 pandemic led to disruptions in local, regional, national and global markets and economies. With respect to the U.S. credit markets (in particular for middle market loans), this outbreak resulted in the following among other things: (i) significant disruption to the businesses of many middle market loan borrowers including supply chains, demand and practical aspects of their operations, as well as lay-offs of employees; (ii) increased draws by borrowers on revolving lines of credit; (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 experienced by the markets and by businesses and the economy in general which were not necessarily adequate to address the problems faced by the loan market and middle market businesses. Although many of these conditions have improved or resolved over the course of the pandemic, similar consequences could occur in the future as a result of new variants of the virus or other infectious diseases. The COVID-19 outbreak has had, 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, 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 us and returns to us, among other things. Recurring COVID-19 outbreaks, including as a result of new variants of the virus, have led to the re-introduction of public health restrictions in certain states in the United States and globally and could continue to lead to the re-introduction of such restrictions elsewhere. It is impossible to determine the scope of 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 us and our portfolio companies in which we invest.
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 us and our targeted investments, it is clear that these types of events are impacting and will, for at least some time, continue to impact us and our targeted investments and, in certain instances, the impact will be adverse and profound.
If public health uncertainties and market disruptions continue for an extended period of time, loan delinquencies, loan non-accruals, problem assets, and bankruptcies may increase. In addition, collateral for our loans may decline in value, which could cause loan losses to increase and the net worth and liquidity of loan guarantors could decline, impairing their ability to honor commitments to us. An increase in loan delinquencies and non-accruals or a decrease in loan collateral and guarantor net worth could result in increased costs and reduced income which would have a material adverse effect on our business, financial condition or results of operations.
We will also be negatively affected if the operations and effectiveness of us 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.
We are subject to risks related to corporate responsibility.
Our business faces increasing public scrutiny related to environmental, social and governance (“ESG”) activities. We risk damage to our brand and reputation if we fail to act responsibly in a number of areas, such as environmental stewardship, corporate governance and transparency and considering ESG factors in our investment processes. Adverse incidents with respect to ESG activities could impact the value of our brand, the cost of our operations and relationships with investors, all of which could adversely affect our business and results of operations. Additionally, new regulatory initiatives related to ESG could adversely affect our business.
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POTENTIAL CONFLICTS OF INTEREST
Risks Related to Conflicts of Interest of Kayne Anderson
General
Conflicts of interest may arise because Kayne Anderson and its affiliates generally carry on substantial investment activities for other clients, in which we will have no interest. Kayne Anderson or its affiliates may have financial incentives to favor certain of such accounts over us. Kayne Anderson and its affiliates currently manage, and may in the future have, other clients with similar or competing investment objectives. In serving in these multiple capacities, they may have obligations to other clients or investors in those entities, the fulfillment of which may not be in the best interests of us or our stockholders. Any of their proprietary accounts and other customer accounts may compete with us for specific investment opportunities. Kayne Anderson or its affiliates may buy or sell securities for us which differ from securities bought or sold for other accounts and customers, even though their investment objectives and policies may be similar to ours. Situations may occur when we could be disadvantaged because of the investment activities conducted by Kayne Anderson and its affiliates for their other accounts. See “Risk Factors—Risks Relating to Our Business and Structure—There are significant potential conflicts of interest that could affect our investment returns, including conflicts related to obligations the Advisor’s investment committee, the Advisor or its affiliates have to other clients and conflicts related to fees and expenses of such other clients, the valuation process for certain portfolio holdings of ours, other arrangements with the Advisor or its affiliates, and the Advisor’s recommendations given to us may differ from those rendered to their other clients.”
Our Advisor’s liability is limited under the Investment Advisor Agreement, and we are required to indemnify our Advisor against certain liabilities, which may lead our Advisor to act in a riskier manner on our behalf than it would when acting for its own account. See “Risk Factors—Risks Relating to Our Business and Structure—The Advisor’s and Administrator’s liability is limited, and we have agreed to indemnify each against certain liabilities, which may lead them to act in a riskier manner on our behalf than it would when acting for its own account.”
Advisor’s Investment Professionals Conflict of Interest Risk
Certain investment professionals who are involved in our activities remain responsible for the investment activities of other clients and investment vehicles managed by Kayne Anderson and its affiliates, and they will devote time to the management of such investments and other newly created client portfolios (whether in the form of funds, separate accounts or other vehicles), as well as their own investments. In addition, in connection with the management of investments for other funds, separate accounts and other vehicles, members of Kayne Anderson and its affiliates may serve on the boards of directors of or advise companies which may compete with our portfolio investments. Moreover, these other funds, separate accounts and other vehicles managed by Kayne Anderson and its affiliates may pursue investment opportunities that may also be suitable for us.
Other Investment Companies
Kayne Anderson and its affiliates currently manage, and may in the future have, other clients with similar or competing investment objectives. Some of the affiliated funds have investment objectives that overlap with ours.
Investment decisions for us are made independently from those of Kayne Anderson’s other clients; however, from time to time, the same investment decision may be made for more than one fund or account. Kayne Anderson has adopted a formal credit conflicts policy to address potential conflicts with respect to its credit platform in connection with matter such as refinancings, follow-ons and investments across a capital structure. In some cases, this system may adversely affect the price or size of the position we may obtain. In other cases, however, our ability to participate in volume transactions may produce better outcomes for us.
The members of our Advisor’s investment committee serve or may serve as officers, directors or principals of entities that operate in the same or a related line of business as we do or of accounts sponsored or managed by Kayne Anderson or its affiliates. In serving in these multiple capacities, they may have obligations to other clients or investors in those entities, the fulfillment of which may not be in the best interests of us or our stockholders.
Management Fee Calculation
The investment management fee paid to our Advisor is based on the value of our assets, as periodically determined. Although we have valuation procedures designed to determine valuations of illiquid securities in a manner that reflects their fair value, there typically is a range of prices that may be established for each individual security. Senior management of Kayne Anderson, and its valuation committee, and a third-party valuation firm will participate in the valuation of our securities.
Certain Affiliations
We are currently affiliated with KA Associates, Inc. (“KA Associates”), a broker-dealer that is a member of the Financial Industry Regulatory Authority, Inc. (“FINRA”). Michael J. O’Neil, our Secretary and Chief Compliance Officer, currently serves as President, Chief Compliance Officer and Secretary of KA Associates Inc. While we currently have no intent to engage in principal transactions through KA Associates, absent an exemption from the SEC or other regulatory relief, we are generally precluded from doing so. In addition, our ability to utilize KA Associates for agency transactions is subject to restrictions. Until completion of the initial public offering of our shares of common stock, we will be precluded from effecting principal transactions with brokers who are members of the syndicate. KA Associates will participate in this offering to accommodate certain investments. See “Underwriters.”
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CAUTIONARY NOTICE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve substantial known and unknown risks, uncertainties and other factors. Undue reliance should not be placed on such statements. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about the company, current and prospective portfolio investments, the industry, beliefs and assumptions. Words such as “anticipates,” “expects,” “intends,” “plans,” “will,” “may,” “continue,” “believes,” “seeks,” “estimates,” “would,” “could,” “should,” “targets,” “projects,” and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation:
| ● | future operating results; |
| ● | business prospects and the prospects of portfolio companies in which we may invest; | |
| ● | the ability of our portfolio companies to achieve their objectives; |
| ● | changes in political, economic or industry conditions, the interest rate environment or conditions affecting the financial and capital markets; |
| ● | the ability of our Advisor to locate suitable investments and to monitor and administer investments; |
| ● | the ability of our Advisor and its affiliates to attract and retain highly talented professionals; |
| ● | risk associated with possible disruptions in operations or the economy generally; | |
| ● | the adequacy of our cash resources, financing sources, and working capital; |
| ● | the timing and amount of cash flows, distributions and dividends, if any, from the operations of the companies in which the Company invests; |
| ● | the ability to maintain qualification as a BDC and as a RIC under the Code; |
| ● | the use of borrowings under credit facilities and issuances of senior unsecured notes to finance a portion of the Company’s investments; |
| ● | the adequacy, availability and pricing of financing sources and working capital for the Company; |
| ● | actual or potential conflicts of interest with the Advisor and its affiliates; |
| ● | contractual arrangements and relationships with third parties; |
| ● | the risk associated with an economic downturn, increased inflation, political instability, interest rate volatility, loss of key personnel, and the illiquid nature of investments of the Company; |
| ● | our preliminary estimates of results as of March 31, 2024; and |
| ● | the risks, uncertainties and other factors the Company identifies under “Risk Factors” and elsewhere in this prospectus. |
Although we believe that
the assumptions on which these forward-looking statements are based on are reasonable, any of those assumptions could prove to be inaccurate,
and as a result, the forward-looking statements based on those assumptions also could be inaccurate. In light of these and other uncertainties,
the inclusion of forward-looking statement in this prospectus should not be regarded as a representation by us that our plans and objectives
will be achieved. These forward-looking statements apply only as of the date of this prospectus, and we have based the forward-looking
statements included in this prospectus on information available to us on the date of this prospectus. We assume no obligation to update
or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required
by law. The forward-looking statements and projections contained in this prospectus are excluded from the safe harbor protections provided
by Section 27A of the Securities Act and Section 21E of the Exchange Act.
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Use of Proceeds
We estimate that the net proceeds we will receive from this offering will be approximately $ , based on an offering price of $ per share, after deducting the underwriting discounts and commissions paid by us and estimated offering expenses of approximately $ payable by us. Such estimate is subject to change and no assurances can be given that actual expenses will not exceed such amount.
We intend to use the net proceeds from this offering to pay down some or all of our existing indebtedness outstanding under certain of our Credit Facilities, as described below. As of December 31, 2023, the amount of indebtedness outstanding under such Credit Facilities were as follows:
| Corporate Credit Facility(1): $234 million, |
Revolving Funding Facility(2): $306 million,
Revolving Funding Facility II(3): $70 million, and |
| Subscription Credit Agreement: $10.8 million. |
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Senior Securities” for further information.
We intend to use any remaining proceeds to make investments in accordance with our investment objectives and strategies.
Affiliates of certain of the underwriters are lenders under certain of our Credit Facilities. Accordingly, affiliates of certain underwriters may receive more than 5% of the proceeds of this offering to the extent the proceeds are used to pay down outstanding indebtedness under such Credit Facilities.
| (1) | The senior secured revolving credit facility (the “Corporate Credit Facility”) has a commitment termination date and maturity date of February 18, 2026 and February 18, 2027, respectively. The interest rate on the Corporate Credit Facility is equal to Term SOFR (a forward-looking rate based on SOFR futures) plus an applicable spread of 2.35% per annum or an “alternate base rate” (as defined in the agreements governing the Corporate Credit Facility) plus an applicable spread of 1.25%. The Company is also required to pay a commitment fee of 0.375% per annum on any unused portion of the Corporate Credit Facility. |
| (2) | The senior secured revolving funding facility (the “Revolving Funding Facility”) is secured by all of the assets held by KABDCF and the Company has agreed that it will not grant or allow a lien on the membership interest of KABDCF. The end of the reinvestment period and the stated maturity date for the Revolving Funding Facility are February 18, 2025 and February 18, 2027, respectively. The interest rate on the Revolving Funding Facility is equal to daily SOFR plus 2.75% per annum. KABDCF is also required to pay a commitment fee of between 0.50% and 1.50% per annum depending on the size of the unused portion of the Revolving Funding Facility. Amounts available to borrow under the Revolving Funding Facility are subject to a borrowing base that applies different advance rates to different types of assets held by KABDCF and is subject to limitations with respect to the loans securing the Revolving Funding Facility, including restrictions on, loan size, industry concentration, payment frequency and status, as well as restrictions on portfolio company leverage, all of which may also affect the borrowing base and therefore amounts available to borrow. |
| (3) | The senior secured revolving funding facility (the “Revolving Funding Facility II”) is secured by all of the assets held by KABDCF II and the Company has agreed that it will not grant or allow a lien on the membership interest of KABDCF II. The end of the reinvestment period and the stated maturity date for the Revolving Funding Facility II are December 22, 2026 and December 22, 2028, respectively. The interest rate on the Revolving Funding Facility II is equal to 3-month term SOFR plus 2.70% per annum. KABDCF II is also required to pay a commitment fee of 0.50% between December 22, 2023 and September 22, 2024 and 0.75% thereafter on the unused portion of the Revolving Funding Facility II. Amounts available to borrow under the Revolving Funding Facility II are subject to a borrowing base that has limitations with respect to the loans securing the Revolving Funding Facility II, including limitations on, loan size, payment frequency and status, sector concentrations, as well as restrictions on portfolio company leverage, all of which may also affect the borrowing base and therefore amounts available to borrow. |
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Distributions
The Company elected to be treated as a BDC under the 1940 Act. The Company also elected to be treated as a RIC under the Code. So long as the Company maintains its status as a RIC, it generally will not pay corporate-level U.S. federal income taxes on any ordinary income or capital gains that it distributes at least annually to its stockholders as dividends. Rather, any tax liability related to income earned and distributed by the Company would represent obligations of the Company’s investors and would not be reflected in the consolidated financial statements of the Company.
To qualify for and maintain qualification as a RIC, the Company must, among other things, meet certain source-of-income and quarterly asset diversification requirements. In addition, to qualify for RIC tax treatment, the Company must distribute to its stockholders, for each taxable year, at least 90% of the sum of (i) its “investment company taxable income” for that year (without regard to the deduction for dividends paid), which is generally its ordinary income plus the excess, if any, of its realized net short-term capital gains over its realized net long-term capital losses and (ii) its net tax-exempt income.
In addition, based on the excise tax distribution requirements, the Company is subject to a 4% non-deductible federal excise tax on any undistributed income unless the Company distributes in a timely manner in each taxable year an amount at least equal to the sum of:
| 98% of its ordinary income for the calendar year; |
| 98.2% of its capital gain net income (both long-term and short-term) for the one-year period ending October 31 in that calendar year; and |
| 100% of any undistributed income from prior years. |
For this purpose, however, any ordinary income or capital gain net income retained by the Company that is subject to corporate income tax is considered to have been distributed. We have previously incurred, and may incur in the future, excise tax on a portion of our income and gains. While we intend to distribute income and capital gains to minimize exposure to the 4% non-deductible U.S. federal excise tax, we may not be able to, or may not choose to, distribute amounts sufficient to avoid the imposition of the tax entirely. In that event, we will be liable for the tax only on the amount by which we do not meet the foregoing distribution requirement.
Distributions
On , our Board declared a distribution of $ per share, for stockholders of record on payable on or before . This distribution is only payable if this offering has commenced on or before .
On March 6, 2024, our Board declared a distribution of $0.40 per share, for stockholders of record on March 29, 2024 payable on April 17, 2024.
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The following table summarize our distributions declared and payable since February 5, 2021 (commencement of operations), (dollars in thousands, except per share amounts):
| Date Declared | Record Date | Payment Date | Per Share Amount | Total Amount | ||||||||
| April 23, 2021 | April 20, 2021 | May 14, 2021 | $ | 0.15 | $ | 850 | ||||||
| July 14, 2021 | July 20, 2021 | July 27, 2021 | $ | 0.22 | $ | 2,024 | ||||||
| October 18, 2021 | October 22, 2021 | November 2, 2021 | $ | 0.25 | $ | 3,025 | ||||||
| December 2, 2021 | December 29, 2021 | January 18, 2022 | $ | 0.24 | $ | 4,615 | ||||||
| April 19, 2022 | April 20, 2022 | April 26, 2022 | $ | 0.26 | $ | 6,103 | ||||||
| July 19, 2022 | July 20, 2022 | July 27, 2022 | $ | 0.30 | $ | 7,065 | ||||||
| October 18, 2022 | October 13, 2022 | October 25, 2022 | $ | 0.35 | $ | 10,957 | ||||||
| December 16, 2022 | December 29, 2022 | January 13, 2023 | $ | 0.43 | $ | 15,428 | ||||||
| March 7, 2023 | March 31, 2023 | April 14, 2023 | $ | 0.47 | $ | 16,890 | ||||||
| May 10, 2023 | June 30, 2023 | July 14, 2023 | $ | 0.53 | $ | 20,678 | ||||||
| August 10, 2023 | September 29, 2023 | October 13, 2023 | $ | 0.53 | $ | 21,999 | ||||||
| November 9, 2023 | December 29, 2023 | January 16, 2024 | $ | 0.53 | $ | 22,050 | ||||||
| Total distributions | $ | 4.26 | $ | 131,684 | ||||||||
Pursuant to our DRIP, the following table summarizes the amounts received and shares issued to stockholders who have not opted out of our DRIP since February 5, 2021 (commencement of operations), (dollars in thousands, except per share amounts):
| Payment Date | DRIP Shares Value | DRIP Shares Issued | ||||||
| May 14, 2021 | $ | 21 | 1,361 | |||||
| July 27, 2021 | $ | 585 | 37,460 | |||||
| November 2, 2021 | $ | 886 | 55,792 | |||||
| January 18, 2022 | $ | 902 | 55,590 | |||||
| April 26, 2022 | $ | 1,222 | 75,270 | |||||
| July 27, 2022 | $ | 1,431 | 88,081 | |||||
| October 25, 2022 | $ | 2,087 | 127,414 | |||||
| January 13, 2023 | $ | 955 | 57,860 | |||||
| April 14, 2023 | $ | 1,089 | 65,733 | |||||
| July 14, 2023 | $ | 1,352 | 81,527 | |||||
| October 13, 2023 | $ | 1,586 | 96,731 | |||||
| January 16, 2024 | $ | 1,573 | 95,791 | |||||
| Total | $ | 13,689 | 838,610 | |||||
All of the dividends disclosed above were derived from ordinary income, determined on a tax basis.
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CAPITALIZATION
The following table sets forth:
| ● | the actual consolidated capitalization of the Company at December 31, 2023; |
| ● | the consolidated capitalization of the Company at December 31, 2023 as adjusted for the effect of approximately $ million net investments funded, at cost, and drawdowns on our credit facilities to fund investments from through , the dividend reinvestment pursuant to the dividend payable on or before , 2024, and the capital call drawdown notices issued in February 2024 and March 2024 with the proceeds used to repay outstanding debt; and |
| ● | the consolidated capitalization of the Company at December 31, 2023, on a pro forma as adjusted basis to reflect the assumed sale of $ of our common stock in this offering (assuming no exercise of the underwriters’ option to purchase additional shares) at an assumed public offering price of $ per share after deducting the underwriting discounts and commissions and estimated offering expenses of approximately $ million payable by us and application of the net proceeds as discussed in more detail under “Use of Proceeds.” |
You should read this table together with “Use of Proceeds” and the consolidated financial statements and the related notes thereto included elsewhere in this prospectus.
| ($ in thousands, except per share amounts) | December 31, 2023 | As Adjusted(1) (2) (3) | | As Adjusted for this Offering | ||||||||
| Assets | ||||||||||||
| Total long-term investments, at fair value | $ | 1,363,498 | $ | $ | ||||||||
| Total short-term investments, at fair value | $ | 12,802 | $ | $ | ||||||||
| Cash | $ | 34,069 | $ | $ | ||||||||
| Receivable for principal payment on investments | $ | 104 | $ | $ | ||||||||
| Interest receivable | $ | 12,874 | $ | $ | ||||||||
| Prepaid expenses and other assets | $ | 319 | $ | $ | ||||||||
| Total Assets | $ | 1,423,666 | $ | $ | ||||||||
| Liabilities | ||||||||||||
| Total debt (net of unamortized debt issuance costs of $6,431) | $ | 689,319 | $ | $ | ||||||||
| Management fee payable | $ | 2,996 | $ | $ | ||||||||
| Incentive fee payable | $ | 14,195 | $ | $ | ||||||||
| Distributions payable | $ | 22,050 | $ | $ | ||||||||
| Accrued expenses, accrued excise tax expense and other liabilities | $ | 12,050 | $ | $ | ||||||||
| Total Liabilities | $ | 740,610 | $ | $ | ||||||||
| Net Assets | ||||||||||||
| Common stock $0.001 par value, 100,000,000 shares authorized; 41,603,666 shares issued and outstanding, actual; shares issued and outstanding, as adjusted(3), shares issued and outstanding, as adjusted for this offering | $ | 42 | $ | $ | ||||||||
| Additional paid-in capital | $ | 669,990 | $ | $ | ||||||||
| Total distributable earnings (deficit) | $ | 13,024 | $ | $ | ||||||||
| Total Net Assets | $ | 683,056 | $ | $ | ||||||||
| Total Liabilities and Net Assets | $ | 1,423,666 | $ | $ | ||||||||
| Net Asset Value Per Share | $ | 16.42 | $ | $ | ||||||||
| (1) | Includes the effect of approximately $ million net investments funded and drawdowns under our credit facilities to fund investments from December 31, 2023 through March 31, 2024; does not include pipeline investments that may occur subsequent to but prior to this offering. |
| (2) | Adjusted for capital call drawdown notices issued in February 2024 and March 2024 of $118.7 million and $ 269.9 million, at an issuance price per share of $16.74 and $ , respectively, with the proceeds used to repay outstanding debt. |
| (3) | Adjusted for the dividend reinvestment payable on or before . |
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DILUTION
If you invest in shares of our common stock, your interest will be diluted to the extent of the difference between the initial public offering price per share of common stock and the pro forma net asset value per share of common stock immediately after the completion of this offering. The net asset value per share is determined by dividing the value of (a) total assets minus liabilities by (b) the total number of shares outstanding.
After giving effect to the sale of shares to be sold in this offering at the initial public offering price of $ per share, the deduction of underwriting discounts and estimated expenses of this offering payable by us, and the application of the net proceeds as discussed in more detail under “Use of Proceeds,” our net asset value would have been approximately $ , or $ per share. That net asset value represents an immediate dilution of $ per share, or %, to new investors who purchase our shares of common stock in the offering at the initial public offering price. The foregoing assumes no exercise of the underwriters’ option to purchase additional shares. If the underwriters’ option to purchase additional shares is exercised in full, the immediate dilution to shares sold in this offering would be $ per share.
The following table illustrates the dilution to the shares on a per share basis (without exercise of the underwriters option to purchase additional shares of common stock):
| Assumed initial public offering price per share | $ | |||
| December 31, 2023 net asset value per share | $ | |||
| Increase due to share transactions subsequent to December 31, 2023(1)(2) | $ | |||
| As adjusted net asset value per share(1)(2) | $ | |||
| Other changes in net asset value subsequent to December 31, 2023(3) | $ | |||
| As adjusted post December 31, 2023 net asset value per share | $ | |||
| Decrease attributable to this offering | $ | |||
| As-adjusted net asset value per share immediately after this offering | $ | |||
| Dilution per share to new stockholders (without exercise of the underwriters’ option to purchase additional shares of common stock) | $ |
The following table sets forth information with respect to the shares prior to and following this offering:
| Shares | Total Consideration | Average Price | ||||||||||||||||||
| Number | % | Amount | % | Per Share | ||||||||||||||||
| Common stock outstanding | % | $ | % | $ | ||||||||||||||||
| Common stock to be sold in this offering | % | $ | % | $ | ||||||||||||||||
| Total | 100.0 | % | $ | 100.0 | % | |||||||||||||||
The as-adjusted net asset value upon completion of this offering is calculated as follows:
| Numerator | ||||
| December 31, 2023 net asset value, as adjusted (1)(2) | $ | |||
| Other changes in net asset value subsequent to December 31, 2023(3) | ||||
| Assumed proceeds from this offering (after deduction of sales load and offering expenses payable by us) | $ | |||
| NAV upon completion of this offering | $ | |||
| Denominator | ||||
| Common stock outstanding | ||||
| Common stock included in this offering | ||||
| Total shares outstanding upon completion of this offering |
| (1) | Adjusted for capital call drawdown notices issued in February 2024 and March 2024 of $118.7 million and $ 269.9 million, at an issuance price per share of $16.74 and $ , respectively, with the proceeds used to repay outstanding debt. |
| (2) | Adjusted for the dividend reinvestment payable on or before , 2024. |
| (3) | As of , 2024, the Company estimates that its net asset value per share was between $ and $ . The other changes in net asset value subsequent to December 31, 2023 reflect the midpoint of the Company’s estimate of net asset value, including as adjusted for the distribution of $0.40 per share payable on April 17, 2024. See also “Prospectus Summary—Recent Developments.” |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
The information contained in this section should be read in conjunction with “Financial Highlights” and our financial statements and related notes appearing elsewhere in this prospectus. This discussion contains forward-looking statements, which relate to future events or the future performance or financial condition of the Company and involves numerous risks and uncertainties. Please see “Risk Factors” and “Cautionary Notice Regarding Forward-Looking Statements” for a discussion of uncertainties, risk and assumptions associated with these statements.
Investment Objective, Principal Strategy and Investment Structure
Kayne Anderson BDC, Inc. was formed as a Delaware corporation that commenced operations on February 5, 2021. We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a BDC under the 1940 Act, as amended. In addition, for U.S. federal income tax purposes, we intend to qualify, annually, as a RIC under Subchapter M of the Code.
Our investment activities are managed by our Advisor, an indirect controlled subsidiary of Kayne Anderson, and the Advisor operates within KAPC’s line of business. The Advisor is an investment advisor registered with the SEC under the Advisers Act pursuant to the Investment Advisory Agreement between us and the Advisor. In accordance with the Advisers Act, our Advisor is responsible for originating prospective investments, conducting research and due diligence investigations on potential investments, analyzing investment opportunities, negotiating and structuring investments, and monitoring our investments and portfolio companies on an ongoing basis. The Advisor benefits from the scale and resources of Kayne Anderson and specifically KAPC.
Our investment objective is to generate current income and, to a lesser extent, capital appreciation. Nearly all of our debt investments are in middle market companies. We define “middle market companies” as companies that, in general, generate between $10 million and $150 million of annual EBITDA. Further, we refer to companies that generate between $10 million and $50 million of annual EBITDA as “core middle market companies” and companies that generate between $50 million and $150 million of annual EBITDA as “upper middle market companies.” We typically adjust EBITDA for non-recurring and/or normalizing items to assess the financial performance of our borrowers over time.
We intend to achieve our investment objective by investing primarily in first lien senior secured loans, with a secondary focus on unitranche and split-lien loans to private middle market companies. Under normal market conditions, we expect at least 90% of our portfolio (including investments purchased with proceeds from borrowings under credit facilities and issuances of senior unsecured notes) to be invested in first lien senior secured, unitranche and split-lien loans. We expect the remainder of our portfolio to be invested in second-lien loans, subordinated debt or equity securities (including those purchased in conjunction with other credit investments). Our investment decisions are made on a case-by-case basis. We expect that a majority of these debt investments will be made in core middle market companies and will have stated maturities of three to six years. We expect that the loans in which we principally invest will be to companies that are located in the United States.
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The Advisor executes on our investment objective by (1) accessing the established loan sourcing channels developed by KAPC, which includes an extensive network of private equity firms, other middle market lenders, financial advisors, intermediaries and management teams, (2) selecting investments within our middle market company focus, (3) implementing KAPC’s underwriting process and (4) drawing upon its experience and resources and the broader Kayne Anderson network. KAPC was established in 2011 and manages (directly and through affiliates) AUM of approximately $6.5 billion related to middle market private credit as of December 31, 2023. See “The Company—Investment Process Overview—Loan Origination” for a detailed description of our investment process and loan origination. See also “Risk Factors—Risks Relating to Our Business and Structure—We depend upon our Advisor and Administrator for our success and upon their access to the investment professionals and partners of Kayne Anderson and its affiliates. Any inability of the Advisor or the Administrator to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business.”
Recent Developments
On February 14, 2024, we sold 7,089,771 shares of common stock for a total aggregate offering price of $118.7 million. As of February 29, 2024, we have subscription agreements with investors for an aggregate capital commitment of $1,046.9 million to purchase shares of common stock, of which $777.0 million has been funded.
On March 22, 2024, we delivered the final capital call notice, which will result in the issuance of an additional $269.9 million of common stock in the private placement offering. Following this final capital call and issuance of shares of our common stock, the investors' obligations to purchase additional shares of common stock will be exhausted in a final closing expected to occur on or around April 2, 2024.
Portfolio and Investment Activity
Our portfolio is currently comprised of a broad mix of loans, with diversity among investment size and industry focus. The Advisor’s team of professionals conducts due diligence on prospective investments during the underwriting process and is involved in structuring the credit terms of substantially all of our investments. Once an investment has been made, our Advisor closely monitors portfolio investments and takes a proactive approach identifying and addressing sector or company specific risks. The Advisor seeks to maintain a regular dialogue with portfolio company management teams (as well as their owners, the majority of whom are private equity firms, where applicable), reviews detailed operating and financial results on a regular basis (typically monthly or quarterly) and monitors current and projected liquidity needs, in addition to other portfolio management activities. There are no assurances that we will achieve our investment objectives.
As of December 31, 2023, we had investments in 76 portfolio companies with an aggregate fair value of approximately $1,363 million, and unfunded commitments to these portfolio companies of $148 million, and our portfolio consisted of 97.1% first lien senior secured loans, 1.6% junior debt and 1.3% equity investments.
As of December 31, 2023, our weighted average yield of debt and income producing securities at fair value, and amortized cost was 12.5% and 12.7%, respectively, and 100% of our debt investments were at floating rates.
As of December 31, 2023, our portfolio was invested across 26 different industries (Global Industry Classification “GICS”, Level 3 – Industry). The largest industries in our portfolio as of December 31, 2023 were Trading Companies & Distributors, Food Products and Commercial Services & Supplies, which represented, as a percentage of our portfolio of long-term investments, 15.3%, 11.5% and 9.4%, respectively, based on fair value. The industries in which our portfolio companies operate may change over time.
As of December 31, 2023, our average position sized based on commitment (at the portfolio company level) was $20.1 million, and the weighted average and median last twelve months (“LTM”) EBITDA of our portfolio companies was $51.3 million and $39.5 million, respectively, based on fair value.
As of December 31, 2023, the weighted average loan-to-enterprise-value (“LTEV”) of our debt investments at the time of our initial investment was 44.0%. LTEV represents the total par value of our debt investment relative to our estimate of the enterprise value of the underlying borrower.
As of December 31, 2023, we had one debt investment on non-accrual status, which represented 0.4% and 0.4% of total debt investments at cost and fair value, respectively.
As of December 31, 2023, our portfolio companies had an average leverage of 4.3x and average interest coverage of 2.7x, the calculations for which are based on the most recent quarter end or latest available information from the portfolio companies.
As of December 31, 2023, 100% of our debt investments included at least one financial maintenance covenant.
Listed below are our top ten portfolio companies and industries represented as a percentage of total long-term investments as of December 31, 2023:
| Portfolio Company | Industry | Fair
Value ($ in millions) |
Percentage
of long-term investments |
|||||||||||
| 1 | AIDC Intermediate Co 2, LLC (Peak Technologies) | Software | $ | 34.7 | 2.5 | % | ||||||||
| 2 | Genuine Cable Group, LLC | Trading companies & distributors | $ | 34.5 | 2.5 | % | ||||||||
| 3 | American Equipment Holdings LLC | Commercial services & supplies | $ | 34.3 | 2.5 | % | ||||||||
| 4 | IF&P Foods, LLC (FreshEdge) | Food products | $ | 33.8 | 2.5 | % | ||||||||
| 5 | BR PJK Produce, LLC (Keany) | Food products | $ | 32.5 | 2.4 | % | ||||||||
| 6 | American Soccer Company, Incorporated (SCORE) | Textiles, apparel & luxury goods | $ | 31.8 | 2.3 | % | ||||||||
| 7 | Improving Acquisition LLC | IT services | $ | 31.5 | 2.3 | % | ||||||||
| 8 | Vitesse Systems Parent, LLC | Aerospace & defense | $ | 31.2 | 2.3 | % | ||||||||
| 9 | CGI Automated Manufacturing, LLC | Trading companies & distributors | $ | 31.1 | 2.3 | % | ||||||||
| 10 | Fastener Distribution Holdings, LLC | Aerospace & defense | $ | 29.6 | 2.2 | % | ||||||||
| $ | 325.0 | 23.8 | % | |||||||||||
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Our investment activity for the years ended December 31, 2023 and 2022 is presented below (information presented herein is at par value unless otherwise indicated).
| For the years ended December 31, | ||||||||
| 2023 ($ in millions) | 2022 ($ in millions) | |||||||
| New investments: | ||||||||
| Gross new investments commitments | $ | 329.2 | $ | 771.1 | ||||
| Less: investment commitments sold down, exited or repaid(1) | (123.0 | ) | (125.9 | ) | ||||
| Net investment commitments | 206.2 | 645.2 | ||||||
| Principal amount of investments funded(2): | ||||||||
| Private credit investments | $ | 404.2 | $ | 714.1 | ||||
| Liquid credit investments | - | - | ||||||
| Preferred and common equity investments | 0.6 | 6.0 | ||||||
| Total principal amount of investments funded | 404.8 | 720.1 | ||||||
| Principal amount of investments sold / repaid(2): | ||||||||
| Private credit investments | (196.6 | ) | (126.4 | ) | ||||
| Liquid credit investments | - | - | ||||||
| Total principal amount of investments sold or repaid | (196.6 | ) | (126.4 | ) | ||||
| Number of new investment commitments | 43 | 85 | ||||||
| Average new investment commitment amount | $ | 7.7 | $ | 9.1 | ||||
| Weighted average maturity for new investment commitments(3) | 3.9 years | 4.1 years | ||||||
| Percentage of new debt investment commitments at floating rates | 100 | % | 99.1 | % | ||||
| Percentage of new debt investment commitments at fixed rates | 0 | % | 0.9 | % | ||||
| Weighted average interest rate of new investment commitments(4) | 11.7 | % | 10.8 | % | ||||
| Weighted average spread over SOFR of new floating rate investment commitments | 6.3 | % | 6.6 | % | ||||
| Weighted average interest rate on investment sold or paid down(5) | 11.9 | % | 9.4 | % | ||||
| (1) | Does not include repayments on revolving loans, which may be redrawn. |
| (2) | Does not include restructured activity. |
| (3) | For undrawn delayed draw term loans, the maturity date used is that of the associated term loan. |
| (4) | Based on the rate in effect at December 31st of each year per our Consolidated Schedule of Investments for new commitments entered into during the year. |
| (5) | Based on the underlying rate if still held at December 31st of each year. For those investments sold or paid down in full during the year, based on the rate in effect at the time of sale or paid down. |
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We use Global Industry Classification Standards (GICS), Level 3 – Industry, for classifying the industry groupings of our portfolio companies. The table below describes long-term investments by industry composition based on fair value as of December 31, 2023 and 2022:
| December 31, 2023 | December 31, 2022 | |||||||
| Trading companies & distributors | 15.3 | % | 12.9 | % | ||||
| Food products | 11.5 | % | 10.9 | % | ||||
| Commercial services & supplies | 9.4 | % | 11.9 | % | ||||
| Health care providers & services | 7.4 | % | 9.8 | % | ||||
| Containers & packaging | 7.2 | % | 4.5 | % | ||||
| Aerospace & defense | 6.3 | % | 4.1 | % | ||||
| Professional services | 4.5 | % | 5.5 | % | ||||
| IT services | 3.8 | % | 3.9 | % | ||||
| Machinery | 3.8 | % | 2.2 | % | ||||
| Leisure products | 3.3 | % | 2.3 | % | ||||
| Textiles, apparel & luxury goods | 3.3 | % | 4.1 | % | ||||
| Chemicals | 3.1 | % | 2.9 | % | ||||
| Personal care products | 3.0 | % | 1.7 | % | ||||
| Software | 2.5 | % | 3.0 | % | ||||
| Insurance | 2.2 | % | 1.3 | % | ||||
| Wireless telecommunication services | 2.1 | % | 2.5 | % | ||||
| Automobile components | 2.0 | % | 2.3 | % | ||||
| Building products | 2.0 | % | 3.4 | % | ||||
| Household durables | 1.5 | % | 1.8 | % | ||||
| Health care equipment & supplies | 1.5 | % | 1.8 | % | ||||
| Household products | 1.2 | % | 1.6 | % | ||||
| Biotechnology | 0.9 | % | 1.0 | % | ||||
| Specialty retail | 0.7 | % | 0.7 | % | ||||
| Capital markets | 0.6 | % | - | % | ||||
| Pharmaceuticals | 0.5 | % | 0.6 | % | ||||
| Diversified telecommunication services | 0.4 | % | 2.6 | % | ||||
| Electronic equipment, instruments & components | - | % | 0.3 | % | ||||
| Asset management & custody banks | - | % | 0.4 | % | ||||
| Total | 100.0 | % | 100.0 | % | ||||
Results of Operations
The comparison for the years ended December 31, 2022 and 2021 can be found in “Item 7: Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Form 10-K for the fiscal year ended December 31, 2022.
For the years ended December 31, 2023 and 2022, our total investment income was derived from our portfolio of investments.
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The following table represents the operating results for the years ended December 31, 2023 and 2022.
| For the years ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| ($ in millions) | ($ in millions) | |||||||
| Total investment income | $ | 161.0 | $ | 74.8 | ||||
| Less: Net expenses | (76.2 | ) | (34.6 | ) | ||||
| Net investment income | 84.8 | 40.2 | ||||||
| Net realized gains (losses) on investments | (10.7 | ) | 0.1 | |||||
| Net change in unrealized gains (losses) on investments | 2.9 | 5.5 | ||||||
| Net increase (decrease) in net assets resulting from operations | $ | 77.0 | $ | 45.8 | ||||
Investment Income
Investment income for the years ended December 31, 2023 and 2022 totaled $161.0 million and $74.8 million, respectively, and consisted primarily of interest income on our debt investments. For the years ended December 31, 2023 and 2022, we had $1.7 million and $0.2 million, respectively, of PIK interest included in interest income. As of December 31, 2023, we had one debt investment on non-accrual status. As of December 31, 2022, all debt investments were income producing, and there were no loans on non-accrual status.
Expenses
Operating expenses for the years ended December 31, 2023 and 2022, were as follows:
| For the years ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| ($ in millions) | ($ in millions) | |||||||
| Interest and debt financing expenses | $ | 52.3 | $ | 20.3 | ||||
| Management fees | 11.4 | 7.1 | ||||||
| Incentive fees | 9.4 | 4.7 | ||||||
| Directors fees | 0.6 | 0.5 | ||||||
| Other operating expenses | 2.5 | 2.0 | ||||||
| Total expenses | $ | 76.2 | $ | 34.6 | ||||
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Net Realized Gains (Losses) on Investments
In November 2023, we completed a restructuring of our investment in Arborworks Acquisition LLC whereby the existing term loan and revolver were restructured to a new term loan and preferred and common equity. The Company realized a $10.7 million loss due to the debt restructuring.
Net Unrealized Gains (Losses) on Investments
We fair value our portfolio investments quarterly and any changes in fair value are recorded as unrealized gains or losses. During the years ended December 31, 2023 and 2022, net unrealized gains (losses) on our investment portfolio were comprised of the following:
| For the years ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| ($ in millions) | ($ in millions) | |||||||
| Unrealized gains on investments | $ | 13.4 | $ | 15.1 | ||||
| Unrealized (losses) on investments | (10.5 | ) | (9.6 | ) | ||||
| Net change in unrealized gains (losses) on investments | $ | 2.9 | $ | 5.5 | ||||
For these years ended December 31, 2023 and 2022, the top five largest contributors to the change in unrealized gains and change in unrealized losses on investments are presented in the following tables.
| For the year ended | ||||
| December 31, 2023 | ||||
| ($ in millions) | ||||
| Portfolio Company | ||||
| Arborworks Acquisition LLC | $ | 2.5 | ||
| BLP Buyer, Inc. (Bishop Lifting Products) | 0.9 | |||
| Silk Holdings III Corp. (Suave) | 0.9 | |||
| Engineered Fastener Company, LLC (EFC International) | 0.8 | |||
| Vitesse Systems Parent, LLC | 0.8 | |||
| Other portfolio companies unrealized gains | 7.5 | |||
| Other portfolio companies unrealized (losses) | (4.6 | ) | ||
| Trademark Global LLC | (0.4 | ) | ||
| LSL Industries, LLC (LSL Healthcare) | (0.5 | ) | ||
| Siegel Egg Co., LLC | (1.4 | ) | ||
| American Soccer Company, Incorporated (SCORE) | (1.5 | ) | ||
| Centerline Communications, LLC | (2.1 | ) | ||
| Total Change in Unrealized Gain (Loss), net | $ | 2.9 | ||
| For the year ended | ||||
| December 31, 2022 | ||||
| ($ in millions) | ||||
| Portfolio Company | ||||
| AIDC Intermediate Co 2, LLC (Peak Technologies) | $ | 1.0 | ||
| American Soccer Company, Incorporated (SCORE) | 1.0 | |||
| BC CS 2, L.P. (Cuisine Solutions) | 0.9 | |||
| IF&P Foods, LLC (FreshEdge) | 0.8 | |||
| CGI Automated Manufacturing, LLC | 0.8 | |||
| Other portfolio companies unrealized gains | 10.6 | |||
| Other portfolio companies unrealized (losses) | (4.4 | ) | ||
| 4 Over International, LLC | (0.4 | ) | ||
| Curio Brands, LLC | (0.4 | ) | ||
| PH Beauty Holdings III, Inc. | (0.5 | ) | ||
| Trademark Global LLC | (1.0 | ) | ||
| Arborworks Acquisition LLC | (2.9 | ) | ||
| Total Change in Unrealized Gain (Loss), net | $ | 5.5 | ||
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Financial Condition, Liquidity and Capital Resources
Our liquidity and capital resources are generated primarily from the net proceeds of any offering of our shares of common stock, proceeds from borrowing under our credit facilities, proceeds from the issuance of senior unsecured notes and from cash flows from interest and fees earned from our investments and principal repayments and proceeds from sales of our investments. Our primary use of cash will be investments in portfolio companies, payments of our expenses, repayments of borrowings under credit facilities and senior unsecured notes, and payment of cash distributions to our stockholders.
We finance our investments with leverage in the form of borrowings under credit facilities and issuances of senior unsecured notes. We also intend to further borrow under credit facilities and/or issue senior unsecured notes in the future in order to finance our investments. In accordance with the 1940 Act, we are required to meet a coverage ratio of total assets (less total liabilities other than indebtedness) to total borrowings and other senior securities of at least 150%. If this ratio declines below 150%, we cannot incur additional leverage and could be required to sell a portion of our investments to repay some leverage when it is disadvantageous to do so. As of December 31, 2023 and 2022, our asset coverage ratios were 198% and 203%. We currently intend to target asset coverage of 200% to 180% (which equates to a debt-to-equity ratio of 1.0x to 1.25x) but may alter this target based on market conditions.
Over the next twelve months, we expect that cash and cash equivalents, taken together with proceeds from this offering, our undrawn capital commitments and available capacity under our credit facilities, will be sufficient to conduct anticipated investment activities. Beyond twelve months, we expect that our cash and liquidity needs will continue to be met by cash generated from our ongoing operations as well as financing activities.
As of December 31, 2023, we had $75 million Notes outstanding, $620.8 million borrowed under our credit facilities and cash and cash equivalents of $46.9 million (including short term investments). As of February 22, 2024, we had $75 million Notes outstanding, $600.0 million borrowed under our credit facilities and cash and cash equivalents of $29.8 million (including short-term investments).
Capital Contributions
During the years ended December 31, 2023 and 2022, we issued and sold 5,422,524 and 16,305,034 shares of our common stock, respectively, related to capital called at an aggregate purchase price of $90.6 million and $268.2 million, respectively. On December 5, 2023, we completed our final close of subscription agreements with investors. As of February 29, 2024, we had aggregate capital commitments of $1,046.9 million, of which $777.0 million has been funded.
On March 22, 2024, we delivered the final capital call notice, which will result in the issuance of an additional $269.9 million of common stock in the private placement offering. Following this final capital call and issuance of shares of our common stock, the investors' obligations to purchase additional shares of common stock will be exhausted in a final closing expected to occur on or around April 2, 2024.
Senior Unsecured Notes
As of December 31, 2023, we have $75 million of senior unsecured notes outstanding, with $25 million of 8.65% Series A Notes due June 2027 (the “Series A Notes”) and $50 million of 8.74% Series B Notes due June 2028 (the “Series B Notes”, and collectively with the Series A Notes, the “Notes”).
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Credit Facilities
Corporate Credit Facility: As of December 31, 2023, we are party to a senior secured revolving credit facility (the “Corporate Credit Facility”), that has a total commitment of $400 million. The facility’s commitment termination date and the final maturity date are February 18, 2026 and February 18, 2027, respectively. The Corporate Credit Facility also provides for a feature that allows us, under certain circumstances, to increase the overall size of the Corporate Credit Facility to a maximum of $550 million. The interest rate on the Corporate Credit Facility is equal to the Term SOFR (a forward-looking rate based on SOFR futures) plus an applicable spread of 2.35% per annum or an “alternate base rate” (as defined in the agreements governing the Corporate Credit Facility) plus an applicable spread of 1.25%. We are also required to pay a commitment fee of 0.375% per annum on any unused portion of the Corporate Credit Facility.
Revolving Funding Facility: As of December 31, 2023, we and our wholly owned, special purpose financing subsidiary, Kayne Anderson BDC Financing, LLC (“KABDCF”), are party to a senior secured revolving funding facility (the “Revolving Funding Facility”), that has a total commitment of $455 million. The Revolving Funding Facility is secured by all of the assets held by, and the membership interest in, KABDCF. The end of the reinvestment period and the stated maturity date for the Revolving Funding Facility are February 18, 2025 and February 18, 2027, respectively. The interest rate on the Revolving Funding Facility is equal to daily SOFR plus 2.75% per annum. KABDCF is also required to pay a commitment fee of between 0.50% and 1.50% per annum depending on the size of the unused portion of the Revolving Funding Facility.
Revolving Funding Facility II: On December 22, 2023, we and KABDCF II, entered into the Revolving Funding Facility II. The Revolving Funding Facility II has an initial commitment of $150 million, which, under certain circumstances, can be increased up to $500 million. The Revolving Funding Facility II is secured by all of the assets held by KABDCF II and the Company has agreed that it will not grant or allow a lien on the membership interest of KABDCF II. The end of the reinvestment period and the stated maturity date for the Revolving Funding Facility II are December 22, 2026, and December 22, 2028, respectively. The interest rate on the Revolving Funding Facility II is equal to 3-month term SOFR plus 2.70% per annum. KABDCF II is also required to pay a commitment fee of 0.50% between December 22, 2023 and September 22, 2024 and 0.75% thereafter on the unused portion of the Revolving Funding Facility II.
Subscription Credit Agreement: As of December 31, 2023, we are party to a senior secured revolving credit agreement that includes a capital call facility (the “Subscription Credit Agreement”). The Subscription Credit Agreement permits us to elect the commitment amount each quarter to borrow up to $50 million, subject to availability under the borrowing base which is calculated based on the unused capital commitments of the investors meeting various eligibility requirements. The Subscription Credit Agreement has a maximum commitment of $50 million and the interest rate under the facility is equal to Term SOFR plus 2.25% per annum (subject to a 0.275% floor). We are also required to pay a commitment fee of 0.25% per annum on the unused portion of the Subscription Credit Agreement. We also pay an extension fee of 0.075% per quarter on the elected commitment amount on the first day of each calendar quarter.
Contractual Obligations
A summary of our significant contractual principal payment obligations related to the repayment of our outstanding indebtedness at December 31, 2023 is as follows:
| Payments Due by Period ($ in millions) | ||||||||||||||||||||
| Total | Less than 1 year | 1-3 years | 3-5 years | After 5 years | ||||||||||||||||
| Senior Unsecured Notes | $ | 75.0 | $ | - | $ | - | $ | 75.0 | $ | - | ||||||||||
| Corporate Credit Facility | 234.0 | - | - | 234.0 | - | |||||||||||||||
| Revolving Funding Facility | 306.0 | - | - | 306.0 | - | |||||||||||||||
| Revolving Funding Facility II | 70.0 | - | - | 70.0 | - | |||||||||||||||
| Subscription Credit Agreement | 10.8 | - | 10.8 | - | - | |||||||||||||||
| Total contractual obligations | $ | 695.8 | $ | - | $ | 10.8 | $ | 685.0 | $ | - | ||||||||||
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Off-Balance Sheet Arrangements
As of December 31, 2023 and 2022, we had an aggregate $147.9 million and $149.3 million, respectively, of unfunded commitments to provide debt financing to our portfolio companies. Such commitments are generally subject to the satisfaction of certain financial and nonfinancial covenants and involve, to varying degrees, elements of credit risk in excess of the amount recognized in our financial statements. Other than contractual commitments and other legal contingencies incurred in the normal course of our business, we do not have any other off-balance sheet financings or liabilities.
Critical Accounting Estimates
The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Changes in the economic environment, financial markets, and any other parameters used in determining such estimates could cause actual results to differ. Our critical accounting policies, including those relating to the valuation of our investment portfolio, are described below. The critical accounting policies should be read in conjunction with our risk factors described in “Risk Factors.”
Investment Valuation
Traded Investments (Level 1 or Level 2)
Investments for which market quotations are readily available will typically be valued at those market quotations. Traded investments such as corporate bonds, preferred stock, bank notes, broadly syndicated loans or loan participations are valued by using the bid price provided by an independent pricing service, by an independent broker, the agent bank, syndicate bank or principal market maker. When price quotes for investments are not available, or such prices are stale or do not represent fair value in the judgment of our Advisor, fair market value will be determined using our Advisor’s valuation process for investments that are privately issued or otherwise restricted as to resale.
We may also invest, to a lesser extent, in equity securities purchased in conjunction with debt investments. While we anticipate these equity securities to be issued by private companies, we may hold equity securities that are publicly traded. Equity securities listed on any exchange other than the NASDAQ Stock Market, Inc. (“NASDAQ”) are valued, except as indicated below, at the last sale price on the business day as of which such value is being determined. If there has been no sale on such day, the securities are valued at the mean of the most recent bid and ask prices on such day. Securities admitted to trade on the NASDAQ are valued at the NASDAQ official closing price. Equity securities traded on more than one securities exchange are valued at the last sale price on the business day as of which such value is being determined at the close of the exchange representing the principal market for such securities. Equity securities traded in the over-the-counter market, but excluding securities admitted to trading on the NASDAQ, are valued at the closing bid prices.
Non-Traded Investments (Level 3)
Investments that are privately issued or otherwise restricted as to resale, as well as any security for which (a) reliable market quotations are not available in the judgment of our Advisor, or (b) the independent pricing service or independent broker does not provide prices or provides a price that in the judgment of our Advisor is stale or does not represent fair value, shall each be valued in a manner that most fairly reflects fair value of the security on the valuation date. We expect that a significant majority of our investments will be Level 3 investments. Unless otherwise determined by the Advisor, the following valuation process is used for our Level 3 investments:
| ● | Valuation Designee. The applicable investments will be valued no less frequently than quarterly by the Advisor, with new investments valued at the time such investment was made. The value of each Level 3 investment will be initially reviewed by the persons responsible for such portfolio company or investment. The Advisor will use a standardized template designed to approximate fair market value based on observable market inputs, updated credit statistics and unobservable inputs to determine a preliminary value. The Advisor will specify the titles of the persons responsible for determining the fair value of Company investments, including by specifying the particular functions for which they are responsible, and will reasonably segregate fair value determinations from the portfolio management of the Company such that the portfolio manager(s) may not determine, or effectively determine by exerting substantial influence on, the fair values ascribed to portfolio investments. |
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| ● | Valuation Firm. Quarterly, a third-party valuation firm engaged by the Advisor reviews the valuation methodologies and calculations employed for each of the Company’s investments that the Advisor has placed on the “watch list” and approximately 25% of the Company’s remaining investments. The third-party valuation firm will review and independently value all of the Level 3 investments at least once per year, on a rolling twelve-month basis. The quarterly report issued by the third-party valuation firm will provide positive assurance on the fair values of the investments reviewed. |
| ● | Oversight. The Board has appointed the Advisor as the valuation designee for the Company for purposes of making determinations of fair value as permitted by Rule 2a-5 under the 1940 Act. The Audit Committee shall aid the Board in overseeing the Advisor’s fair valuation of securities that are not publicly traded or for which current market values are not readily available. The Audit Committee shall meet quarterly to review the fair value determinations, processes and written reports of the Advisor as part of the Board’s oversight responsibilities. |
Refer to Note 5 – Fair Value – to the consolidated financial statements for more information on the Company’s valuation process.
Revenue Recognition
We record interest income on an accrual basis to the extent that we expect to collect such amounts. For loans and debt securities with contractual PIK interest, which represents contractual interest accrued and added to the principal balance, we generally will not accrue PIK interest for accounting purposes if the portfolio company valuation indicates that such PIK interest is not collectible. We do not accrue as a receivable interest on loans and debt securities for accounting purposes if we have reason to doubt our ability to collect such interest. OIDs, market discounts or premiums are accreted or amortized using the effective interest method as interest income. We record prepayment premiums on loans and debt securities as interest income.
Related Party Transactions
Investment Advisory Agreement. On February 5, 2021, we entered into the Investment Advisory Agreement with our Advisor. On March 6, 2024, the Company entered into an amended and restated investment advisory agreement with the Advisor (the “Amended Investment Advisory Agreement”), which is effective upon the closing of this offering. Our Advisor will agree to serve as our investment advisor in accordance with the terms of our Investment Advisory Agreement. Payments under our Investment Advisory Agreement in each reporting period will consist of the base management fee equal to a percentage of the fair market value of investments, including, in each case, assets purchased with borrowed funds or other forms of leverage, but excluding cash, U.S. government securities and commercial paper instruments maturing within one year of purchase as well as an incentive fee based on our performance.
For services rendered under the Investment Advisory Agreement, we will pay a base management fee quarterly in arrears to our Advisor based on the of the fair market value of our investments including, in each case, assets purchased with borrowed funds or other forms of leverage, but excluding cash, U.S. government securities and commercial paper instruments maturing within one year of purchase. We will also pay an incentive fee on income and an incentive fee on capital gains to our Advisor.
Prior to an initial public offering or listing on an exchange of our common stock (an “exchange listing”), any incentive fees earned by the Advisor shall accrue as earned but only become payable in cash to the Advisor upon consummation of an exchange listing. To the extent the Company does not complete an exchange listing, the incentive fees will be payable to the Advisor (a) upon consummation of a sale of the Company or (b) once substantially all proceeds from a Company liquidation payable to the Company’s common stockholders have been distributed to such stockholders.
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Administration Agreement. On February 5, 2021, we entered into the Administration Agreement with our Advisor, which serves as our Administrator and will provide or oversee the performance of its required administrative services and professional services rendered by others, which will include (but are not limited to), accounting, payment of our expenses, legal, compliance, operations, technology and investor relations, preparation and filing of its tax returns, and preparation of financial reports provided to its stockholders and filed with the SEC. On March 6, 2024, the Board approved a one-year renewal of the Administration Agreement through March 15, 2025.
We will reimburse the Administrator for its costs and expenses incurred in performing its obligations under the Administration Agreement, which may include, after completion of this offering, its allocable portion of office facilities, overhead, and compensation paid to or compensatory distributions received by its officers (including our Chief Compliance Officer and Chief Financial Officer) and its respective staff who provide services to the Company. As the Company reimburses the Administrator for its expenses, such costs (including the costs of the sub-administrator) will be ultimately borne by common stockholders. The Administrator does not receive compensation from us other than reimbursement of its expenses. The Administration Agreement may be terminated by either party with 60 days’ written notice.
Since the inception of the Company, the Administrator has engaged a sub-administrator to assist the Administrator in performing certain of its administrative duties. Since the inception of the Company, the Administrator has not sought reimbursement of its expenses other than expenses incurred by the sub-administrator. However, the Administrator has a contractual right to seek reimbursement for its costs and expenses incurred in performing its obligations under the Administration Agreement and may do so in the future. On March 28, 2023, the Administrator engaged Ultimus Fund Solutions, LLC under a sub-administration agreement. Under the terms of the sub-administration agreement, Ultimus Fund Solutions, LLC will provide fund administration and fund accounting services. Since March 28, 2023, the Company has paid fees to Ultimus Fund Solutions, LLC, which constitute reimbursable expenses under the Administration Agreement. The Administrator may enter into additional sub-administration agreements with third-parties to perform other administrative and professional services on behalf of the Administrator. See “Management and Other Agreements—Investment Advisory Agreement.”
Quantitative and Qualitative Disclosures About Market Risk
We are subject to financial market risks, including changes in interest rates. Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates. Because we fund a portion of our investments with borrowings, our net investment income will be affected by the difference between the rate at which we invest and the rate at which we borrow. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income.
Assuming that the consolidated statement of assets and liabilities as of December 31, 2023 were to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact ($ in millions) of hypothetical base rate changes in interest rate (considering interest rate floors for floating rate instruments). We do not include our debt investments on non-accrual status and that were non-incoming producing as of December 31, 2023 in this calculation.
| Change in Interest Rates | Increase (Decrease) in Interest Income | Increase (Decrease) in Interest Expense | Net Increase (Decrease) in Net Investment Income | |||||||||
| Down 200 basis points | $ | (26.9 | ) | (12.4 | ) | (14.5 | ) | |||||
| Down 100 basis points | $ | (13.5 | ) | (6.2 | ) | (7.3 | ) | |||||
| Up 100 basis points | $ | 13.5 | 6.2 | 7.3 | ||||||||
| Up 200 basis points | $ | 26.9 | 12.4 | 14.5 | ||||||||
The data in the table is based on the Company’s current statement of assets and liabilities.
We may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the 1940 Act. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of lower interest rates with respect to our portfolio of investments with fixed interest rates.
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THE COMPANY
Overview
We are a BDC that invests primarily in first lien senior secured loans, with a secondary focus on unitranche and split-lien loans to private middle market companies. We are managed by our Advisor, an indirect controlled subsidiary of Kayne Anderson, a prominent alternative investment management firm. Our Advisor and Kayne Anderson are registered with the SEC under the Advisers Act. Our Advisor operates within KAPC’s line of business. Our Advisor is registered with the SEC as an investment advisor under the Advisers Act.
Kayne Anderson BDC, Inc. is a Delaware corporation formed to make investments in middle market companies and commenced operations on February 5, 2021. We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a BDC under the 1940 Act, as amended. In addition, for U.S. federal income tax purposes, we intend to qualify, annually, as a RIC under Subchapter M of the Code.
Investment Objective, Principal Strategy and Investment Structures
Our investment objective is to generate current income and, to a lesser extent, capital appreciation. Nearly all of our debt investments are in middle market companies. We define “middle market companies” as companies that, in general, generate between $10 million and $150 million of annual EBITDA. Further, we refer to companies that generate between $10 million and $50 million of annual EBITDA as “core middle market companies” and companies that generate between $50 million and $150 million of annual EBITDA as “upper middle market companies.” We typically adjust EBITDA for non-recurring and/or normalizing items to assess the financial performance of our borrowers over time.
We intend to achieve our investment objective by investing primarily in first lien senior secured loans, with a secondary focus on unitranche and split-lien loans to private middle market companies. Under normal market conditions, we expect at least 90% of our portfolio (including investments purchased with proceeds from borrowings under credit facilities and issuances of senior unsecured notes) to be invested in first lien senior secured, unitranche and split-lien loans. Our investment decisions are made on a case-by-case basis. We expect the remainder of our portfolio to be invested in second-lien loans, subordinated debt or equity securities (including those purchased in conjunction with other credit investments). We expect that a majority of these debt investments will be made in core middle market companies and will have stated maturities of three to six years. We do not have a market capitalization policy with respect to such investments. See “Risk Factors—Risks Relating to Our Investments—We may not realize gains from our equity investments.” We expect that the loans in which we principally invest will be to companies that are located in the United States. We determine the location of a company as being in the United States by (i) such company being organized under the laws of one of the states in the United States; or (ii) during its most recent fiscal year, such company derived at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed in the United States or has at least 50% of its assets in the United States.
The Advisor executes on our investment objective by (1) accessing the established loan sourcing channels developed by KAPC, which includes an extensive network of private equity firms, other middle market lenders, financial advisors, intermediaries and management teams, (2) selecting investments within our middle market company focus, (3) implementing KAPC’s underwriting process and (4) drawing upon its experience and resources and the broader Kayne Anderson network.
KAPC was established in 2011 and manages (directly and through affiliates) AUM of approximately $6.5 billion related to middle market private credit as of December 31, 2023. See “The Company—Investment Process Overview—Loan Origination” for a detailed description of our investment process and loan origination. See also “Risk Factors—Risks Relating to Our Business and Structure—We depend upon our Advisor and Administrator for our success and upon their access to the investment professionals and partners of Kayne Anderson and its affiliates. Any inability of the Advisor or the Administrator to maintain or develop these relationships, or the failure of these relationships to generate investment opportunities, could adversely affect our business.”
We intend to principally invest in the following types of debt securities:
| ● | First lien debt: Typically senior on a lien basis to the other liabilities in the issuer’s capital structure with a first priority lien against substantially all assets of the borrower and often including a pledge of the capital stock of the business. The security interest ranks above the security interest of second lien lenders on those assets. These securities are typically floating rate investments priced with a spread to the reference rate (typically SOFR); | |
| ● | Split-lien debt: Typically includes (i) a first lien on fixed and intangible assets of the borrower and often including a pledge of the capital stock of the business and (ii) a second lien on working capital assets. Used in conjunction with an asset based lender who has a first lien on the borrower’s working capital assets. These securities are typically floating rate investments priced with a spread to the reference rate (typically SOFR). | |
| ● | Unitranche debt: Combines features of first lien, second lien and subordinated debt, generally in a first lien position. These securities can generally be thought of as first lien investments beyond what may otherwise be considered “typical” first lien leverage levels, effectively representing a greater portion of the overall capitalization of the underlying business. These securities are typically structured as floating rate investments priced with a spread to the reference rate (typically SOFR). |
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Senior secured debt often has restrictive covenants for the purpose of pursuing principal protection and repayment before junior creditors as covenants provide opportunities for lenders to take action following a covenant breach. The loans in which we principally invest have financial maintenance covenants, which require borrowers to maintain certain performance criteria and financial ratios on a monthly or quarterly basis. We do not expect to principally invest in “covenant-lite” loans; we use the term “covenant lite” to refer generally to loans that do not have a customary set of financial maintenance covenants.
Subject to our Advisor’s discretion, based on its belief about the pace and amount of investment activity in middle market companies, a portion of our portfolio may be comprised of liquid credit investments (i.e., broadly syndicated loans). The percentage of our portfolio allocated to the liquid investment strategy will be at the discretion of our Advisor. See “Risk Factors—Risks Relating to Our Investments—We are subject to risks associated with our investment and trading of liquid credit (i.e., broadly syndicated loans).”
Investment Portfolio
Our portfolio is currently comprised of a broad mix of loans, with diversity among investment size and industry focus. The Advisor’s team of professionals conducts due diligence on prospective investments during the underwriting process and is involved in structuring the credit terms of substantially all of our investments. Once an investment has been made, our Advisor closely monitors portfolio investments and takes a proactive approach identifying and addressing sector or company specific risks. The Advisor maintains a regular dialogue with portfolio company management teams (as well as their owners, the majority of whom are private equity firms, where applicable), reviews detailed operating and financial results on a regular basis (typically monthly or quarterly) and monitors current and projected liquidity needs, in addition to other portfolio management activities. There are no assurances that we will achieve our investment objectives.
As a BDC, at least 70% of our assets must be the type of “qualifying” assets listed in Section 55(a) of the 1940 Act, as described herein, which are generally privately-offered securities issued by U.S. private or thinly-traded companies. We may also invest up to 30% of our portfolio opportunistically in “non-qualifying” portfolio investments. As of December 31, 2023, 4.8% of the Company’s total assets were in non-qualifying investments.
Share Repurchase Plan
Our Board has approved the Company 10b5-1 Plan, pursuant to which the Company may purchase up to $ million in the aggregate of our outstanding shares of common stock in the open market at prices below our NAV per share within one year of the closing of this offering. Any purchase of our shares pursuant to the Company 10b5-1 Plan will be conducted in accordance with the guidelines and conditions of Rule 10b-18 and Rule 10b5-1 of the Exchange Act. We intend to put the Company 10b5-1 Plan in place because we believe that, in the current market conditions, if our shares of common stock are trading below our then-current NAV per share, it will be in the best interest of our stockholders for us to reinvest in our portfolio. See “Risk Factors —Risks Relating to Our Business and Structure—Purchases of shares of our common stock by us under our open market repurchase program, including the Company Rule 10b5-1 Plan, may result in the price of shares of our common stock being higher than the price that otherwise might exist in the open market and are subject to our ability to finance such repurchases.”
The Company 10b5-1 Plan is intended to allow us to repurchase our shares of common stock at times when we otherwise might be prevented from doing so under insider trading laws. The Company 10b5-1 Plan will require , as our agent, to repurchase shares of common stock on our behalf when the market price per share is below the most recently reported NAV per share (including any updates, corrections or adjustments publicly announced by us to any previously announced NAV per share). Under the Company 10b5-1 Plan, the agent will increase the volume of purchases made as the price of our shares of common stock declines, subject to volume restrictions. The timing and amount of any share repurchases will depend on the terms and conditions of the Company 10b5-1 Plan, the market price of our shares of common stock and trading volumes, and no assurance can be given that any particular amount of shares of our common stock will be repurchased.
The purchase of our shares of common stock pursuant to the Company 10b5-1 Plan is intended to satisfy the conditions of Rule 10b5-1 and Rule 10b-18 under the Exchange Act, and will otherwise be subject to applicable law, including Regulation M, which may prohibit purchases under certain circumstances.
The Company 10b5-1 Plan will become effective 60 calendar days following the end of the “restricted period” under Regulation M and terminate upon the earliest to occur of (i) 12 months following the closing of this offering, (ii) the end of the trading day on which the aggregate purchase price for all shares of common stock purchased under the Company 10b5-1 Plan equals $ million and (iii) the occurrence of certain other events described in the Company 10b5-1 Plan.
The “restricted period” under Regulation M will end upon the closing of this offering and, therefore, the shares of common stock repurchases/purchases described above will not begin prior to 60 days after the closing of this offering. Under Regulation M, the restricted period could end at a later date if the underwriters were to exercise their over-allotment to purchase shares of our common stock in excess of their short position at the time that they complete their initial distribution of shares of our common stock. In such event, the restricted period would not end until the excess shares of our common stock were distributed by the underwriters or placed in their investment accounts. However, the underwriters will agree to only exercise their over-allotment option to cover their actual short positions, if any. Therefore, the restricted period under Regulation M will end on the closing of this offering. Payment for such purchases of shares of common stock pursuant to the Company 10b5-1 Plan will be made pursuant to customary market settlement procedures (i.e., two business days ( T+2) or, for transactions occurring after May 28, 2024, one business day (T+1) following such purchases).
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The Company may incur debt to fund up to the maximum amount of the share repurchase program, depending on available cash from investments and distributions. Share repurchases and borrowings under the Company’s credit facilities to fund the Company 10b5-1 Plan will have no impact on the Company’s portfolio turnover rate and will not impact the Company’s qualification as a RIC (we believe repurchases would not affect the Company’s ability to make distributions or receive eligible income in each case to continue qualifying as a RIC). Interest expenses resulting from any incurrence of debt to fund the Company’s share repurchases could cause the Company’s expense ratio to increase.
Market Opportunity
We believe that our investments represent attractive opportunities as these investments (i) generate what we believe are attractive yields (based on our Advisor’s assessment of the relative risk profile of these investments), (ii) make interest payments to us and (iii) typically rank ahead of other debt instruments in the borrower’s capital structure (97.1% of our portfolio consisted of first lien senior secured loans as of December 31, 2023), as described above in “—Investment Objective, Principal Strategy and Investment Structures”.
Long-Term Demand Drivers in the U.S. Middle Market
We expect that a number of factors will continue to drive strong demand for middle market senior credit, both by private equity owned and non-private equity owned companies, for the foreseeable future, including: (i) the sheer scale of the U.S. middle market and (ii) a significant amount of un-invested middle market private equity capital.
The universe of U.S. middle market companies (as defined by the National Center for the Middle Market and including all businesses with revenues from $10.0 million to $1.0 billion) consists of nearly 200,000 potential borrowers, a substantial portion of which we believe will continue to require access to debt capital to refinance existing debt, support growth and finance acquisitions. Together, these businesses represent approximately one-third of the U.S. private sector gross domestic product (“GDP”) making them equivalent to the size of the third largest economy in the world on a standalone basis (Source: National Center for The Middle Market’s Mid-Year 2023 Middle Market Indicator).
Private equity firms investing in these businesses held more than $1.5 trillion in un-invested capital (“dry powder”) as of November 2023. We expect these private equity firms will continue to pursue acquisitions and will seek to fund a portion of these transactions with debt (Source: Preqin).
Long-Term Shift to Private, Non-Bank Financings in the U.S. Middle Market
We believe that the supply of capital to middle market borrowers and private equity firms acquiring these businesses has shifted substantially to private, non-bank lenders such as ourselves due to (i) a long-term regulatory trend that has significantly reduced bank participation in leveraged finance due to stricter federal leveraged lending guidelines, (ii) consolidation of commercial banks over the last two decades and (iii) direct lending increasing share relative to broadly syndicated financings. We believe that some of this shift away from banks and broadly syndicated financings can be attributed to borrowers valuing specific qualities of non-bank lenders including: (i) a focus on ongoing partnership as opposed to transactional arrangements, (ii) more sophisticated underwriting and originations teams and (iii) a lack of reliability exhibited by banks and more liquid market segments during periods of distress.
In support of some of the above points:
| ● | Number of commercial banks in the United States: |
| o | As of December 31, 2000: 8,315 | |
| o | As of December 31, 2014: 5,607 |
| o | As of December 31, 2022: 4,136 |
Source: Federal Deposit Insurance Corporation (Annual Historical Bank Data) as of December 31, 2023.
| ● | Middle market leveraged-buy-out financing share: |
| o | 2014: 67.1% via syndicated markets / 32.9% via direct markets |
| o | 2022: 27.7% via syndicated markets / 72.3% via direct markets |
Source: Refinitiv LPC’s 2Q’23 Sponsored Middle Market Private Deals Analysis (July 2023).
In sum, we believe there is (a) a substantial demand for loans, and (b) a substantial marketplace shift towards private, non-bank lenders. We anticipate that these trends should benefit direct lenders such as ourselves.
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Middle Market Attractiveness
Nearly all of our debt investments are in middle market companies. We believe that lending to private middle market companies (particularly in senior-focused portions of the capital structure) presents a compelling investment opportunity.
First, senior debt investments are made at the top of the capital structure and are repaid before unsecured creditors and equity investors. Additionally, the types of investments in which we participate will typically include anywhere from one to five lenders in a given debt financing thereby potentially limiting consensus risk, which is important for swift action and potential recovery to lenders in distressed scenarios.
Second, we believe that these markets are underserved by traditional banking sources. We believe that this lack of financing sources leads private middle market companies to offer attractive (i) economic terms such as pricing, fees and prepayment premiums and (ii) structural terms such as stricter covenants and more fulsome collateral packages than debt investments in public or much larger private companies.
Competitive Strengths
Our Advisor utilizes KAPC’s direct lending platform to pursue investment opportunities. The leadership team of KAPC has invested in this market across multiple platforms (e.g., not only as part of KAPC) and economic cycles, working directly together as a team for the better part of three decades. This experience over multiple decades allows KAPC to focus on transactions in markets where it has substantial experience and where it can bring its expertise in negotiating and structuring investments. Other specific competitive strengths of KAPC which inure to the benefit of KBDC include:
Leading U.S. Core Middle Market Debt Platform. We have benefited and expect to continue to benefit from our relationship with KAPC’s large direct lending platform through our Advisor. Since its inception through December 31, 2023, KAPC has deployed nearly $10.7 billion of capital across 359 investments in 181 portfolio companies. Our Advisor (or an affiliate thereof) has been lead agent or co-agent in approximately 75% of investments since the inception of KAPC.
Experienced Credit Investors with Long Track Record. Core middle market direct lending is led by Ken Leonard (Co-CEO of the Company), Doug Goodwillie (Co-CEO of the Company) and Andy Marek (Managing Partner of KAPC), who have a combined 90+ years of lending experience, having collectively completed transactions representing over $15.0 billion in underwritten middle market loan commitments across multiple credit cycles since 2000. These three individuals are primarily responsible for the day-to-day operations of KAPC and have worked together directly since 2002 while Ken Leonard and Andy Marek have worked together since the late 1980’s. Ken Leonard and Doug Goodwillie are primarily responsible for the day-to-day operations of KBDC.
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The Advisor’s investment committee consists of four members (Terry Quinn, Paul Blank, Doug Goodwillie and Ken Leonard) with average experience in credit investing in excess of 30 years. The Advisor’s investment committee has overall responsibility for evaluating and unanimously approving the Company’s investments and portfolio allocations, subject to the oversight of our Board.
Sourcing Advantage and Well-Established Direct Relationship Model. We believe that KAPC’s relationship-based sourcing model provides strong access to proprietary transaction flow, allowing us to be highly selective in the transactions that we pursue. For the period 2021 through June 30, 2023, approximately 66% of opportunities sourced by or Advisor and 86% of opportunities executed by our Advisor were done so without the presence of a financial intermediary, a fact pattern placing specific emphasis on long-term relationships, reputation and certainty of execution with transaction counterparties. Importantly, we believe (based on KAPC’s experience) that our existing portfolio will continue to be an engine of new investment opportunities and will support investment flows even when broader M&A markets may have slowed.
We believe that our direct sourcing model creates repeat business and sticky relationships. Under this model, since inception, (i) greater than 90% of KAPC’s investments are in companies sponsored by private equity firms (approximately 99% of the Company’s investments as of December 31, 2023), (ii) approximately 56% of KAPC’s investments were made with repeat private equity sponsors and (iii) nearly 100 private equity sponsors have partnered with KAPC to provide debt financing to their portfolio companies.
Focus on Investing in Core Middle Market. With extensive market knowledge and experience, we believe we are well positioned to capitalize on the current market conditions in which many middle market companies and private equity sponsors need trusted sources of financing.
Value-Lending Philosophy. We intend to avoid high-growth markets as, in our management’s experience, that growth profile attracts substantial capital formation and, in turn, new competition, leading to the potential for longer-term uncertainty and industry upheaval.
Disciplined Diligence Processes, Regimented Portfolio Monitoring and Active Management. Our Advisor completes substantial hands-on diligence throughout its investment process, which is centered around addressing a potential portfolio company’s industry trends, competitive dynamics, customer base, economic drivers, historical financial performance, financial projections, other factors such as legal and environmental assessments as well as the strengths and weaknesses of management and / or the private equity sponsor or ownership. We target a lead or co-lead agent role in a majority of our investments (KAPC has been lead or co-lead agent in approximately 75% of investments since inception), typically enabling us to lead the diligence, documentation and workout processes. Since inception, KAPC has reported realized loss rates of approximately 0.1% of average outstanding investments on an annualized basis.
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Investment Selection
When identifying prospective investment opportunities, the Advisor intends to rely on fundamental credit analysis in order to minimize potential losses of capital. The strategy has been developed and refined by the senior leadership team of our Advisor over decades of credit investing and involves judging a portfolio company based on two primary sets of business value characteristics (e.g. quantitatively and qualitatively measuring credit worthiness):
| ● | Intrinsic Value: Key traits of a portfolio company with strong intrinsic value include (i) differentiated product or service, (ii) defensible market niche, (iii) significant market share, (iv) barriers to entry and high switching costs, (v) compelling customer value proposition and (vi) strong operating margins. |
| ● | Diversified Value: Key traits for a company with strong diversified value include (i) diversified customer base, (ii) multiple products or end markets, (iii) high degree of recurring revenues, (iv) strong customer retention and (v) consistent financial results. |
We intend that all investments made by us will demonstrate characteristics of Intrinsic Value and/or Diversified Value. We also expect many of our investments to include the following attributes:
| ● | Attractive Capital Structures. In general and under normal market conditions, we expect an average of approximately 50% of the total capitalization of our investments to come from equity capital or other forms of investment (i.e., second lien debt, subordinated debt, or preferred equity) junior to our investment position. |
| ● | Agency Role. We expect that we will pursue a lead agent role in a majority of our investments, enabling us to lead the diligence, documentation and workout processes, while also generating both agency and syndication fees. |
| ● | Experienced Management Teams. Our Advisor focuses on investments in which the target portfolio company has an experienced and high-quality management team with an established track record of success. |
| ● | Private Equity Sponsorship. Often, our Advisor seeks to participate in transactions sponsored by what it believes to be high-quality private equity firms. Our Advisor believes that a private equity sponsor’s willingness to invest significant sums of equity capital into a company is an implicit endorsement of the quality of the investment and that private equity sponsors generally have a strong incentive to contribute additional capital in difficult economic times should operational issues arise, which could provide additional protections for our investments. |
| ● | Diversification. Our Advisor seeks to invest broadly among companies and industries, thereby potentially reducing the risk of a downturn in any one company or industry having a disproportionate impact on the value of our portfolio. Investments in sectors deemed cyclical by us are typically structured with lower leverage relative to investments in less or non-cyclical sectors. |
| ● | Viable Exit Strategy. In addition to payments of principal and interest, we expect refinancings, sales of portfolio companies, and in some cases initial public offerings and secondary offerings to be the primary methods by which our strategy will realize returns on our investments. |
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Investment Process Overview
We expect to benefit from KAPC’s rigorous, time-tested investment process broken into five distinct segments: (i) loan origination, (ii) underwriting, (iii) investment committee, (iv) documentation and (v) post-investment monitoring and exit.
Loan Origination
Our investment process begins with a significant network of relationships to source investment opportunities and extends into a time-tested, repeatable process for the analysis, approval, documentation and monitoring of investments. The chart below illustrates our time-tested investment approach in what we expect to be a typical year. We anticipate that our broad network of longstanding relationships with established middle market participants, including private equity sponsors, financial intermediaries, other lending institutions, consultants, individual business owners and management teams, will continue to be a valuable source of proprietary deal flow of both primary and secondary opportunities. Kayne Anderson’s credit platform and broad network of relationships can additionally bolster this access to deal flow. Our leadership and investment teams meet multiple times weekly to discuss the new deal pipeline, general market conditions and the performance of the existing portfolios.
| The platform investment chart above represents approximate average annual experience since 2019 for KAPC. |
KAPC has historically demonstrated its ability to source a strong flow of potential investment opportunities from a wide array of sponsors and intermediaries across business cycles and throughout various geographies. This focus on investment origination will allow us to best allocate resources to what we believe are only the most attractive investment opportunities. Originations-focused investment professionals utilize a regional and highly systematic and structured sourcing model across the U.S., with weekly pipeline meetings among all investment professionals of our Advisor and inter-office communications facilitated through the use of client management software programs such as Salesforce. In the few markets where Kayne does not have a physical presence, senior origination professionals will typically make at least quarterly marketing trips to coverage areas across the U.S. in order to further build relationships within the sponsor and financial intermediary community.
We have remained disciplined in targeting senior secured investments in core middle market companies backed by leading private equity sponsors in which our Advisor typically maintains an agent role. The Company sources investment opportunities directly from private equity sponsors, other relationship lenders and / or other proprietary channels with approximately 66% of total investment opportunities generated through these channels from 2021 through December 31, 2023. We believe that our direct sourcing model creates repeat business and sticky relationships. Under this model, since inception, greater than 90% of KAPC’s investments are in companies sponsored by private equity firms (approximately 99% of the Company’s investments as of December 31, 2023), (ii) over 50%% of KAPC’s investments were made with repeat private equity sponsors and (iii) nearly 100 private equity sponsors have partnered with KAPC to provide debt financing to their portfolio companies.
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Underwriting
Our Advisor utilizes a thorough and systematic investment approach that reflects and builds upon the lending processes developed and employed historically by the senior leadership team:
| ● | Initial Screening and High-Level Analysis. Our first step in assessing a potential transaction is to conduct a high-level analysis of the investment opportunity and underlying industry. In making this initial assessment, the Company’s investment team will use: (i) its own comprehensive knowledge of similar opportunities; (ii) its many industry relationships and those of other financial market participants; and (iii) the knowledge base of Kayne Anderson and its strong network of outside friends and advisors. Our investment team will conduct its own primary due diligence process to narrow the transactions under consideration on which it can focus more closely. The entire investment process required to execute a transaction has historically taken a minimum of four to six weeks to complete. |
| ● | Primary and Secondary Due Diligence. When our investment team pursues an opportunity, it will review and analyze the work completed by clients and / or third-party advisors. |
| o | This diligence material typically will address a potential portfolio company’s industry trends, competitive dynamics, customer base, economic drivers, historical financial performance, financial projections and other factors such as legal and environmental assessments. |
| o | In addition to this work, our investment team will always perform its own, first-hand due diligence to investigate, confirm and “pressure test” the work of clients and third-party advisors. |
| o | In the substantial majority of cases, our investment team will conduct face-to-face diligence with a potential investment’s management team and visit critical operating locations. Due diligence frequently includes other procedures, such as interviews with the company’s customers, suppliers and competitors, and intensive reviews of quality of earnings and accounting work performed by qualified third parties with whom the investment team has previously worked. |
| o | When appropriate, our investment team will also engage its own trusted third party advisors. Through this diligence process, we will seek to develop a complete understanding of the company, confirm the critical drivers of business value and determine and investigate potential risks that could impact a company’s ability to produce sustainable and predictable cash flow sufficient to service and repay its debt. Typically, our Advisor’s investment process will be collaborative with its clients from inception to closing with our Advisor and its clients working together to establish the scope of diligence and sharing findings and conclusions, working together as partners. |
Investment Committee
If our investment team elects to proceed with a transaction following the due diligence process, the team members leading the transaction will detail in a comprehensive investment committee memorandum their analysis, conclusions, remaining questions and the risk / reward profile of the opportunity. The Advisor’s investment committee members will review the memorandum to ultimately decide whether or not to pursue an investment, and they may suggest other groups or individuals within the Kayne Anderson network to assist in any remaining analysis. Our investment team will maintain an ongoing dialogue with the Advisor’s investment committee members during the diligence efforts in order to minimize any last minute surprises. Affirmative investment decisions require the unanimous consent of the Advisor’s investment committee. Open due diligence matters or questions raised by the Advisor’s investment committee will be addressed in a pre-close memorandum and resolved prior to closing.
Documentation
Documenting the Transaction. Once the Advisor’s investment committee approves an investment, our investment team will begin a rigorous documentation process to ensure that the terms of the investment provide us with the appropriate contractual protections that are consistent with the Advisor’s investment committee’s approval. While each senior secured credit transaction is unique and requires customized documentation, our investment team will, when appropriate, utilize precedent documentation with both private equity sponsors and other junior lenders to minimize closing risks. The investment team will also work closely with time-tested, trusted attorneys with whom they have worked previously and who are familiar with the intricacies of senior and junior secured credit documentation.
Post-Investment Monitoring and Exit
Upon completing a transaction, the investment team will be responsible for monitoring the investment. A particular point of focus for the investment team is the continuous assessment of potential new risks and reassessment of risks identified in the underwriting process. Accordingly, post-investment monitoring activities will be determined based on assessed risks and typically consist of reviewing detailed monthly financial statements, “flash” reports for critical operating metrics, operating cash liquidity, formal quarterly reviews and frequent discussions with management and / or private equity sponsors. This information will be shared with the Advisor’s investment committee on a regular basis.
While most investments will be repaid as part of a refinancing or change of control transaction, in situations where we are able to influence transaction dynamics to facilitate an exit if so desired, we will actively engage with borrowers and private equity sponsors in order to ensure a timely transaction to minimize risks.
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Restructuring Management
In general, we employ a strategy designed to ensure early detection of potential issues at underlying borrowers, including monthly financial reviews, internal tracking memoranda, weekly “watchlist” discussions and other like activities. Importantly, 100% of our existing investments (as of December 31, 2023) include financial maintenance covenants and we expect nearly all of our investments on an ongoing basis to include financial maintenance covenants. We have designed a risk rating system to aid in our portfolio management efforts where each investment is rated level 1-9, where Level 1 is the “least risky” and Level 9 is the “most risky.” This risk-rating system is quantitative in nature and aggregates criteria such as loan-to-enterprise value, leverage levels and fixed charge coverage ratios (each measured at point-in-time and as relates to levels at the close of the investment). Our discussion of investments to add to the watchlist starts for investments with a risk rating of Level 6. Additionally, and because financial performance metrics are lagging indicators, we may add specific investments to the watchlist based on qualitative factors (e.g. specific industries undergoing unexpected stress) or other forward-looking information.
We had five portfolio companies on “watchlist” as of December 31, 2023. The following table sets forth the percent of our long-term investment portfolio, based on fair value, that is on our “watchlist” as of each quarter end from September 30, 2022 to December 31, 2023.
| Watchlist ($ in million) | Percent of long-term investments (at fair value) | |||||||
| September 30, 2022 | $ | 13 | 1.4 | % | ||||
| December 31, 2022 | $ | 34 | 2.9 | % | ||||
| March 31, 2023 | $ | 34 | 2.7 | % | ||||
| June 30, 2023 | $ | 34 | 2.6 | % | ||||
| September 30, 2023 | $ | 53 | 4.1 | % | ||||
| December 31, 2023 | $ | 83 | 6.1 | % | ||||
Once an investment reaches the point at which it requires a restructuring (e.g. financial covenant breach, expected liquidity shortfall, etc.), our Advisor takes an active approach in managing the situation. We complete our own assessment and analysis of the key issues affecting the business and augment our work and analysis with third party professionals on an as needed basis. We will require a chief restructuring officer (“CRO”) if, in our assessment, management is not up to the task of implementing needed restructuring and reporting actions. Third parties are generally used to assess and create rolling 13-week cash flow forecasts, assessment of management’s turnaround plan, development of a turnaround plan, execution of such plans, sale of specific assets and can serve as CRO. Importantly, our Advisor employs a highly trained and experienced staff where all senior members (director-level and higher) are trained in the process of managing challenged investments. Our most severe restructurings will include direct involvement from our workout group.
We typically aim to work with our private equity partners (or other relevant owners and constituents) to allow the business to do what is most prudent in order to preserve value, while also not being unreasonable partners and unnecessarily forcing defensive action by the Company, which may destroy value for all stakeholders.
Competition
We compete with a number of BDCs and investment funds (both public and private), commercial and investments banks, commercial financing companies and, to the extent they provide an alternative form of financing, private equity and hedge funds. Many of our competitors are substantially larger and have considerably greater financial and marketing resources than we do. We believe we are able to compete with these entities primarily on the basis of the experience and contacts of our management team, our responsive and efficient investment analysis and decision-making processes, the investment terms we offer, and our model of investing in companies participating in industries which we know well.
We believe that some of our competitors may make loans with terms that will be more aggressive than the terms that we offer. We do not seek to compete solely on the terms that we offer to potential portfolio companies. For additional information concerning competitive risks, see “Risk Factors.”
Kayne Anderson
Founded in 1984, Kayne Anderson is a prominent alternative investment management firm which is registered with the SEC under the Advisers Act, focused on real estate, credit, infrastructure/energy and growth capital. Kayne Anderson provides corporate and management services (such as information technology, human resources, compliance and legal services) to the Advisor.
As of December 31, 2023, investment vehicles managed or advised by Kayne Anderson had over $34 billion in assets under management (“AUM”) for institutional investors, family offices, high net worth and retail clients. Kayne Anderson has over 330 professionals located across five offices across the U.S. The firm has approximately 140 investment professionals, approximately 35 of which are dedicated to credit investing.
Kayne Anderson Private Credit
KAPC is Kayne Anderson’s line of business focused on private credit that operates various fund vehicles targeting middle market first lien senior secured, unitranche and split-lien loans. KAPC was established in 2011 and manages (indirectly through affiliates) AUM of approximately $6.5 billion related to middle market private credit as of December 31, 2023.
KAPC’s integrated and scaled platform combines direct loan origination, strong fundamental credit analysis and relative-value perspective.
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The Advisor – KA Credit Advisors, LLC
Our investment activities are managed by our Advisor, an investment advisor that is registered with the SEC under the Advisers Act pursuant to the Investment Advisory Agreement. Our Advisor is responsible for originating prospective investments, conducting research and due diligence investigations on potential investments, analyzing investment opportunities, negotiating and structuring investments and monitoring our investments and portfolio companies on an ongoing basis. While we do not have any employees, the Advisor and its affiliates have a team of approximately 35 investment professionals who are primarily focused on credit investments. The investment team is supported by a team of finance, legal, compliance, operations and administrative professionals.
The Advisor executes on our investment objective by (1) accessing the established loan sourcing channels developed by KAPC, which includes an extensive network of private equity firms, other middle market lenders, financial advisors, intermediaries and management teams, (2) selecting investments within our middle market company focus, (3) implementing KAPC’s underwriting process and (4) drawing upon its experience and resources and the broader Kayne Anderson network.
The Advisor’s investment committee has overall responsibility for evaluating and unanimously approving the Company’s investments, and its portfolio allocations, subject to the oversight of our Board. The Advisor’s investment committee review process is intended to bring the diverse experience and perspectives of the Advisor’s investment committee members to the analysis and consideration of every investment. The Advisor’s investment committee currently consists of Terrence J. Quinn, Vice Chairman of Kayne Anderson; Paul S. Blank, President and Chief Operating Officer of Kayne Anderson; Douglas L. Goodwillie, Co-Head of Private Credit at Kayne Anderson; and Kenneth B. Leonard, Co-Head of Private Credit at Kayne Anderson. The Advisor’s investment committee also determines appropriate investment sizing and mandates ongoing monitoring requirements. Douglas L. Goodwillie and Kenneth B. Leonard, each a Co-Chief Executive Officer of the Company, are jointly and primarily responsible for the day-to-day management of the Company’s portfolio.
In addition to reviewing investments, the Advisor’s investment committee meetings serve as a forum to discuss credit views and outlooks. The Advisor’s investment committee also reviews potential transactions and deal flow on a regular basis. Members of the deal team are encouraged to share information and views on credit with the committee early in their analysis. We believe this process improves the quality of the analysis and enables deal team members to work more efficiently.
We make investments alongside certain entities and accounts advised by our Advisor and its affiliates. Under the 1940 Act, we are prohibited from knowingly participating in certain joint transactions with our affiliates without the prior approval of the independent directors and, in some cases, prior approval by the SEC. However, we generally make investments alongside affiliated entities and accounts pursuant to exemptive relief granted by the SEC to us, our Advisor, and certain of our affiliates on February 4, 2020. Pursuant to such exemptive relief, and subject to certain conditions, we are permitted to co-invest in the same security with our affiliates in a manner that is consistent with our investment objective, investment strategy, regulatory consideration and other relevant factors. If opportunities arise that would otherwise be appropriate for us and an affiliate to purchase different securities in the same issuer, our Advisor will need to decide which account will proceed with such investment. Our Advisor’s investment allocation policy incorporates the conditions of exemptive relief to seek to ensure that investment opportunities are allocated in a manner that is fair and equitable. See “Risk Factors—Risks Relating to Our Business and Structure—We generally may make investments that could give rise to a conflict of interest and our ability to enter into transactions with our affiliates will be restricted.”
The principal executive offices of our Advisor are located at 717 Texas Avenue, Suite 2200, Houston, Texas 77002.
Investment Advisory Agreement
On February 5, 2021, the Company entered into an Investment Advisory Agreement with its Advisor. Pursuant to the Investment Advisory Agreement, the Company will pay its Advisor a fee for investment advisory and management services consisting of two components—a base management fee and an incentive fee. The Advisor may, from time-to-time, grant waivers on the Company’s obligations, including waivers of the base management fee and/or incentive fee, pursuant to Section 3(c) of the Investment Advisory Agreement. Any base management fee or incentive fee so waived will not be subject to recoupment by the Advisor. The Investment Advisory Agreement automatically terminates in the event of its assignment, as defined in the 1940 Act, and may be terminated by either party without penalty upon 60 days’ prior written notice to the other. The Company may terminate the Investment Advisory Agreement upon 60 days' prior written notice to the Advisor: (i) upon the vote of the holders of a majority of the Company's outstanding voting securities, as defined in the 1940 Act, or (ii) by the vote of the independent directors of the Board. On March 6, 2024, the Company entered into the Amended Investment Advisory Agreement, which is effective upon the closing of this offering. See “Management and Other Agreements—Investment Advisory Agreement.”
The Administrator
Our Advisor also serves as our Administrator. Pursuant to the Administration Agreement, our Administrator is responsible for providing or overseeing the performance of our required administrative services and professional services rendered by others, which will include (but are not limited to), accounting, payment of our expenses, legal, compliance, operations, technology and investor relations, preparation and filing of our tax returns, and preparation of financial reports provided to our stockholders and filed with the SEC.
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Administration Agreement
On February 5, 2021, the Company entered into the Administration Agreement with its Advisor, which serves as its Administrator and will provide or oversee the performance of its required administrative services and professional services rendered by others, which will include (but are not limited to), accounting, payment of our expenses, legal, compliance, operations, technology and investor relations, preparation and filing of its tax returns, and preparation of financial reports provided to its stockholders and filed with the SEC. On March 6, 2024, the Board approved a one-year renewal of the Administration Agreement through March 15, 2025.
The Company will reimburse the Administrator for its costs and expenses incurred in performing its obligations under the Administration Agreement, which may include, after completion of this offering, its allocable portion of office facilities, overhead, and compensation paid to or compensatory distributions received by its officers (including our Chief Compliance Officer and Chief Financial Officer) and its respective staff who provide services to the Company. As the Company reimburses the Administrator for its expenses, such costs (including the costs of the sub-administrator) will be ultimately borne by common stockholders. The Administrator does not receive compensation from the Company other than reimbursement of its expenses. The Administration Agreement may be terminated by either party with 60 days’ written notice.
Since the inception of the Company, the Administrator has engaged a sub-administrator to assist the Administrator in performing certain of its administrative duties. Since the inception of the Company, the Administrator has not sought reimbursement of its expenses other than expenses incurred by the sub-administrator. However, the Administrator has a contractual right to seek reimbursement for its costs and expenses incurred in performing its obligations under the Administration Agreement and may do so in the future. On March 28, 2023, the Administrator engaged Ultimus Fund Solutions, LLC under a sub-administration agreement. Under the terms of the sub-administration agreement, Ultimus Fund Solutions, LLC will provide fund administration and fund accounting services. Since March 28, 2023, the Company has paid fees to Ultimus Fund Solutions, LLC, which constitute reimbursable expenses under the Administration Agreement. The Administrator may enter into additional sub-administration agreements with third-parties to perform other administrative and professional services on behalf of the Administrator. See “Management and Other Agreements—Investment Advisory Agreement.”
Private Offerings
Between February 2021 and December 2023, we executed subscription agreements with investors on sixteen occasions as part of one continuous private placement offering obligating those investors to purchase shares of common stock representing total aggregate capital commitments of $1.047 billion. The execution of the subscription agreements were effected as part of one continuous private placement offering exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereunder.
The following table sets forth each of the subscription agreement closings under the private placement offering with the number of subscription agreements from investors in each closing, as well as the total dollar amount of commitment capital in the subscription agreements for each closing (dollar amounts in thousands, except number of subscription agreements):
| Closing Date: | Number of Subscription Agreements | Aggregate Subscription Amount | ||||||
| February 5, 2021 | 42 | $ | 154,305 | |||||
| April 9, 2021 | 36 | 131,050 | ||||||
| July 8, 2021 | 56 | 82,375 | ||||||
| October 18, 2021 | 50 | 175,970 | ||||||
| January 12, 2022 | 70 | 124,500 | ||||||
| April 18, 2022 | 92 | 80,244 | ||||||
| July 11, 2022 | 19 | 21,308 | ||||||
| August 15, 2022 | 20 | 24,200 | ||||||
| September 30, 2022 | 16 | 14,260 | ||||||
| January 18, 2023 | 9 | 3,620 | ||||||
| March 9, 2023 | 2 | 20,500 | ||||||
| April 28, 2023 | 27 | 20,275 | ||||||
| May 26, 2023 | 11 | 22,581 | ||||||
| July 15, 2023 | 12 | 11,815 | ||||||
| October 16, 2023 | 20 | 101,175 | ||||||
| December 5, 2023 | 20 | 58,750 | ||||||
| Total | 502 | $ | 1,046,928 | |||||
Pursuant to the private placement offering that began on February 5, 2021, we called capital under the terms of those subscription agreements, and we issued shares of common stock to investors on twelve funding occasions between February 5. 2021 and February 14, 2024 in an aggregate amount of $777.0 million. On March 22, 2024, we delivered the final capital call notice, which will result in the issuance of an additional $269.9 million of common stock in the private placement offering. Following this final capital call and issuance of shares of our common stock, the investors' obligations to purchase additional shares of common stock will be exhausted in a final closing expected to occur on or around April 2, 2024.
82
The following table sets forth the number of common stock shares issued and aggregate proceeds received from such share issuances relating to our capital call notices pursuant to subscription agreements with investors from February 5, 2021 through February 14, 2024 (dollar amounts in thousands, except shares):
| Share Issuance Date: | Cumulative Number of Purchasers Through Each Capital Call | Aggregate Capital Called | Number of Shares Issued per Capital Call | |||||||
| February 5, 2021 | 42 | $ | 85,000 | 5,666,667 | ||||||
| April 23, 2021 | 78 | 55,000 | 3,532,434 | |||||||
| July 23, 2021 | 134 | 45,000 | 2,862,595 | |||||||
| October 28, 2021 | 184 | 40,000 | 2,502,612 | |||||||
| December 2, 2021 | 184 | 74,501 | 4,568,314 | |||||||
| January 24, 2022 | 254 | 68,582 | 4,191,292 | |||||||
| July 22, 2022 | 365 | 125,000 | 7,666,830 | |||||||
| October 31, 2022 | 401 | 24,636 | 1,485,844 | |||||||
| December 9, 2022 | 401 | 50,000 | 2,961,068 | |||||||
| April 4, 2023 | 412 | 50,000 | 3,010,942 | |||||||
| August 8, 2023 | 462 | 40,575 | 2,411,582 | |||||||
| February 14, 2024 | 502 | 118,689 | 7,089,771 | |||||||
| Total | $ | 776,983 | 47,949,951 | |||||||
On March 22, 2024, we delivered the final capital call notice, which will result in the issuance of $269.9 million of common stock in the private placement offering. Following this final capital call and issuance of shares of our common stock, the investors’ obligations to purchase additional shares of common stock will be exhausted in the final closing expected to occur on or around April 2, 2024, and we will not have any remaining undrawn capital commitments. This final capital drawdown notice will complete our pre-initial public offering capital raise private placement offering exempt from the registration requirements of the Securities Act pursuant to Section 4(a)(2) thereunder. Such capital raise is separate from and not conditioned on this offering.
Risk Management
Broad Diversification
We diversify our investments by company, asset type, investment size and industry focus. Furthermore, we must meet certain diversification tests in order to qualify as a RIC for U.S. federal income tax purposes (the “Diversification Tests”). See “Certain U.S. Federal Income Tax Considerations.”
Hedging
We may hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the 1940 Act and to applicable CFTC regulations. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in benefits of such changes with respect to our portfolio of investments. The Advisor will claim relief from CFTC registration and regulation as a commodity pool operator with respect to our operations, with the result that we will be limited in our ability to use futures contracts or options on futures contracts or engage in swap transactions. Specifically, we will be subject to strict limitations on using such derivatives other than for hedging purposes, whereby the use of derivatives not used solely for hedging purposes is generally limited to situations where (i) the aggregate initial margin and premiums required to establish such positions do not exceed five percent of the liquidation value of our portfolio, after taking into account unrealized profits and unrealized losses on any such contracts we have entered into; or (ii) the aggregate net notional value of such derivatives does not exceed 100% of the liquidation value of our portfolio.
Regulation as a Business Development Company
We are an externally managed, closed-end management investment company that has elected to be regulated as a BDC under the 1940 Act. We have elected to be treated, and intend to qualify annually, as a RIC under the Code for U.S. federal income tax purposes. As a BDC and a RIC, we are required to comply with certain regulatory requirements. As a BDC, at least 70% of our assets must be assets of the type listed in Section 55(a) of the 1940 Act, as described herein. See “Regulation” for further information.
Taxation as a Regulated Investment Company
We have elected to be treated as a RIC under Subchapter M of the Code, and we intend to operate in a manner so as to continue to qualify for the tax treatment applicable to RICs. To qualify for tax treatment as a RIC, we must, among other things, distribute to our stockholders in each taxable year generally at least 90% of the sum of our investment company taxable income, as defined by the Code, and net tax-exempt income for that taxable year. To maintain our tax treatment as a RIC, we, among other things, intend to make the requisite distributions to our stockholders, which generally relieves us from corporate-level U.S. federal income taxes.
In addition, based on the excise tax distribution requirements, the Company is subject to a 4% non-deductible U.S. federal excise tax on any undistributed income unless the Company distributes in a timely manner in each taxable year an amount at least equal to the sum of:
| ● | 98% of its ordinary income for the calendar year; |
| ● | 98.2% of its capital gain net income (both long-term and short-term) for the one-year period ending October 31 in that calendar year; and |
| ● | 100% of any undistributed income from prior years. |
For this purpose, however, any ordinary income or capital gain net income retained by the Company that is subject to corporate income tax is considered to have been distributed.
83
SENIOR SECURITIES
Information about the Company’s senior securities is shown as of the dates indicated in the below table. This information about the Company’s senior securities should be read in conjunction with the Company’s audited consolidated financial statements and related notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operation.” The report of our independent registered public accounting firm on the senior securities table as of December 31, 2023, December 31, 2022 and December 31, 2021 is attached as an exhibit to this registration statement of which this prospectus is a part.
| Class and Period | Total Amount Outstanding Exclusive of Treasury Securities (1) ($ in millions) | Asset Coverage per Unit (2) ($ in millions) | Involuntary Liquidating Preference per Unit (3) | Average Market Value per Unit (4) | ||||||||||
| Corporate Credit Facility | ||||||||||||||
| December 31, 2023 | $ | $ | N/A | |||||||||||
| September 30, 2023 (unaudited) | $ | $ | N/A | |||||||||||
| June 30, 2023 (unaudited) | $ | $ | N/A | |||||||||||
| December 31, 2022 | $ | $ | N/A | |||||||||||
| December 31, 2021 | N/A | |||||||||||||
| Revolving Funding Facility | ||||||||||||||
| December 31, 2023 | $ | $ | N/A | |||||||||||
| September 30, 2023 (unaudited) | $ | $ | N/A | |||||||||||
| June 30, 2023 (unaudited) | $ | $ | N/A | |||||||||||
| December 31, 2022 | $ | $ | N/A | |||||||||||
| December 31, 2021 | N/A | |||||||||||||
| Revolving Funding Facility II (5) | ||||||||||||||
| December 31, 2023 | $ | $ | N/A | |||||||||||
| September 30, 2023 (unaudited) | N/A | |||||||||||||
| June 30, 2023 (unaudited) | N/A | |||||||||||||
| December 31, 2022 | N/A | |||||||||||||
| December 31, 2021 | N/A | |||||||||||||
| Subscription Credit Agreement | ||||||||||||||
| December 31, 2023 | $ | $ | N/A | |||||||||||
| September 30, 2023 (unaudited) | $ | $ | N/A | |||||||||||
| June 30, 2023 (unaudited) | $ | $ | N/A | |||||||||||
| December 31, 2022 | $ | $ | N/A | |||||||||||
| December 31, 2021 | $ | $ | N/A | |||||||||||
| Loan and Security Agreement (LSA) (6) | ||||||||||||||
| December 31, 2023 | N/A | |||||||||||||
| September 30, 2023 (unaudited) | N/A | |||||||||||||
| June 30, 2023 (unaudited) | N/A | |||||||||||||
| December 31, 2022 | N/A | |||||||||||||
| December 31, 2021 | $ | $ | N/A | |||||||||||
| Notes | ||||||||||||||
| December 31, 2023 | $ | $ | N/A | |||||||||||
| September 30, 2023 (unaudited) | $ | $ | N/A | |||||||||||
| June 30, 2023 (unaudited) | $ | $ | N/A | |||||||||||
| December 31, 2022 | N/A | |||||||||||||
| December 31, 2021 | N/A | |||||||||||||
| (1) |
| (2) |
| (3) |
| (4) | Not applicable because the senior securities are not registered for public trading. |
| (5) |
| (6) |
84
PORTFOLIO COMPANIES
The following table sets forth certain information as of December 31, 2023 for each portfolio company in which the Company had an investment. Pursuant to Rule 2a-5 under the 1940 Act, the Board has designated the Advisor as the “valuation designee” to perform fair value determinations of the Company’s portfolio holdings, subject to oversight by and periodic reporting to the Board. The valuation designee performs fair valuation of the Company’s portfolio holdings in accordance with the Company’s Valuation Program. For more information relating to the Company’s investments, see the Company’s consolidated financial statements included in this prospectus.
| Portfolio Company(1) | Address | Investment(2) | Interest Rate | Maturity Date | Principal
/ Par | Amortized Cost(3)(4) | Fair Value | Percentage
of Net Assets | |||||||||||||||||||||||
| Debt and Equity Investments | |||||||||||||||||||||||||||||||
| Private Credit Investments(5) | |||||||||||||||||||||||||||||||
| Aerospace & defense | |||||||||||||||||||||||||||||||
| Basel U.S. Acquisition Co., Inc. (IAC) (6) | 5709 W. Sunset Hwy, Suite 205, Spokane, WA 99224 | First lien senior secured revolving loan | (7) | 11.51% (S + 6.00%) | 12/5/2028 | $ | - | $ | - | $ | - | 0.0 | % | ||||||||||||||||||
| Basel U.S. Acquisition Co., Inc. (IAC) | 5709 W. Sunset Hwy, Suite 205, Spokane, WA 99224 | First lien senior secured loan | 11.51% (S + 6.00%) | 12/5/2028 | 18,494 | 18,066 | 18,679 | 2.7 | % | ||||||||||||||||||||||
| Fastener Distribution Holdings, LLC | 13402 Beach Avenue, Marina Del Ray, CA 90292 | First lien senior secured loan | 12.00% (S + 6.50%) | 10/1/2025 | 20,494 | 20,090 | 20,494 | 3.0 | % | ||||||||||||||||||||||
| Fastener Distribution Holdings, LLC | 13402 Beach Avenue, Marina Del Ray, CA 90292 | First lien senior secured delayed draw loan | 12.00% (S + 6.50%) | 10/1/2025 | 9,098 | 9,009 | 9,098 | 1.3 | % | ||||||||||||||||||||||
| Precinmac (US) Holdings, Inc. | 79 Prospect Ave., P. O. Box 260, South Paris, ME 04281 | First lien senior secured loan | 11.46% (S + 6.00%) | 8/31/2027 | 5,352 | 5,281 | 5,272 | 0.8 | % | ||||||||||||||||||||||
| Precinmac (US) Holdings, Inc. | 79 Prospect Ave., P. O. Box 260, South Paris, ME 04281 | First lien senior secured delayed draw loan | 11.46% (S + 6.00%) | 8/31/2027 | 1,102 | 1,087 | 1,086 | 0.2 | % | ||||||||||||||||||||||
| Vitesse Systems Parent, LLC | 2021 McKinney Ave., Suite 1200, Dallas, TX 75201 | First lien senior secured loan | 12.63% (S + 7.00%) | 12/22/2028 | 31,208 | 30,430 | 31,208 | 4.6 | % | ||||||||||||||||||||||
| 85,748 | 83,963 | 85,837 | 12.6 | % | |||||||||||||||||||||||||||
| Automobile components | |||||||||||||||||||||||||||||||
| Speedstar Holding LLC | 7350 Young Drive, Walton Hills, OH 44146 | First lien senior secured loan | 12.79% (S + 7.25%) | 1/22/2027 | 6,012 | 5,925 | 5,982 | 0.9 | % | ||||||||||||||||||||||
| Speedstar Holding LLC | 7350 Young Drive, Walton Hills, OH 44146 | First lien senior secured delayed draw loan | 12.78% (S + 7.25%) | 1/22/2027 | 271 | 265 | 270 | 0.0 | % | ||||||||||||||||||||||
| Vehicle Accessories, Inc. | 2800 E. Scyene Road, Mesquite, TX 75181 | First lien senior secured loan | 10.72% (S + 5.25%) | 11/30/2026 | 21,011 | 20,770 | 21,011 | 3.1 | % | ||||||||||||||||||||||
| Vehicle Accessories, Inc. | 2800 E. Scyene Road, Mesquite, TX 75181 | First lien senior secured revolving loan | (7) | 10.72% (S + 5.25%) | 11/30/2026 | - | - | - | 0.0 | % | |||||||||||||||||||||
| 27,294 | 26,960 | 27,263 | 4.0 | % | |||||||||||||||||||||||||||
| Biotechnology | |||||||||||||||||||||||||||||||
| Alcami Corporation (Alcami) | 4620 Creekstone Drive, Durham, NC 27703 | First lien senior secured delayed draw loan | (7) | 12.46% (S + 7.00%) | 6/30/2024 | - | - | - | 0.0 | % | |||||||||||||||||||||
| Alcami Corporation (Alcami) | 4620 Creekstone Drive, Durham, NC 27703 | First lien senior secured revolving loan | (7) | 12.46% (S + 7.00%) | 12/21/2028 | - | - | - | 0.0 | % | |||||||||||||||||||||
| Alcami Corporation (Alcami) | 4620 Creekstone Drive, Durham, NC 27703 | First lien senior secured loan | 12.46% (S + 7.00%) | 12/21/2028 | 11,618 | 11,197 | 11,850 | 1.7 | % | ||||||||||||||||||||||
| 11,618 | 11,197 | 11,850 | 1.7 | % | |||||||||||||||||||||||||||
| Building products | |||||||||||||||||||||||||||||||
| Ruff Roofers Buyer, LLC | 1420 Knecht Ave., Baltimore, MD 21227 | First lien senior secured loan | 11.08% (S + 5.75%) | 11/19/2029 | 7,186 | 6,910 | 7,186 | 1.1 | % | ||||||||||||||||||||||
| Ruff Roofers Buyer, LLC | 1420 Knecht Ave., Baltimore, MD 21227 | First lien senior secured delayed draw loan | (7) | 11.08% (S + 5.75%) | 11/17/2024 | - | - | - | 0.0 | % | |||||||||||||||||||||
| Ruff Roofers Buyer, LLC | 1420 Knecht Ave., Baltimore, MD 21227 | First lien senior secured delayed draw loan | (7) | 11.08% (S + 5.75%) | 11/17/2025 | - | - | - | 0.0 | % | |||||||||||||||||||||
Ruff Roofers Buyer, LLC | 1420 Knecht Ave., Baltimore, MD 21227 | First lien senior secured revolving loan | (7) | 11.08% (S + 5.75%) | 11/19/2029 | - | - | - | 0.0 | % | |||||||||||||||||||||
| Eastern Wholesale Fence | 266 Middle Island Road, Medford, NY 11763 | First lien senior secured loan | 13.50% (S + 8.00%) | 10/30/2025 | 20,271 | 19,875 | 20,069 | 2.9 | % | ||||||||||||||||||||||
| Eastern Wholesale Fence | 266 Middle Island Road, Medford, NY 11763 | First lien senior secured revolving loan | (7) | 13.50% (S + 8.00%) | 10/30/2025 | 368 | 364 | 365 | 0.0 | % | |||||||||||||||||||||
| 27,825 | 27,149 | 27,620 | 4.0 | % | |||||||||||||||||||||||||||
| Capital Markets | |||||||||||||||||||||||||||||||
| Atria Wealth Solutions, Inc. | 295 Madison Avenue, Suite 1407, New York, NY 10017 | First lien senior secured loan | 11.97% (S + 6.50%) | 5/31/2024 | 5,087 | 5,080 | 5,087 | 0.7 | % | ||||||||||||||||||||||
| Atria Wealth Solutions, Inc. | 295 Madison Avenue, Suite 1407, New York, NY 10017 | First lien senior secured delayed draw loan | 11.97% (S + 6.50%) | 5/31/2024 | 3,218 | 3,211 | 3,218 | 0.5 | % | ||||||||||||||||||||||
| 8,305 | 8,291 | 8,305 | 1.2 | % | |||||||||||||||||||||||||||
| Chemicals | |||||||||||||||||||||||||||||||
| FAR Technologies Holdings, Inc.(f/k/a Cyalume Technologies Holdings, Inc.) | 96 Windsor Street, West Springfield, MA 01089 | First lien senior secured loan | 10.61% (S + 5.00%) | 8/30/2024 | 1,274 | 1,271 | 1,274 | 0.2 | % | ||||||||||||||||||||||
85
| Portfolio Company(1) | Address | Investment (2) | Interest Rate | Maturity Date | Principal
/ Par | Amortized Cost(3)(4) | Fair Value | Percentage
of Net Assets | |||||||||||||||||||||||
| Fralock Buyer LLC | 28525 W. Industry Dr., Valencia, CA 91355 | First lien senior secured loan | 11.61% (S + 6.00%) | 4/17/2024 | 11,654 | 11,628 | 11,567 | 1.7 | % | ||||||||||||||||||||||
| Fralock Buyer LLC | 28525 W. Industry Dr., Valencia, CA 91355 | First lien senior secured revolving loan | (7) | 11.61% (S + 6.00%) | 4/17/2024 | 449 | 449 | 446 | 0.1 | % | |||||||||||||||||||||
| Shrieve Chemical Company, LLC | 1442 Lake Front Circle, Suite 500, The Woodlands, TX 77380 | First lien senior secured loan | 11.90% (S + 6.38%) | 12/2/2024 | 8,720 | 8,628 | 8,720 | 1.3 | % | ||||||||||||||||||||||
| USALCO, LLC | 2601 Cannery Avenue, Baltimore, MD 21226 | First lien senior secured loan | 11.61% (S + 6.00%) | 10/19/2027 | 18,989 | 18,684 | 18,989 | 2.8 | % | ||||||||||||||||||||||
| USALCO, LLC | 2601 Cannery Avenue, Baltimore, MD 21226 | First lien senior secured revolving loan | (7) | 11.47% (S + 6.00%) | 10/19/2026 | 1,049 | 1,021 | 1,049 | 0.1 | % | |||||||||||||||||||||
| 42,135 | 41,681 | 42,045 | 6.2 | % | |||||||||||||||||||||||||||
| Commercial services & supplies | |||||||||||||||||||||||||||||||
| Advanced Environmental Monitoring (8) | 12410 Milestone Center Drive, Suite 300, Germantown, MD 20876 | First lien senior secured loan | 12.01% (S + 6.50%) | 1/29/2026 | 10,158 | 9,994 | 10,158 | 1.5 | % | ||||||||||||||||||||||
| Allentown, LLC | 13 Buckingham Drive, Princeton, NJ 08540 | First lien senior secured loan | 11.46% (S + 6.00%) | 4/22/2027 | 7,586 | 7,535 | 7,586 | 1.1 | % | ||||||||||||||||||||||
| Allentown, LLC | 13 Buckingham Drive, Princeton, NJ 08540 | First lien senior secured delayed draw loan | 11.46% (S + 6.00%) | 4/22/2027 | 1,370 | 1,354 | 1,370 | 0.2 | % | ||||||||||||||||||||||
| Allentown, LLC | 13 Buckingham Drive, Princeton, NJ 08540 | First lien senior secured revolving loan | (7) | 13.50% (P + 5.00%) | 4/22/2027 | 235 | 234 | 235 | 0.0 | % | |||||||||||||||||||||
| American Equipment Holdings LLC | 451 W. 3440 South, Salt Lake City, UT 84115 | First lien senior secured loan | 11.86% (S + 6.00%) | 11/5/2026 | 20,045 | 19,812 | 19,945 | 2.9 | % | ||||||||||||||||||||||
| American Equipment Holdings LLC | 451 W. 3440 South, Salt Lake City, UT 84115 | First lien senior secured delayed draw loan | 11.88% (S + 6.00%) | 11/5/2026 | 6,239 | 6,167 | 6,208 | 0.9 | % | ||||||||||||||||||||||
| American Equipment Holdings LLC | 451 W. 3440 South, Salt Lake City, UT 84115 | First lien senior secured delayed draw loan | 11.81% (S + 6.00%) | 11/5/2026 | 4,969 | 4,905 | 4,944 | 0.7 | % | ||||||||||||||||||||||
| American Equipment Holdings LLC | 451 W. 3440 South, Salt Lake City, UT 84115 | First lien senior secured revolving loan | (7) | 11.74% (S + 6.00%) | 11/5/2026 | 2,736 | 2,672 | 2,723 | 0.4 | % | |||||||||||||||||||||
| Arborworks Acquisition LLC (9)(10)(11) | 40266 Junction Drive, Oakhurst, CA 93644 | First lien senior secured loan | 11/6/2028 | 4,688 | 4,688 | 4,688 | 0.7 | % | |||||||||||||||||||||||
| Arborworks Acquisition LLC (9)(10)(11) | 40266 Junction Drive, Oakhurst, CA 93644 | First lien senior secured revolving loan | (7) | 11/6/2028 | 1,253 | 1,253 | 1,253 | 0.2 | % | ||||||||||||||||||||||
| BLP Buyer, Inc. (Bishop Lifting Products) | 2301 Commerce Street, Ste 110, Houston, TX 77002 | First lien senior secured loan | 11.11% (S + 5.75%) | 12/22/2029 | 26,099 | 25,549 | 26,099 | 3.8 | % | ||||||||||||||||||||||
| BLP Buyer, Inc. (Bishop Lifting Products) | 2301 Commerce Street, Ste 110, Houston, TX 77002 | First lien senior secured delayed draw loan | (7) | 11.11% (S + 5.75%) | 12/22/2025 | - | - | - | 0.0 | % | |||||||||||||||||||||
| BLP Buyer, Inc. (Bishop Lifting Products) | 2301 Commerce Street, Ste 110, Houston, TX 77002 | First lien senior secured revolving loan | (7) | 11.11% (S + 5.75%) | 12/22/2029 | 273 | 196 | 273 | 0.0 | % | |||||||||||||||||||||
| Gusmer Enterprises, Inc. | 1165 Globe Avenue, Mountainside, NJ 07092 | First lien senior secured loan | 12.47% (S + 7.00%) | 5/7/2027 | 4,747 | 4,682 | 4,735 | 0.7 | % | ||||||||||||||||||||||
| Gusmer Enterprises, Inc. | 1165 Globe Avenue, Mountainside, NJ 07092 | First lien senior secured delayed draw loan | 12.47% (S + 7.00%) | 5/7/2027 | 7,951 | 7,798 | 7,931 | 1.2 | % | ||||||||||||||||||||||
| Gusmer Enterprises, Inc. | 1165 Globe Avenue, Mountainside, NJ 07092 | First lien senior secured revolving loan | (7) | 12.47% (S + 7.00%) | 5/7/2027 | - | - | - | 0.0 | % | |||||||||||||||||||||
| PMFC Holding, LLC | 480 Pilgrim Way, Suite 1400, Green Bay, WI 54304 | First lien senior secured loan | 13.02% (S + 7.50%) | 7/31/2025 | 5,561 | 5,427 | 5,561 | 0.8 | % | ||||||||||||||||||||||
| PMFC Holding, LLC | 480 Pilgrim Way, Suite 1400, Green Bay, WI 54304 | First lien senior secured delayed draw loan | 13.03% (S + 7.50%) | 7/31/2025 | 2,789 | 2,787 | 2,789 | 0.4 | % | ||||||||||||||||||||||
| PMFC Holding, LLC | 480 Pilgrim Way, Suite 1400, Green Bay, WI 54304 | First lien senior secured revolving loan | (7) | 13.03% (S + 7.50%) | 7/31/2025 | 547 | 547 | 547 | 0.1 | % | |||||||||||||||||||||
| Regiment Security Partners LLC | 2001 Central Park Avenue, New York, NY 10710 | First lien senior secured loan | 13.52% (S + 8.00%) | 9/15/2026 | 6,383 | 6,309 | 6,383 | 1.0 | % | ||||||||||||||||||||||
| Regiment Security Partners LLC | 2001 Central Park Avenue, New York, NY 10710 | First lien senior secured delayed draw loan | (7) | 13.52% (S + 8.00%) | 9/15/2026 | 2,609 | 2,588 | 2,609 | 0.4 | % | |||||||||||||||||||||
| Regiment Security Partners LLC | 2001 Central Park Avenue, New York, NY 10710 | First lien senior secured revolving loan | (7) | 13.52% (S + 8.00%) | 9/15/2026 | 1,448 | 1,427 | 1,448 | 0.2 | % | |||||||||||||||||||||
| 117,686 | 115,924 | 117,485 | 17.2 | % | |||||||||||||||||||||||||||
86
| Portfolio Company(1) | Address | Investment (2) | Interest Rate | Maturity Date | Principal
/ Par | Amortized Cost(3)(4) | Fair Value | Percentage
of Net Assets | |||||||||||||||||||||||
| Containers & packaging | |||||||||||||||||||||||||||||||
| Carton Packaging Buyer, Inc. (Century Box) | 150 N. Riverside Plaza, Suite 2050, Chicago, IL 60606 | First lien senior secured loan | 11.39% (S + 6.00%) | 10/30/2028 | 24,261 | 23,605 | 24,262 | 3.6 | % | ||||||||||||||||||||||
| Carton Packaging Buyer, Inc. (Century Box) | 150 N. Riverside Plaza, Suite 2050, Chicago, IL 60606 | First lien senior secured revolving loan | (7) | 11.39% (S + 6.00%) | 10/30/2028 | - | - | - | 0.0 | % | |||||||||||||||||||||
| Drew Foam Companies, Inc. | 6 Cadillac Dr, Ste 150, Nashville, TN 37027-5069 | First lien senior secured loan | 12.75% (S + 7.25%) | 11/5/2025 | 7,052 | 6,997 | 6,999 | 1.0 | % | ||||||||||||||||||||||
| Drew Foam Companies, Inc. | 6 Cadillac Dr, Ste 150, Nashville, TN 37027-5069 | First lien senior secured loan | 12.80% (S + 7.25%) | 11/5/2025 | 20,045 | 19,789 | 19,895 | 2.9 | % | ||||||||||||||||||||||
| FCA, LLC (FCA Packaging) | 7601 John Deere Parkway, Moline, IL 61265 | First lien senior secured loan | 11.90% (S + 6.50%) | 7/18/2028 | 18,673 | 18,419 | 19,047 | 2.8 | % | ||||||||||||||||||||||
| FCA, LLC (FCA Packaging) | 7601 John Deere Parkway, Moline, IL 61265 | First lien senior secured revolving loan | (7) | 11.90% (S + 6.50%) | 7/18/2028 | - | - | - | 0.0 | % | |||||||||||||||||||||
| Innopak Industries, Inc. | 1932 Pittsburgh Drive, Delaware, OH 43015 | First lien senior secured loan | 11.71% (S + 6.25%) | 3/5/2027 | 28,224 | 27,564 | 28,224 | 4.1 | % | ||||||||||||||||||||||
| 98,255 | 96,374 | 98,427 | 14.4 | % | |||||||||||||||||||||||||||
| Diversified telecommunication services | |||||||||||||||||||||||||||||||
| Network Connex (f/k/a NTI Connect, LLC) | 5101 Thatcher Rd., Downers Grove, IL 60515 | First lien senior secured loan | 11.00% (S + 5.50%) | 1/31/2026 | 5,195 | 5,140 | 5,196 | 0.8 | % | ||||||||||||||||||||||
| 5,195 | 5,140 | 5,196 | 0.8 | % | |||||||||||||||||||||||||||
| Food products | |||||||||||||||||||||||||||||||
| BC CS 2, L.P. (Cuisine Solutions) (6)(12) | 200 Clarendon Street, Boston, MA 02116 | 13.55% (S + 8.00%) | 7/8/2028 | 21,555 | 21,063 | 21,555 | 3.2 | % | |||||||||||||||||||||||
| BR PJK Produce, LLC (Keany) | 3310 75th Avenue, Landover, MD 20785 | First lien senior secured loan | 11.50% (S + 6.00%) | 11/14/2027 | 29,564 | 28,973 | 29,564 | 4.3 | % | ||||||||||||||||||||||
| BR PJK Produce, LLC (Keany) | 3310 75th Avenue, Landover, MD 20785 | First lien senior secured delayed draw loan | (7) | 11.46% (S + 6.00%) | 11/14/2027 | 2,938 | 2,812 | 2,938 | 0.4 | % | |||||||||||||||||||||
| City Line Distributors, LLC | 20 Industry Dr., West Haven, CT 06516 | First lien senior secured loan | 11.47% (S + 6.00%) | 8/31/2028 | 8,895 | 8,576 | 8,895 | 1.3 | % | ||||||||||||||||||||||
| City Line Distributors, LLC | 20 Industry Dr., West Haven, CT 06516 | First lien senior secured delayed draw loan | (7) | 11.47% (S + 6.00%) | 3/3/2025 | - | - | - | 0.0 | % | |||||||||||||||||||||
| City Line Distributors, LLC | 20 Industry Dr., West Haven, CT 06516 | First lien senior secured revolving loan | (7) | 11.47% (S + 6.00%) | 8/31/2028 | - | - | - | 0.0 | % | |||||||||||||||||||||
| Gulf Pacific Holdings, LLC | 12010 Taylor Rd., Houston, TX, 77041 | First lien senior secured loan | 11.25% (S + 5.75%) | 9/30/2028 | 20,180 | 19,847 | 20,079 | 2.9 | % | ||||||||||||||||||||||
| Gulf Pacific Holdings, LLC | 12010 Taylor Rd., Houston, TX, 77041 | First lien senior secured delayed draw loan | (7) | 11.38% (S + 5.75%) | 9/30/2028 | 1,701 | 1,618 | 1,693 | 0.2 | % | |||||||||||||||||||||
| Gulf Pacific Holdings, LLC | 12010 Taylor Rd., Houston, TX, 77041 | First lien senior secured revolving loan | (7) | 11.29% (S + 5.75%) | 9/30/2028 | 2,697 | 2,602 | 2,683 | 0.4 | % | |||||||||||||||||||||
| IF&P Foods, LLC (FreshEdge) | 4501 Massachusetts Avenue, Indianapolis, IN 46218 | First lien senior secured loan | 11.07% (S + 5.63%) | 10/3/2028 | 27,245 | 26,684 | 26,904 | 4.0 | % | ||||||||||||||||||||||
| IF&P Foods, LLC (FreshEdge) | 4501 Massachusetts Avenue, Indianapolis, IN 46218 | First lien senior secured loan | 11.48% (S + 6.00%) | 10/3/2028 | 216 | 211 | 213 | 0.0 | % | ||||||||||||||||||||||
| IF&P Foods, LLC (FreshEdge) | 4501 Massachusetts Avenue, Indianapolis, IN 46218 | First lien senior secured delayed draw loan | 11.07% (S + 5.63%) | 10/3/2028 | 4,045 | 3,969 | 3,994 | 0.6 | % | ||||||||||||||||||||||
| IF&P Foods, LLC (FreshEdge) | 4501 Massachusetts Avenue, Indianapolis, IN 46218 | First lien senior secured revolving loan | (7) | 10.91% (S + 5.63%) | 10/3/2028 | 1,759 | 1,690 | 1,737 | 0.3 | % | |||||||||||||||||||||
| J&K Ingredients, LLC | 160 East 5th Street, Paterson, NJ 07524 | First lien senior secured loan | 11.63% (S + 6.25%) | 11/16/2028 | 11,581 | 11,295 | 11,581 | 1.7 | % | ||||||||||||||||||||||
| Siegel Egg Co., LLC | 90 Salem Rd, North Billerica, MA 01862 | First lien senior secured loan | 11.99% (S + 6.50%) | 12/29/2026 | 15,466 | 15,290 | 14,616 | 2.1 | % | ||||||||||||||||||||||
| Siegel Egg Co., LLC | 90 Salem Rd, North Billerica, MA 01862 | First lien senior secured revolving loan | (7) | 11.99% (S + 6.50%) | 12/29/2026 | 2,594 | 2,557 | 2,451 | 0.4 | % | |||||||||||||||||||||
| Worldwide Produce Acquisition, LLC | 2652 Long Beach Avenue, Unit 2, Los Angeles, CA 90058 | First lien senior secured delayed draw loan | (7) | 11.60% (S + 6.25%) | 1/18/2029 | 631 | 587 | 625 | 0.1 | % | |||||||||||||||||||||
| Worldwide Produce Acquisition, LLC | 2652 Long Beach Avenue, Unit 2, Los Angeles, CA 90058 | First lien senior secured delayed draw loan | (7) | 11.60% (S + 6.25%) | 4/18/2024 | - | - | - | 0.0 | % | |||||||||||||||||||||
| Worldwide Produce Acquisition, LLC | 2652 Long Beach Avenue, Unit 2, Los Angeles, CA 90058 | First lien senior secured revolving loan | (7) | 11.60% (S + 6.25%) | 1/18/2029 | 198 | 190 | 196 | 0.0 | % | |||||||||||||||||||||
| Worldwide Produce Acquisition, LLC | 2652 Long Beach Avenue, Unit 2, Los Angeles, CA 90058 | First lien senior secured loan | 11.60% (S + 6.25%) | 1/18/2029 | 2,860 | 2,786 | 2,832 | 0.4 | % | ||||||||||||||||||||||
| 154,125 | 150,750 | 152,556 | 22.3 | % | |||||||||||||||||||||||||||
87
| Portfolio Company(1) | Address | Investment (2) | Interest Rate | Maturity Date | Principal
/ Par | Amortized Cost(3)(4) | Fair Value | Percentage
of Net Assets | |||||||||||||||||||||||
| Health care providers & services | |||||||||||||||||||||||||||||||
| Brightview, LLC | 615 Elsinore Pl #300, Cincinnati, OH 45202 | First lien senior secured loan | 11.47% (S + 6.00%) | 12/14/2026 | 12,870 | 12,855 | 12,645 | 1.9 | % | ||||||||||||||||||||||
| Brightview, LLC | 615 Elsinore Pl #300, Cincinnati, OH 45202 | First lien senior secured delayed draw loan | 11.47% (S + 6.00%) | 12/14/2026 | 1,719 | 1,714 | 1,689 | 0.3 | % | ||||||||||||||||||||||
| Brightview, LLC | 615 Elsinore Pl #300, Cincinnati, OH 45202 | First lien senior secured revolving loan | 11.47% (S + 6.00%) | 12/14/2026 | 774 | 774 | 761 | 0.1 | % | ||||||||||||||||||||||
| Guardian Dentistry Partners | 5803 NW 151 St., Suite 201, Miami Lakes, FL, 33014 | First lien senior secured loan | 11.97% (S + 6.50%) | 8/20/2026 | 8,057 | 7,929 | 8,057 | 1.2 | % | ||||||||||||||||||||||
| Guardian Dentistry Partners | 5803 NW 151 St., Suite 201, Miami Lakes, FL, 33014 | First lien senior secured delayed draw loan | 11.97% (S + 6.50%) | 8/20/2026 | 15,682 | 15,464 | 15,682 | 2.3 | % | ||||||||||||||||||||||
| Guardian Dentistry Partners | 5803 NW 151 St., Suite 201, Miami Lakes, FL, 33014 | First lien senior secured delayed draw loan | 11.97% (S + 6.50%) | 8/20/2026 | 5,808 | 5,808 | 5,808 | 0.9 | % | ||||||||||||||||||||||
| Guided Practice Solutions: Dental, LLC (GPS) | 515 W. Washington Avenue, Jonesboro, AR 72401 | First lien senior secured delayed draw loan | (7) | 11.72% (S + 6.25%) | 12/29/2025 | 6,475 | 6,056 | 6,475 | 0.9 | % | |||||||||||||||||||||
| Light Wave Dental Management LLC | 50 E. Washington St., Ste 400, Chicago IL 60602 | First lien senior secured revolving loan | (7) | 12.35% (S + 7.00%) | 6/30/2029 | 2,181 | 2,099 | 2,181 | 0.3 | % | |||||||||||||||||||||
| Light Wave Dental Management LLC | 50 E. Washington St., Ste 400, Chicago IL 60602 | First lien senior secured loan | 12.35% (S + 7.00%) | 6/30/2029 | 22,423 | 21,834 | 22,423 | 3.3 | % | ||||||||||||||||||||||
| SGA Dental Partners Holdings, LLC | 10385 Ford Avenue, Unit D8, Richmond Hill, GA 31324 | First lien senior secured loan | 11.67% (S + 6.00%) | 12/30/2026 | 11,828 | 11,683 | 11,828 | 1.7 | % | ||||||||||||||||||||||
| SGA Dental Partners Holdings, LLC | 10385 Ford Avenue, Unit D8, Richmond Hill, GA 31324 | First lien senior secured loan | 11.61% (S + 6.00%) | 12/30/2026 | 1,681 | 1,563 | 1,681 | 0.2 | % | ||||||||||||||||||||||
| SGA Dental Partners Holdings, LLC | 10385 Ford Avenue, Unit D8, Richmond Hill, GA 31324 | First lien senior secured delayed draw loan | 11.67% (S + 6.00%) | 12/30/2026 | 11,024 | 10,856 | 11,024 | 1.6 | % | ||||||||||||||||||||||
| SGA Dental Partners Holdings, LLC | 10385 Ford Avenue, Unit D8, Richmond Hill, GA 31324 | First lien senior secured delayed draw loan | (7) | 11.67% (S + 6.00%) | 4/19/2024 | - | - | - | 0.0 | % | |||||||||||||||||||||
| SGA Dental Partners Holdings, LLC | 10385 Ford Avenue, Unit D8, Richmond Hill, GA 31324 | First lien senior secured revolving loan | (7) | 11.67% (S + 6.00%) | 12/30/2026 | - | - | - | 0.0 | % | |||||||||||||||||||||
| 100,522 | 98,635 | 100,254 | 14.7 | % | |||||||||||||||||||||||||||
| Health care equipment & supplies | |||||||||||||||||||||||||||||||
| LSL Industries, LLC (LSL Healthcare) | 50 E. Washington St., Ste 400, Chicago IL 60602 | First lien senior secured loan | 12.15% (S + 6.50%) | 11/3/2027 | 19,529 | 18,911 | 19,334 | 2.8 | % | ||||||||||||||||||||||
| LSL Industries, LLC (LSL Healthcare) | 50 E. Washington St., Ste 400, Chicago IL 60602 | First lien senior secured delayed draw loan | (7) | 12.15% (S + 6.50%) | 11/3/2024 | - | - | - | 0.0 | % | |||||||||||||||||||||
| LSL Industries, LLC (LSL Healthcare) | 50 E. Washington St., Ste 400, Chicago IL 60602 | First lien senior secured revolving loan | (7) | 12.15% (S + 6.50%) | 11/3/2027 | - | - | - | 0.0 | % | |||||||||||||||||||||
| 19,529 | 18,911 | 19,334 | 2.8 | % | |||||||||||||||||||||||||||
| Household durables | |||||||||||||||||||||||||||||||
| Curio Brands, LLC | 501 Highway 12, Starkville, MS 39759 | First lien senior secured loan | 10.96% (S + 5.50%) | 12/21/2027 | 17,173 | 16,859 | 16,830 | 2.5 | % | ||||||||||||||||||||||
| Curio Brands, LLC | 501 Highway 12, Starkville, MS 39759 | First lien senior secured revolving loan | (7) | 10.96% (S + 5.50%) | 12/21/2027 | - | - | - | 0.0 | % | |||||||||||||||||||||
| Curio Brands, LLC | 501 Highway 12, Starkville, MS 39759 | First lien senior secured delayed draw loan | (7) | 10.96% (S + 5.50%) | 12/21/2027 | 4,121 | 4,121 | 4,039 | 0.6 | % | |||||||||||||||||||||
| 21,294 | 20,980 | 20,869 | 3.1 | % | |||||||||||||||||||||||||||
| Household products | |||||||||||||||||||||||||||||||
| Home Brands Group Holdings, Inc. (ReBath) | 426 N. 44th Street, Suite 410, Phoenix, AZ 85008 | First lien senior secured loan | 10.29% (S + 4.75%) | 11/8/2026 | 17,052 | 16,826 | 16,967 | 2.5 | % | ||||||||||||||||||||||
| Home Brands Group Holdings, Inc. (ReBath) | 426 N. 44th Street, Suite 410, Phoenix, AZ 85008 | First lien senior secured revolving loan | (7) | 10.29% (S + 4.75%) | 11/8/2026 | - | - | - | 0.0 | % | |||||||||||||||||||||
| 17,052 | 16,826 | 16,967 | 2.5 | % | |||||||||||||||||||||||||||
| Insurance | |||||||||||||||||||||||||||||||
| Allcat Claims Service, LLC | 16 Cascade Caverns Road, Boerne, TX 78015 | First lien senior secured loan | 11.53% (S + 6.00%) | 7/7/2027 | 7,717 | 7,551 | 7,717 | 1.1 | % | ||||||||||||||||||||||
| Allcat Claims Service, LLC | 16 Cascade Caverns Road, Boerne, TX 78015 | First lien senior secured delayed draw loan | (7) | 11.53% (S + 6.00%) | 7/7/2027 | 21,605 | 21,266 | 21,605 | 3.2 | % | |||||||||||||||||||||
| Allcat Claims Service, LLC | 16 Cascade Caverns Road, Boerne, TX 78015 | First lien senior secured revolving loan | (7) | 11.53% (S + 6.00%) | 7/7/2027 | - | - | - | 0.0 | % | |||||||||||||||||||||
| 29,322 | 28,817 | 29,322 | 4.3 | % | |||||||||||||||||||||||||||
88
| Portfolio Company(1) | Address | Investment (2) | Interest Rate | Maturity Date | Principal
/ Par | Amortized Cost(3)(4) | Fair Value | Percentage
of Net Assets | |||||||||||||||||||||||
| IT services | |||||||||||||||||||||||||||||||
| Domain Information Services Inc. (Integris) | One South Wacker, Suite 2980, Chicago, IL 60606 | First lien senior secured loan | 11.29% (S + 5.75%) | 9/30/2025 | 20,444 | 20,122 | 20,342 | 3.0 | % | ||||||||||||||||||||||
| Improving Acquisition LLC | 2001 Ross Avenue, Suite 4250, Dallas, TX 75201 | First lien senior secured loan | 12.22% (S + 6.50%) | 7/26/2027 | 31,650 | 31,140 | 31,492 | 4.6 | % | ||||||||||||||||||||||
| Improving Acquisition LLC | 2001 Ross Avenue, Suite 4250, Dallas, TX 75201 | First lien senior secured revolving loan | (7) | 12.22% (S + 6.50%) | 7/26/2027 | - | - | - | 0.0 | % | |||||||||||||||||||||
| 52,094 | 51,262 | 51,834 | 7.6 | % | |||||||||||||||||||||||||||
| Leisure products | |||||||||||||||||||||||||||||||
| BCI Burke Holding Corp. | 660 Van Dyne Road, Fond Du Lac, WI, 54937 | First lien senior secured loan | 11.11% (S + 5.50%) | 12/14/2027 | 15,373 | 15,219 | 15,603 | 2.3 | % | ||||||||||||||||||||||
| BCI Burke Holding Corp. | 660 Van Dyne Road, Fond Du Lac, WI, 54937 | First lien senior secured delayed draw loan | (7) | 11.11% (S + 5.50%) | 12/14/2027 | 578 | 545 | 586 | 0.1 | % | |||||||||||||||||||||
| BCI Burke Holding Corp. | 660 Van Dyne Road, Fond Du Lac, WI, 54937 | First lien senior secured revolving loan | (7) | 11.11% (S + 5.50%) | 6/14/2027 | - | - | - | 0.0 | % | |||||||||||||||||||||
| VENUplus, Inc. (f/k/a CTM Group, Inc.) | 5 Industrial Way Suite 1A, Salem, NH, 03079 | First lien senior secured loan | 12.29% (S + 6.75%) | 11/30/2026 | 4,420 | 4,325 | 4,398 | 0.6 | % | ||||||||||||||||||||||
| MacNeill Pride Group | 155 Franklin Road, Suite 250, Brentwood, TN 37027 | First lien senior secured loan | 11.86% (S + 6.25%) | 4/22/2026 | 8,254 | 8,198 | 8,151 | 1.2 | % | ||||||||||||||||||||||
| MacNeill Pride Group | 155 Franklin Road, Suite 250, Brentwood, TN 37027 | First lien senior secured delayed draw loan | (7) | 11.86% (S + 6.25%) | 4/22/2026 | 3,277 | 3,221 | 3,236 | 0.5 | % | |||||||||||||||||||||
| MacNeill Pride Group | 155 Franklin Road, Suite 250, Brentwood, TN 37027 | First lien senior secured revolving loan | (7) | 11.86% (S + 6.25%) | 4/22/2026 | - | - | - | 0.0 | % | |||||||||||||||||||||
| Trademark Global LLC | 7951 West Erie Avenue, Lorain, OH 44053 | First lien senior secured loan | 12.97% (S +7.50%, 1.50% is PIK) | 7/30/2024 | 11,798 | 11,776 | 10,736 | 1.6 | % | ||||||||||||||||||||||
| Trademark Global LLC | 7951 West Erie Avenue, Lorain, OH 44053 | First lien senior secured revolving loan | (7) | 12.97% (S +7.50%, 1.50% is PIK) | 7/30/2024 | 2,630 | 2,627 | 2,393 | 0.3 | % | |||||||||||||||||||||
| 46,330 | 45,911 | 45,103 | 6.6 | % | |||||||||||||||||||||||||||
| Machinery | |||||||||||||||||||||||||||||||
| Pennsylvania Machine Works, LLC | 201 Bethel Ave., Aston, PA 19014 | First lien senior secured loan | 11.61% (S + 6.00%) | 3/6/2027 | 1,908 | 1,896 | 1,908 | 0.3 | % | ||||||||||||||||||||||
| PVI Holdings, Inc | 19011 Highland Road, Baton Rouge, LA 70809 | First lien senior secured loan | 12.16% (S + 6.77%) | 1/18/2028 | 23,895 | 23,602 | 24,074 | 3.5 | % | ||||||||||||||||||||||
| Techniks Holdings, LLC / Eppinger Holdings Germany GMBH (6) | 9930 E. 56th Street, Indianapolis, IN 46236 | First lien senior secured loan | 12.75% (S + 7.25%) | 2/4/2025 | 24,812 | 24,468 | 24,688 | 3.6 | % | ||||||||||||||||||||||
| Techniks Holdings, LLC / Eppinger Holdings Germany GMBH | 9930 E. 56th Street, Indianapolis, IN 46236 | First lien senior secured revolving loan | (7) | 11.80% (S + 6.25%) | 2/4/2025 | 1,050 | 1,003 | 1,045 | 0.2 | % | |||||||||||||||||||||
| 51,665 | 50,969 | 51,715 | 7.6 | % | |||||||||||||||||||||||||||
| Personal care products | |||||||||||||||||||||||||||||||
| DRS Holdings III, Inc. (Dr. Scholl's) | 255 State Street, 7th Floor, Boston, MA 02109 | First lien senior secured loan | 11.71% (S + 6.25%) | 11/1/2025 | 11,004 | 10,954 | 11,004 | 1.6 | % | ||||||||||||||||||||||
| DRS Holdings III, Inc. (Dr. Scholl's) | 255 State Street, 7th Floor, Boston, MA 02109 | First lien senior secured revolving loan | (7) | 11.71% (S + 6.25%) | 11/1/2025 | - | - | - | 0.0 | % | |||||||||||||||||||||
| PH Beauty Holdings III, Inc. | 1950 Innovation Pkwy, Suite 100, Libertyville, IL 60048 | First lien senior secured loan | 10.65% (S + 5.00%) | 9/28/2025 | 9,442 | 9,278 | 9,183 | 1.3 | % | ||||||||||||||||||||||
| Silk Holdings III Corp. (Suave) | One International Place, Ste. 3240, Boston, MA 02110 | First lien senior secured loan | 13.10% (S + 7.75%) | 5/1/2029 | 19,900 | 19,351 | 20,298 | 3.0 | % | ||||||||||||||||||||||
| 40,346 | 39,583 | 40,485 | 5.9 | % | |||||||||||||||||||||||||||
| Pharmaceuticals | |||||||||||||||||||||||||||||||
| Foundation Consumer Brands | 1190 Omega Drive, Pittsburgh, PA 15205 | First lien senior secured loan | 11.79% (S + 6.25%) | 2/12/2027 | 6,781 | 6,744 | 6,832 | 1.0 | % | ||||||||||||||||||||||
| Foundation Consumer Brands | 1190 Omega Drive, Pittsburgh, PA 15205 | First lien senior secured revolving loan | (7) | 11.79% (S + 6.25%) | 2/12/2027 | - | - | - | 0.0 | % | |||||||||||||||||||||
| 6,781 | 6,744 | 6,832 | 1.0 | % | |||||||||||||||||||||||||||
| Professional services | |||||||||||||||||||||||||||||||
| 4 Over International, LLC | 125 Los Angeles St., Glendale, CA 91204 | First lien senior secured loan | 12.46% (S + 7.00%) | 12/7/2026 | 19,438 | 18,757 | 19,438 | 2.8 | % | ||||||||||||||||||||||
| DISA Holdings Corp. (DISA) | 10900 Corporate Centre Dr., Ste 250, Houston, TX 77041 | First lien senior secured delayed draw loan | (7) | 10.84% (S + 5.50%) | 9/9/2028 | 3,714 | 3,578 | 3,714 | 0.5 | % | |||||||||||||||||||||
| DISA Holdings Corp. (DISA) | 10900 Corporate Centre Dr., Ste 250, Houston, TX 77041 | First lien senior secured revolving loan | (7) | 10.84% (S + 5.50%) | 9/9/2028 | 392 | 347 | 392 | 0.1 | % | |||||||||||||||||||||
| DISA Holdings Corp. (DISA) | 10900 Corporate Centre Dr., Ste 250, Houston, TX 77041 | First lien senior secured loan | 10.84% (S + 5.50%) | 9/9/2028 | 22,177 | 21,625 | 22,177 | 3.2 | % | ||||||||||||||||||||||
| Universal Marine Medical Supply International, LLC (Unimed) | 27 Sylvaton Terrace, Staten Island, NY 10305 | First lien senior secured loan | 13.01% (S + 7.50%) | 12/5/2027 | 13,527 | 13,253 | 13,527 | 2.0 | % | ||||||||||||||||||||||
| Universal Marine Medical Supply International, LLC (Unimed) | 27 Sylvaton Terrace, Staten Island, NY 10305 | First lien senior secured revolving loan | 13.00% (S + 7.50%) | 12/5/2027 | 2,544 | 2,494 | 2,544 | 0.4 | % | ||||||||||||||||||||||
| 61,792 | 60,054 | 61,792 | 9.0 | % | |||||||||||||||||||||||||||
89
| Portfolio Company(1) | Address | Investment (2) | Interest Rate | Maturity Date | Principal
/ Par | Amortized Cost(3)(4) | Fair Value | Percentage
of Net Assets | |||||||||||||||||||||||
| Software | |||||||||||||||||||||||||||||||
| AIDC Intermediate Co 2, LLC (Peak Technologies) | 901 Elkridge Landing Rd, Suite 300, Linthicum Heights, MD 21090 | First lien senior secured loan | 11.80% (S + 6.25%) | 7/22/2027 | 34,650 | 33,736 | 34,650 | 5.1 | % | ||||||||||||||||||||||
| Specialty retail | |||||||||||||||||||||||||||||||
| Sundance Holdings Group, LLC (8) | 3865 W 2400 S, Salt Lake City, UT 84120 | First lien senior secured loan | 15.03% (S + 9.50%, 1.50% is PIK) | 5/1/2024 | 9,210 | 9,022 | 8,911 | 1.3 | % | ||||||||||||||||||||||
| Sundance Holdings Group, LLC | 3865 W 2400 S, Salt Lake City, UT 84120 | First lien senior secured delayed draw loan | (7) | 15.03% (S + 9.50%, 1.50% is PIK) | 5/1/2024 | - | - | - | 0.0 | % | |||||||||||||||||||||
| 9,210 | 9,022 | 8,911 | 1.3 | % | |||||||||||||||||||||||||||
| Textiles, apparel & luxury goods | |||||||||||||||||||||||||||||||
| American Soccer Company, Incorporated (SCORE) | 726 E. Anaheim Street, Wilmington, CA 90744 | First lien senior secured loan | 12.75% (S + 7.25%) | 7/20/2027 | 29,816 | 29,317 | 29,145 | 4.3 | % | ||||||||||||||||||||||
| American Soccer Company, Incorporated (SCORE) | 726 E. Anaheim Street, Wilmington, CA 90744 | First lien senior secured revolving loan | (7) | 12.75% (S + 7.25%) | 7/20/2027 | 2,128 | 2,067 | 2,080 | 0.3 | % | |||||||||||||||||||||
| BEL USA, LLC | 12610 NW 115th Avenue, #200, Medley, FL 33178 | First lien senior secured loan | 12.53% (S + 7.00%) | 6/2/2026 | 5,804 | 5,774 | 5,804 | 0.8 | % | ||||||||||||||||||||||
| BEL USA, LLC | 12610 NW 115th Avenue, #200, Medley, FL 33178 | First lien senior secured loan | 12.53% (S + 7.00%) | 6/2/2026 | 96 | 95 | 96 | 0.0 | % | ||||||||||||||||||||||
| YS Garments, LLC | 15730 S. Figueroa St., Gardena, CA 90248 | First lien senior secured loan | 13.00% (S + 7.50%) | 8/9/2026 | 6,849 | 6,758 | 6,729 | 1.0 | % | ||||||||||||||||||||||
| 44,693 | 44,011 | 43,854 | 6.4 | % | |||||||||||||||||||||||||||
| Trading companies & distributors | |||||||||||||||||||||||||||||||
| BCDI Meteor Acquisition, LLC (Meteor) | 690 NE 23rd Avenue, Gainesville, FL 32609 | First lien senior secured loan | 12.45% (S + 7.00%) | 6/29/2028 | 16,297 | 15,955 | 16,297 | 2.4 | % | ||||||||||||||||||||||
| Broder Bros., Co. | Six Neshaminy Interplex, 6th Floor, Trevose, PA 19053 | First lien senior secured loan | 11.61% (S+ 6.00%) | 12/4/2025 | 4,640 | 4,439 | 4,640 | 0.7 | % | ||||||||||||||||||||||
| CGI Automated Manufacturing, LLC | 275 Innovation Drive, Romeoville, IL 60446 | First lien senior secured loan | 12.61% (S + 7.00%) | 12/17/2026 | 20,510 | 19,849 | 20,459 | 3.0 | % | ||||||||||||||||||||||
| CGI Automated Manufacturing, LLC | 275 Innovation Drive, Romeoville, IL 60446 | First lien senior secured loan | 12.61% (S + 7.00%) | 12/17/2026 | 6,681 | 6,559 | 6,664 | 1.0 | % | ||||||||||||||||||||||
| CGI Automated Manufacturing, LLC | 275 Innovation Drive, Romeoville, IL 60446 | First lien senior secured delayed draw loan | 12.61% (S + 7.00%) | 12/17/2026 | 3,616 | 3,510 | 3,607 | 0.5 | % | ||||||||||||||||||||||
| CGI Automated Manufacturing, LLC | 275 Innovation Drive, Romeoville, IL 60446 | First lien senior secured revolving loan | (7) | 12.61% (S + 7.00%) | 12/17/2026 | 327 | 244 | 327 | 0.0 | % | |||||||||||||||||||||
| EIS Legacy, LLC | 2018 Powers Ferry Road, Atlanta, Georgia 30339 | First lien senior secured loan | 11.24% (S + 5.75%) | 11/1/2027 | 18,079 | 17,838 | 18,079 | 2.6 | % | ||||||||||||||||||||||
| EIS Legacy, LLC | 2018 Powers Ferry Road, Atlanta, Georgia 30339 | First lien senior secured loan | 11.27% (S + 5.75%) | 11/1/2027 | 9,666 | 9,356 | 9,666 | 1.4 | % | ||||||||||||||||||||||
| EIS Legacy, LLC | 2018 Powers Ferry Road, Atlanta, Georgia 30339 | First lien senior secured delayed draw loan | (7) | 11.24% (S + 5.75%) | 4/20/2025 | - | - | - | 0.0 | % | |||||||||||||||||||||
| EIS Legacy, LLC | 2018 Powers Ferry Road, Atlanta, Georgia 30339 | First lien senior secured revolving loan | (7) | 11.24% (S + 5.75%) | 11/1/2027 | - | - | - | 0.0 | % | |||||||||||||||||||||
| Engineered Fastener Company, LLC (EFC International) | 1940 Craigshire, St. Louis, MO 63146-4008 | First lien senior secured loan | 12.00% (S + 6.50%) | 11/1/2027 | 23,604 | 23,113 | 23,899 | 3.5 | % | ||||||||||||||||||||||
| Genuine Cable Group, LLC | 1051 Perimeter Dr., 300, Schaumburg, Illinois, 60173 | First lien senior secured loan | 10.96% (S + 5.50%) | 11/1/2026 | 29,057 | 28,336 | 28,984 | 4.2 | % | ||||||||||||||||||||||
| Genuine Cable Group, LLC | 1051 Perimeter Dr., 300, Schaumburg, Illinois, 60173 | First lien senior secured loan | 10.96% (S + 5.50%) | 11/1/2026 | 5,506 | 5,347 | 5,492 | 0.8 | % | ||||||||||||||||||||||
| I.D. Images Acquisition, LLC | 1120 West 130th Street, Brunswick, OH 44212 | First lien senior secured loan | 11.75% (S + 6.25%) | 7/30/2026 | 13,651 | 13,538 | 13,651 | 2.0 | % | ||||||||||||||||||||||
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| Portfolio Company(1) | Address | Investment (2) | Interest Rate | Maturity Date | Principal
/ Par | Amortized Cost(3)(4) | Fair Value | Percentage
of Net Assets | |||||||||||||||||||||||
| I.D. Images Acquisition, LLC | 1120 West 130th Street, Brunswick, OH 44212 | First lien senior secured delayed draw loan | 11.75% (S + 6.25%) | 7/30/2026 | 2,486 | 2,450 | 2,486 | 0.4 | % | ||||||||||||||||||||||
| I.D. Images Acquisition, LLC | 1120 West 130th Street, Brunswick, OH 44212 | First lien senior secured loan | 11.70% (S + 6.25%) | 7/30/2026 | 4,522 | 4,457 | 4,522 | 0.7 | % | ||||||||||||||||||||||
| I.D. Images Acquisition, LLC | 1120 West 130th Street, Brunswick, OH 44212 | First lien senior secured loan | 11.75% (S + 6.25%) | 7/30/2026 | 1,043 | 1,033 | 1,043 | 0.2 | % | ||||||||||||||||||||||
| I.D. Images Acquisition, LLC | 1120 West 130th Street, Brunswick, OH 44212 | First lien senior secured revolving loan | (7) | 11.75% (S + 6.25%) | 7/30/2026 | - | - | - | 0.0 | % | |||||||||||||||||||||
| Krayden Holdings, Inc. | 1491 West 124th Ave., Westminster, CO 80234 | First lien senior secured delayed draw loan | (7) | 11.20% (S + 5.75%) | 3/1/2025 | - | - | - | 0.0 | % | |||||||||||||||||||||
| Krayden Holdings, Inc. | 1491 West 124th Ave., Westminster, CO 80234 | First lien senior secured delayed draw loan | (7) | 11.20% (S + 5.75%) | 3/1/2025 | - | - | - | 0.0 | % | |||||||||||||||||||||
| Krayden Holdings, Inc. | 1491 West 124th Ave., Westminster, CO 80234 | First lien senior secured revolving loan | (7) | 11.20% (S + 5.75%) | 3/1/2029 | - | - | - | 0.0 | % | |||||||||||||||||||||
| Krayden Holdings, Inc. | 1491 West 124th Ave., Westminster, CO 80234 | First lien senior secured loan | (7) | 11.20% (S + 5.75%) | 3/1/2029 | 9,491 | 9,099 | 9,491 | 1.4 | % | |||||||||||||||||||||
| OAO Acquisitions, Inc. (BearCom) | 950 Tower Lane, Suite 1000, Foster City, CA 94404 | First lien senior secured loan | 11.61% (S + 6.25%) | 12/27/2029 | 21,370 | 20,979 | 21,370 | 3.1 | % | ||||||||||||||||||||||
| OAO Acquisitions, Inc. (BearCom) | 950 Tower Lane, Suite 1000, Foster City, CA 94404 | First lien senior secured delayed draw loan | (7) | 11.61% (S + 6.25%) | 12/27/2025 | - | - | - | 0.0 | % | |||||||||||||||||||||
| OAO Acquisitions, Inc. (BearCom) | 950 Tower Lane, Suite 1000, Foster City, CA 94404 | First lien senior secured revolving loan | (7) | 11.61% (S + 6.25%) | 12/27/2029 | - | - | - | 0.0 | % | |||||||||||||||||||||
| United Safety & Survivability Corporation (USSC) | 101 Gordon Drive, Exton, PA 19341 | First lien senior secured loan | 11.79% (S + 6.25%) | 9/30/2027 | 12,436 | 12,147 | 12,436 | 1.8 | % | ||||||||||||||||||||||
| United Safety & Survivability Corporation (USSC) | 101 Gordon Drive, Exton, PA 19341 | First lien senior secured loan | 11.79% (S + 6.25%) | 9/28/2027 | 1,607 | 1,490 | 1,607 | 0.3 | % | ||||||||||||||||||||||
| United Safety & Survivability Corporation (USSC) | 101 Gordon Drive, Exton, PA 19341 | First lien senior secured delayed draw loan | (7) | 11.79% (S + 6.25%) | 9/30/2027 | 3,160 | 3,110 | 3,160 | 0.5 | % | |||||||||||||||||||||
| United Safety & Survivability Corporation (USSC) | 101 Gordon Drive, Exton, PA 19341 | First lien senior secured revolving loan | (7) | 11.79% (S + 6.25%) | 9/30/2027 | 870 | 860 | 870 | 0.1 | % | |||||||||||||||||||||
| 208,619 | 203,709 | 208,750 | 30.6 | % | |||||||||||||||||||||||||||
| Wireless telecommunication services | |||||||||||||||||||||||||||||||
| Centerline Communications, LLC | 750 West Center Street, Suite 301, West Bridgewater, MA 02379 | First lien senior secured loan | 11.53% (S + 6.00%) | 8/10/2027 | 14,945 | 14,751 | 13,936 | 2.0 | % | ||||||||||||||||||||||
| Centerline Communications, LLC | 750 West Center Street, Suite 301, West Bridgewater, MA 02379 | First lien senior secured delayed draw loan | 11.53% (S + 6.00%) | 8/10/2027 | 7,044 | 6,954 | 6,568 | 1.0 | % | ||||||||||||||||||||||
| Centerline Communications, LLC | 750 West Center Street, Suite 301, West Bridgewater, MA 02379 | First lien senior secured delayed draw loan | 11.53% (S + 6.00%) | 8/10/2027 | 6,202 | 6,112 | 5,783 | 0.9 | % | ||||||||||||||||||||||
| Centerline Communications, LLC | 750 West Center Street, Suite 301, West Bridgewater, MA 02379 | First lien senior secured revolving loan | 11.53% (S + 6.00%) | 8/10/2027 | 1,800 | 1,778 | 1,679 | 0.2 | % | ||||||||||||||||||||||
| Centerline Communications, LLC | 750 West Center Street, Suite 301, West Bridgewater, MA 02379 | First lien senior secured loan | 11.53% (S + 6.00%) | 8/10/2027 | 1,020 | 996 | 952 | 0.1 | % | ||||||||||||||||||||||
| 31,011 | 30,591 | 28,918 | 4.2 | % | |||||||||||||||||||||||||||
| Total Private Credit Debt Investments | 1,353,096 | 1,327,190 | 1,346,174 | 197.1 | % | ||||||||||||||||||||||||||
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| Percentage | |||||||||||||||||||
| Number of Shares/Units | Cost | Fair Value | of Net Assets | |||||||||||||||
| Equity Investments(9) | |||||||||||||||||||
| Automobile components | |||||||||||||||||||
| Vehicle Accessories, Inc. - Class A common (13) | 2800 E. Scyene Road, Mesquite, TX 75181 | 128,250 | - | 326 | 0.0 | % | |||||||||||||
| Vehicle Accessories, Inc. - preferred (13) | 2800 E. Scyene Road, Mesquite, TX 75181 | 250,000 | 250 | 292 | 0.1 | % | |||||||||||||
| 378,250 | 250 | 618 | 0.1 | % | |||||||||||||||
| Commercial services & supplies | |||||||||||||||||||
| American Equipment Holdings LLC - Class A units(14) | 451 W. 3440 South, Salt Lake City, UT 84115 | 426 | 284 | 508 | 0.1 | % | |||||||||||||
| BLP Buyer, Inc. (Bishop Lifting Products) - Class A common (15) | 2301 Commerce Street, Ste 110, Houston, TX 77002 | 582,469 | 652 | 1,200 | 0.1 | % | |||||||||||||
| Arborworks Acquisition LLC - Class A preferred units (11) | 40266 Junction Drive, Oakhurst, CA 93644 | 21,716 | 9,179 | 9,287 | 1.4 | % | |||||||||||||
| Arborworks Acquisition LLC - Class B preferred units (11) | 40266 Junction Drive, Oakhurst, CA 93644 | 21,716 | - | - | 0.0 | % | |||||||||||||
| Arborworks Acquisition LLC - Class A common units (11) | 40266 Junction Drive, Oakhurst, CA 93644 | 2,604 | - | - | 0.0 | % | |||||||||||||
| 628,931 | 10,115 | 10,995 | 1.6 | % | |||||||||||||||
| Food products | |||||||||||||||||||
| BC CS 2, L.P. (Cuisine Solutions) (6)(12) | 200 Clarendon Street, Boston, MA 02116 | 2,000,000 | 2,000 | 2,611 | 0.4 | % | |||||||||||||
| City Line Distributors, LLC - Class A units (16) | 20 Industry Dr., West Haven, CT 06516 | 418,416 | 418 | 418 | 0.1 | % | |||||||||||||
| Gulf Pacific Holdings, LLC - Class A common (14) | 12010 Taylor Rd., Houston, TX, 77041 | 250 | 250 | 189 | 0.0 | % | |||||||||||||
| Gulf Pacific Holdings, LLC - Class C common (14) | 12010 Taylor Rd., Houston, TX, 77041 | 250 | - | - | 0.0 | % | |||||||||||||
| IF&P Foods, LLC (FreshEdge) - Class A preferred (14) | 4501 Massachusetts Avenue, Indianapolis, IN 46218 | 750 | 750 | 905 | 0.1 | % | |||||||||||||
| IF&P Foods, LLC (FreshEdge) - Class B common (14) | 4501 Massachusetts Avenue, Indianapolis, IN 46218 | 750 | - | - | 0.0 | % | |||||||||||||
| Siegel Parent, LLC (17) | 90 Salem Rd, North Billerica, MA 01862 | 250 | 250 | 72 | 0.0 | % | |||||||||||||
| 2,420,666 | 3,668 | 4,195 | 0.6 | % | |||||||||||||||
| Healthcare equipment & supplies | |||||||||||||||||||
| LSL Industries, LLC (LSL Healthcare) (14) | 50 E. Washington St., Ste 400, Chicago IL 60602 | 7,500 | 750 | 552 | 0.1 | % | |||||||||||||
| IT services | |||||||||||||||||||
| Domain Information Services Inc. (Integris) | One South Wacker, Suite 2980, Chicago, IL 60606 | 250,000 | 250 | 344 | 0.0 | % | |||||||||||||
| Specialty retail | |||||||||||||||||||
| Sundance Direct Holdings, Inc. - common | 3865 W 2400 S, Salt Lake City, UT 84120 | 21,479 | - | - | 0.0 | % | |||||||||||||
| Textiles, apparel & luxury goods | |||||||||||||||||||
| American Soccer Company, Incorporated (SCORE) (17) | 726 E. Anaheim Street, Wilmington, CA 90744 | 1,000,000 | 1,000 | 620 | 0.1 | % | |||||||||||||
| Total Private Equity Investments | 16,033 | 17,324 | 2.5 | % | |||||||||||||||
| Total Private Investments | 1,343,223 | 1,363,498 | 199.6 | % | |||||||||||||||
| Number
of Shares | Cost | Fair
Value | Percentage
of Net Assets | |||||||||||||
| Short-Term Investments | ||||||||||||||||
| First American
Treasury Obligations Fund - Institutional Class Z, 5.21% (18) |
12,802,362 | 12,802 | 12,802 | 1.9 | % | |||||||||||
| Total Short-Term Investments | 12,802,362 | 12,802 | 12,802 | 1.9 | % | |||||||||||
| Total Investments | $ | 1,356,025 | $ | 1,376,300 | 201.5 | % | ||||||||||
| Liabilities in Excess of Other Assets | (693,244 | ) | (101.5 | )% | ||||||||||||
| Net Assets | $ | 683,056 | 100.0 | % |
| (1) | As of December 31, 2023, all investments are non-controlled, non-affiliated investments. Non-controlled, non-affiliated investments are defined as investments in which the Company owns less than 5% of the portfolio company’s outstanding voting securities and does not have the power to exercise control over the management or policies of such portfolio company. |
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| (2) | Debt investments are pledged to the Company’s credit facilities, and a single debt investment may be divided into parts that are individually pledged to separate credit facilities. |
| (3) | The amortized cost represents the original cost adjusted for the amortization of discounts and premiums, as applicable, on debt investments using the effective interest method. |
| (4) | As of December 31, 2023, the tax cost of the Company’s investments approximates their amortized cost. |
| (5) | Loan contains a variable rate structure, that may be subject to an interest rate floor. Variable rate loans bear interest at a rate that may be determined by reference to either the Secured Overnight Funding Rate (“SOFR” or “S”) (which can include one-, three- or six-month SOFR), or an alternate base rate (which can include the Federal Funds Effective Rate or the Prime Rate or “P”). |
| (6) | Non-qualifying investment as defined by Section 55(a) of the Investment Company Act of 1940. The Company may not acquire any non-qualifying asset unless, at the time of acquisition, qualifying assets represent at least 70% of the Company’s total assets. As of December 31, 2023, 4.8% of the Company’s total assets were in non-qualifying investments. |
| (7) | Position or a portion thereof is an unfunded commitment, and no interest is being earned on the unfunded portion. The investment may be subject to an unused commitment fee. The unfunded loan commitment may be subject to a commitment termination date that may expire prior to the maturity date stated. |
| (8) | The Company may be entitled to receive additional interest as a result of an arrangement with other lenders in the syndication. In exchange for the higher interest rate, the “last-out” portion is at a greater risk of loss. Certain lenders represent a “first out” portion of the investment and have priority to the “last-out” portion with respect to payments of principal and interest. |
| (9) | Debt investment on non-accrual status as of December 31, 2023. |
| (10) | Non-income producing investment. |
| (11) | In November 2023, the Company completed a restructure of the investment in Arborworks Acquisition LLC whereby the existing term loan and revolver were restructured to a new term loan and preferred and common equity. KABDC Corp II, LLC, a wholly owned subsidiary of the Company, holds the preferred and common equity of Arborworks Acquisition LLC that the Company owns following this restructure. |
| (12) | The Company has a senior secured loan in an investment vehicle (BC CS 2, L.P.) that is collateralized by a preferred stock investment in Cuisine Solutions, Inc. |
| (13) | The Company owns 0.19% of the common equity and 0.43% of the preferred equity of Vehicle Accessories, Inc. |
| (14) | The Company owns 27.15% of a pass-through, taxable limited liability company, KSCF IV Equity Aggregator Blocker, LLC (the “Aggregator Blocker”), which holds the Company’s equity investments in American Equipment Holdings LLC, Gulf Pacific Holdings, LLC, IF&P Foods, LLC (FreshEdge) and LSL Industries, LLC (LSL Healthcare). Through the Company’s ownership of the Aggregator Blocker, the Company owns the respective units of each company listed above in the Schedule of Investments. |
| (15) | The Company owns 0.53% of the common equity BLP Buyer, Inc. (Bishop Lifting Products). |
| (16) | KABDC Corp, LLC, a wholly owned subsidiary of the Company, owns 0.62% of the common equity of City Line Distributors, LLC. |
| (17) | The Company owns 33.95% of a pass-through limited liability company, KSCF IV Equity Aggregator, LLC (the “Aggregator”), which holds the Company’s equity investments in Siegel Parent, LLC and American Soccer Company, Incorporated (SCORE). The Aggregator’s ownership of Siegel Parent, LLC is 1.1442%. Through the Company’s ownership of the Aggregator, the Company owns the respective units of each company listed above in the Schedule of Investments. |
| (18) | The indicated rate is the yield as of December 31, 2023. |
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The following table sets forth securities acquired in transactions exempt from registration under the Securities Act of 1933 and may be deemed to be “restricted securities” under the Securities Act. As of December 31, 2023, the aggregate fair value of these securities is $17.3 million, or 2.5% of the Company’s net assets. The acquisition dates of the restricted securities are set forth below.
| Portfolio Company | Investment | Acquisition
Date | ||
| American Equipment Holdings LLC | Class A common | April 8, 2022 | ||
| American Soccer Company, Incorporated (SCORE) | Common units | July 20, 2022 | ||
| Arborworks Acquisition LLC | Class A preferred units | November 6, 2023 | ||
| Arborworks Acquisition LLC | Class B preferred units | November 6, 2023 | ||
| Arborworks Acquisition LLC | Class A common units | November 6, 2023 | ||
| BLP Buyer, Inc. (Bishop Lifting Products) | Class A common | February 1, 2022 | ||
| City Line Distributors, LLC | Class A units | August 31, 2023 | ||
| BC CS 2, L.P. (Cuisine Solutions) | Preferred stock | July 8, 2022 | ||
| Domain Information Services, Inc. (Integris) | Common units | November 16, 2022 | ||
| IF&P Foods, LLC (FreshEdge) | Class A preferred, Class B common | October 3, 2022 | ||
| Gulf Pacific Holdings, LLC | Class A common, Class C common | September 30, 2022 | ||
| LSL Industries, LLC (LSL Healthcare) | Common units | November 1, 2022 | ||
| Siegel Parent, LLC | Common units | December 29, 2021 | ||
| Sundance Direct Holdings, Inc. | Common units | October 27, 2023 | ||
| Vehicle Accessories, Inc. | Class A common, preferred | February 25, 2022 |
MANAGEMENT
Our business and affairs are managed under the direction of our Board. The responsibilities of the Board include, among other things, the oversight of our investment activities, election of our executive officers, oversight of our financing arrangements and corporate governance activities. In addition, pursuant to Rule 2a-5 under the 1940 Act, the Board has designated the Advisor as the “valuation designee” to perform fair value determinations of our portfolio holdings, subject to oversight by and periodic reporting to the Board. The valuation designee performs fair valuation of our portfolio holdings in accordance with our Valuation Program. Our Board consists of seven directors, four of whom are independent of the Company or of the Advisor as defined in Section 2(a)(19) of the 1940 Act.
Board of Directors and Executive Officers
Directors
Information regarding the Board is as follows:
| Name | Year of Birth | Position | Director Since | Principal Occupation During Past 5 Years | Number of Funds in Fund Complex Overseen by Director(1) | Other Directorships Held by Director | ||||||
| Interested Directors: | ||||||||||||
| Albert (Al) Rabil III | 1963 | Director | 2021 | Chief Executive Officer of Kayne Anderson and Kayne Anderson Real Estate. | 2 | Kayne Anderson | ||||||
| James (Jim) Robo | 1962 | Director, Chairman | 2023 | Private investor. Chairman and Chief Executive Officer of NextEra Energy, Inc. (2013 – 2022) and Chairman and Chief Executive Officer of NextEra Energy Partners, LP (2014 – 2022). | 1 | J.B. Hunt Transport Services, Inc. (transportation and logistics company); NextEra Energy, Inc. (2013 – 2022); NextEra Energy Partners, LP (2014 – 2022) | ||||||
| Terrence J. Quinn | 1951 | Director | 2020 | Vice Chairman of Kayne Anderson and of the Company and Kayne DL 2021, Inc. | 1 | Kayne Anderson |
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| Name | Year of Birth | Position | Director Since | Principal Occupation During Past 5 Years | Number of Funds in Fund Complex Overseen by Director(1) | Other Directorships Held by Director | ||||||
| Independent Directors: | ||||||||||||
| Mariel A. Joliet | 1966 | Director | 2020 | Senior Vice President and Treasurer of Hilton Hotels Corporation (1998 – 2012). | 2 | ASGN, Incorporated (information technology services) | ||||||
| George E. Marucci, Jr. | 1952 | Director | 2020 | Marketing consultant for BMW North America. Golf commentator for NBC Sports. Chair of leading automotive family office in Baltimore, Maryland. Co-owner, President and acting Chief Financial Officer for Pennmark Automotive Enterprises. | 2 | None | ||||||
| Susan C. Schnabel | 1961 | Director | 2020 | Co-founder and Co-Managing Partner of aPriori Capital Partners. Managing Director in the asset management division of Credit Suisse (1998-2014). | 2 | Altice USA, Inc. (cable provider); Laramie Energy II (energy company); KKR Private Equity Conglomerate LLC (private equity holding company) | ||||||
| Rhonda S. Smith | 1959 | Director | 2022 | Chief Financial Officer and Deputy Director of Houston Police Department. Executive Director for the Houston Municipal Employees Pension System (HMEPS), (2010 – 2016). | 2 | Houston Municipal Employees Pension System (pension plan) |
| (1) | The “Fund Complex” consists of the Company and Kayne DL 2021, Inc. |
The address for each of our directors is c/o Kayne Anderson BDC, Inc, 717 Texas Avenue, Suite 2200, Houston, Texas, 77002.
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Executive Officers Who are Not Directors
| Name | Year of Birth | Position | Length of Time Served | Principal Occupation During Past 5 Years | Number of Funds in Fund Complex(1) Overseen | |||||
| Douglas L. Goodwillie | 1975 | Co-Chief Executive Officer | Since 2023 | Co-Chief Investment Officer of the Company and of Kayne DL 2021, Inc. (2020 – 2023). Managing Partner and Co-Head of Kayne Anderson Private Credit (2011 – present). | 2 | |||||
| Kenneth B. Leonard | 1963 | Co-Chief Executive Officer | Since 2023 | Co-Chief Investment Officer of the Company and of Kayne DL 2021, Inc. (2020 – 2023). Managing Partner and Co-Head of Kayne Anderson Private Credit (2011 – present). | 2 | |||||
| Terry A. Hart | 1969 | Chief Financial Officer | Since 2020 | Senior Managing Director of Kayne Anderson since 2020. Chief Operating Officer of Kayne Anderson Energy Infrastructure Fund, Inc. (2022 – 2023). Chief Financial Officer of Kayne Anderson Energy Infrastructure Fund, Inc. (2005 – 2022). | 2 | |||||
| Michael J. O’Neil | 1983 | Secretary and Chief Compliance Officer | Since 2020 | Chief Compliance Officer of Kayne Anderson (2012 – present). Chief Compliance Officer of Kayne Anderson Energy Infrastructure Fund, Inc. (2013 – March 2024). | 2 | |||||
| Frank P. Karl | 1988 | Senior Vice President | Since 2023 |
Managing Director (2021 – present), Director (2019 – 2021) and Vice President (2016 – 2019) of Kayne Anderson. | 2 | |||||
| John B. Riley | 1974 | Vice President | Since 2020 | Vice President and Controller of Kayne Anderson (2021 – present). Controller of Kayne Anderson (2006 – 2021). | 2 |
| (1) | The “Fund Complex” consists of the Company and Kayne DL 2021, Inc. (“KDL”). |
The address for each of our executive officers is c/o Kayne Anderson BDC, Inc., 717 Texas Avenue, Suite 2200, Houston, Texas, 77002.
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Biographical Information
Directors
Our directors have been divided into two groups—interested directors and independent directors. An interested director is an “interested person” as defined in Section 2(a)(19) of the 1940 Act (each an “Interested Director” and together, the “Interested Directors”).
Interested Directors
Albert (Al) Rabil III, Director, Chief Executive Officer of Kayne Anderson. Mr. Rabil is the Chief Executive Officer of Kayne Anderson, overseeing strategic initiatives, operations and asset management across Kayne Anderson’s investment platforms. In 2007, Mr. Rabil co-founded Kayne Anderson’s real estate private equity platform (“KA Real Estate”) and continues to serve as KA Real Estate’s CEO, setting strategic direction, overseeing overall investment activities, and leading fundraising for all KA Real Estate investments. Kayne Anderson currently manages $32 billion (as of January 2023) in assets across its platform which includes real estate, renewable energy, energy infrastructure, credit, and growth capital sectors. Immediately prior to co-founding KA Real Estate, Mr. Rabil founded and was a principal of two real estate investment firms, RAMZ, LLC and Rabil Properties, LLC, where he developed and acquired a substantial portfolio of off-campus student housing properties. This was preceded by an almost ten-year stint at UBS where Mr. Rabil served as a Managing Director and Head of Real Estate Banking for the Americas and Europe. During his tenure there he played a key role in making UBS a market leader in both syndicated debt and large loan CMBS. Mr. Rabil began his career in the Real Estate Finance Group of the Bankers Trust Company. Mr. Rabil earned a B.A. cum laude from Yale University in 1985 and an M.B.A. in Finance from Columbia University in 1988.
James (Jim) Robo, Director, Chairman of KABDC. Mr. Robo serves as Chairman of our KABDC Board of Directors. Mr. Robo is a private investor and former Chairman and Chief Executive Officer of NextEra Energy, Inc., a leading clean energy company, and NextEra Energy Partners, LP, a growth-oriented limited partnership formed by NextEra Energy, Inc. to acquire, manage, and own contracted clean energy projects. During Mr. Robo’s 10-year tenure as CEO, NextEra Energy’s market capitalization grew substantially, becoming the largest electric utility in the world, as well as the largest renewable company in the world. Prior to joining NextEra Energy in 2002, Mr. Robo spent 10 years at General Electric Company, serving as President and Chief Executive Officer of GE Mexico from 1997 until 1999 and as President and Chief Executive Officer of the GE Capital TIP/Modular Space division from 1999 until February 2002. From 1984 through 1992, he worked for Mercer Management Consulting. Mr. Robo serves on the board of J. B. Hunt Transport Services, Inc. and is Lead Director and Chairman of the Governance and Nominating Committee. Mr. Robo received a B.A. summa cum laude from Harvard College and an M.B.A. from Harvard Business School, where he was a Baker Scholar. Mr. Robo’s financial expertise, leadership experience, and business experience gained through his leadership of a large complex corporation led our Nominating Committee to conclude that Mr. Robo is qualified to serve as Chairman of the Board of KABDC.
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Terrence J. Quinn, Director, Vice Chairman of Kayne Anderson. Mr. Quinn is our Vice Chairman. Mr. Quinn is the vice chairman for Kayne Anderson and is responsible for managing our new business opportunities and select client relations. He oversees the private credit group and serves on the firm’s Credit, Real Estate and Growth Private Equity Investment Committees. Mr. Quinn was a founding member of the Board of Kayne Anderson Energy Infrastructure Fund, Inc. and the Board of Kayne Anderson Energy Total Return Fund, Inc. Prior to joining Kayne Anderson in 2006, Mr. Quinn was a founding partner of a merchant banking firm specializing in private equity and advisory services. He was president and chief executive officer of several operating companies and member of the executive committee of a leading regional bank. Mr. Quinn was manager of pension investments for the 3M Company and founding chief executive officer of a leading mezzanine fund group. Mr. Quinn has served on the boards of directors of several public and private firms. Mr. Quinn earned a B.A. in Economics in 1973 and an M.B.A. from the University of Minnesota in 1974. Mr. Quinn’s experience as an executive officer of various banking companies led our Nominating Committee to conclude that Mr. Quinn is qualified to serve as a director of KABDC.
Independent Directors
Mariel A. Joliet. Ms. Joliet serves as Chairperson of our KDL Board of Directors, Lead Independent Director of our KABDC Board of Directors and Chairperson of our Nominating Committee. Ms. Joliet also serves as a director on the Board of Directors of ASGN, Incorporated (NYSE: ASGN) and is also a member of ASGN’s Audit and Compensation Committees. ASGN Incorporated is one of the foremost providers of IT and professional services in the technology, digital, creative, engineering and life sciences fields across commercial and government sectors. From 1998 to 2008, Ms. Joliet was employed by the Hilton Hotels Corporation, a publicly traded hotel company, as senior vice president and treasurer. During her time at the Hilton Hotels Corporation, Ms. Joliet participated in its sale to the Blackstone Group, one of the ten-largest leveraged buyouts in history at the time. As Treasurer, Ms. Joliet was responsible for capital markets and financial investment initiatives, including credit ratings, debt/equity issuances, interest rate risk management, cash management and foreign exchange. Prior to her employment with Hilton Hotels Corporation, Ms. Joliet worked for ten years as a coverage officer and corporate banker at Wachovia Bank and Corestates Bank, where she was responsible for client relationships and portfolio management. Ms. Joliet serves on Las Madrinas, a philanthropic organization supporting pediatric care and research, at Children’s Hospital Los Angeles. Ms. Joliet also served as a member for Know the Glow Foundation. She received a B.S. at the University of Scranton and earned an M.B.A. from Marywood University. Ms. Joliet has a strong background in financing, acquisitions, deal structuring, strategic planning, and operational integration. Ms. Joliet’s experiences as a corporate executive led our Nominating Committee to conclude that Ms. Joliet is qualified to serve as a director.
George E. Marucci, Jr. Mr. Marucci is an accomplished finance executive and entrepreneur in various industries and fields. Mr. Marucci serves as the Lead Valuation Director on our Audit Committee. Mr. Marucci currently serves as a marketing consultant for BMW North America. Previously, Mr. Marrucci was a golf commentator for NBC Sports. Mr. Marucci was also previously the co-owner, president and acting chief financial officer for Pennmark Automotive Enterprises, a luxury automobile dealership, and co-owner and president of Pennmark Real Estate Investment Group, which specialized in commercial real estate and development, including the development and operation of 50 Walmart retail centers. Prior to owning and operating these companies, Mr. Marucci served as an investment advisor and stockbroker at White Weld and Co. and Merrill Lynch. In those roles, Mr. Marucci was responsible for institutional sales and client development. Mr. Marucci began his career with a family-based accounting firm, Marucci, Ortals and Co. Mr. Marucci received a B.A. in Accounting in 1974 from The University of Maryland. Mr. Marucci’s diverse experiences in real estate, investment advisory and marketing consultant roles led our Nominating Committee to conclude that Mr. Marucci is qualified to serve as a director.
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Susan C. Schnabel. Ms. Schnabel serves as Chairperson of our Audit Committee of our Board of Directors. Ms. Schnabel is the co-founder and co-managing partner of aPriori Capital Partners, an independent leveraged buyout fund advisor. aPriori Capital Partners was created in connection with the spin-off of DLJ Merchant Banking Partners from Credit Suisse in 2014. Prior to forming aPriori Capital, Ms. Schnabel worked at Credit Suisse from 1998 to 2014 where she served as a managing director in the Asset Management Division and co-head of DLJ Merchant Banking. Over the course of her thirty-plus year career she has served on over thirty public and private boards including the roles of Lead Director (NYSE), Audit, Compensation and Nominating & Governance Chair. She also serves on the Board of Trustees of Cornell University — Executive and Investment Committee and Co-Chair of the Research & Innovation Committee, and the US Olympic and Paralympic Foundation Board of Directors — Finance Committee. Ms. Schnabel recently completed her terms on the California Institute of Technology — Investment Committee and The Harvard Business School Alumni Advisory Board where she served on the Executive Committee. Ms. Schnabel earned a Bachelor of Science in Chemical Engineering from Cornell University and an M.B.A. from Harvard Business School. Ms. Schnabel’s experience as an investment banker, private equity investor and a corporate director led our Nominating Committee to conclude that Ms. Schnabel is qualified to serve as a director.
Rhonda S. Smith. Ms. Smith is the chief financial officer and deputy director for the Houston Police Department (HPD), the fifth largest police department in the U.S. Ms. Smith joined HPD in 2017, with budget oversight, including, financial reporting, accounting, procurements, and grants. Prior to joining HPD, from 2010 to 2016, Ms. Smith was the executive director for Houston Municipal Employees Pension System (HMEPS) and director of administration from 2008 to 2010. Ms. Smith has over 30 years of experience in finance, accounting, regulatory compliance, auditing, change management and leadership. She has worked within large, complex municipal organizations and pension funds, and with public corporations where she served as an auditor. Ms. Smith is recognized as a financial and pension expert who provides leadership in investment best practices, pension reform, company rebranding, political risk management and board governance. Ms. Smith is a Trustee for the Advisory Board of AIF Global, an independent economic think tank for institutional investment policy. She also serves as Trustee on the HMEPS Board of Directors and as Board Secretary. Her passion to support leadership development in community continues through serving on the Executive Women Partnership Steering Committee for the Greater Houston Partnership; the Girl Scouts of San Jacinto Council Board Development Committee in Texas; and, as One Delta Plaza Educational Center Foundation Board Treasurer. Ms. Smith earned an M.B.A. from the University of Houston, a B.S. in accounting from Ohio State University and certification from the Glasscock School of Continuing Education at Rice University. Ms. Smith’s experience in finance, accounting, regulatory compliance, auditing and pension reform led our Nominating Committee to conclude that Ms. Smith is qualified to serve as a director.
Executive Officers Who Are Not Directors
Douglas L. Goodwillie (Portfolio Manager), Co-Chief Executive Officer. Mr. Goodwillie is a Co-Chief Executive Officer of the Company since August 2023 and served as Co-Chief Investment Officer from 2020 to August 2023. Mr. Goodwillie is a managing partner and co-head of Kayne Anderson’s private credit group, which is a part of the credit investment team, and has over 20 years of experience in middle market lending. Prior to joining Kayne Anderson in November 2011, Mr. Goodwillie was a director at LBC Credit Partners, a middle market private debt fund. At LBC, he was responsible for originating senior and mezzanine loan transactions. Mr. Goodwillie also served as a rotational member of the LBC’s Investment Committee. Prior to joining LBC, Mr. Goodwillie was an operating director at Arsenal Capital Partners in New York where he led the firm’s capital markets efforts and served as an industry specialist in the financial services vertical sector. Mr. Goodwillie spent seven years at Dymas Capital Management in Chicago, a leading middle market finance company where he was responsible for originating, underwriting and managing senior and junior middle market loans. Mr. Goodwillie began his career with Gleacher Partners where he was focused on leveraged lending and mergers and acquisition advisory. Mr. Goodwillie holds a B.A. from Kenyon College and an M.B.A. from the University of Chicago.
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Kenneth B. Leonard (Portfolio Manager), Co-Chief Executive Officer. Mr. Leonard is a Co-Chief Executive Officer of the Company since August 2023 and served as Co-Chief Investment Officer from 2020 to August 2023. Mr. Leonard is a managing partner and co-head of Kayne Anderson’s private credit group, which is part of the credit investment team. Prior to joining Kayne Anderson in 2011, Mr. Leonard was with Cerberus Capital Management, L.P. where he was a co-founder of Dymas Capital Management and helped lead the development of a middle market, private equity focused lending business. Prior to joining Cerberus Capital Management, L.P., Mr. Leonard was a senior vice president in the Merchant Banking Syndications Team at GE Capital from 2001 to 2002. From 1998 to 2001 he was in charge of the Corporate Finance Syndications Team of Heller Financial. From 1995 to 1998, he served as an investment professional in the Turnaround Private Equity Group of Heller Investments, Inc. From 1986 to 1995, he served in a variety of lending positions at Heller Financial, including real estate, asset-based lending and cash flow lending. Mr. Leonard is a graduate of the University of Iowa and received an M.B.A. from Northwestern University.
Terry A. Hart, Chief Financial Officer. Mr. Hart serves as our Chief Financial Officer and Treasurer. Mr. Hart is a senior managing director for Kayne Anderson. He is responsible for the oversight of accounting, financial reporting, tax and treasury. Prior to joining Kayne Anderson in 2005, Mr. Hart was most recently a senior vice president and controller at Dynegy, Inc. Prior to that, Mr. Hart served as assistant treasurer and director of structured finance. He began his finance and accounting career in 1992 with Illinova Corporation, which was acquired by Dynegy, Inc. in 2000. Mr. Hart earned a B.S. in Accounting from Southern Illinois University in 1991 and an M.B.A. from the University of Illinois in 1999.
Michael J. O’Neil, Secretary and Chief Compliance Officer. Mr. O’Neil serves as our Chief Compliance Officer. Mr. O’Neil is also the chief compliance officer of Kayne Anderson. Prior to joining Kayne Anderson, Mr. O’Neil was a compliance officer at BlackRock Inc. from January 2008 to March 2012, where he was responsible for regulatory compliance matters related to trading and portfolio management activities across equity, fixed income and alternative assets. Mr. O’Neil earned a B.A. in International Business and Management from Dickinson College and M.B.A. and L.L.M. degrees from Boston University.
Frank P. Karl, Senior Vice President. Mr. Karl serves as a Senior Vice President. Mr. Karl is a Managing Director of Investments of Middle Market Direct Lending at Kayne Anderson. Prior to joining Kayne Anderson in 2013, Mr. Karl spent two years as an analyst with Houlihan Lokey’s financial restructuring group, focusing on advising debtors and creditors on restructuring transactions both in- and out- of bankruptcy. Mr. Karl graduated magna cum laude with a B.B.A. from the University of Notre Dame.
John. B. Riley, Vice President. Mr. Riley serves as a Vice President. Mr. Riley is a controller for Kayne Anderson. Prior to joining Kayne Anderson in 2006, Mr. Riley was most recently a director of reporting for Key Energy Services, Inc. Prior to that, Mr. Riley served as a financial controller for Noble Corporation and a manager of corporate reporting & analysis / corporate internal control for Dynegy, Inc. Mr. Riley began his accounting career in 1998 with PricewaterhouseCoopers, LLP. Mr. Riley earned a B.B.A. in Accounting and an M.B.A. from Baylor University in 1998. Mr. Riley is a Certified Public Accountant (CPA) in the State of Texas.
Board Leadership Structure
The Company’s business and affairs are managed under the direction of its Board, including the duties performed for the Company pursuant to its Investment Advisory Agreement. Among other things, the Board sets broad policies for the Company, approves the appointment of the Company’s investment adviser, administrator, and officers, and approves the engagement, and reviews the performance of the Company’s independent registered public accounting firm. The role of the Board and of any individual director is one of oversight and not of management of the day-to-day affairs of the Company.
The Board has four independent directors (each an “Independent Director” and together, the “Independent Directors”) with one Lead Independent Director. As part of each regular Board meeting, the Independent Directors meet separately from Kayne Anderson officers and Interested Directors and, as part of at least one Board meeting each year, with the Company’s Chief Compliance Officer. The Board reviews its leadership structure periodically as part of its annual self-assessment process and believes that its structure is appropriate to enable the Board to exercise its oversight of their Company.
Under the Company’s Bylaws, the Board may designate a Chairperson to preside over meetings of the Board and meetings of stockholders, and to perform such other duties as may be assigned to him or her by the Board. The Company has not established a policy as to whether the Chairperson of the Board shall be an Independent Director and believes that having the flexibility to designate its Chairperson and reorganize its leadership structure from time to time is in the best interests of the Company and its stockholders.
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Presently, Mr. Robo serves as Chairman of the Board, and Ms. Joliet serves as Lead Independent Director of the Board. All of the Independent Directors play an active role in serving on the Board. The Independent Directors constitute a majority of the Company’s Board and are closely involved in all material deliberations related to the Company. The Board of the Company believe that, with these practices, each Independent Director has a stake in the Boards’ actions and oversight role and accountability to the Company and its stockholders.
Board Role in Risk Oversight
The Board oversees the services provided by Kayne Anderson, including certain risk management functions. Risk management is a broad concept comprised of many disparate elements (such as, for example, investment risk, issuer and counterparty risk, compliance risk, operational risk, and business continuity risk). Consequently, Board oversight of different types of risks is handled in different ways, and the Board implements its risk oversight function both as a whole and through its Board committees. In the course of providing oversight, the Board and its committees receive reports on their Company’s activities, including those related to the Company’s investment portfolio and its financial accounting and reporting. The Board also meets at least quarterly with the Company’s Chief Compliance Officer, who reports on the compliance of the Company with the federal securities laws and the Company’s internal compliance policies and procedures. The meetings of each Audit Committee with the Company’s independent registered public accounting firm also contribute to Board oversight of certain internal control risks. In addition, the Board meets periodically with representatives of the Company and Kayne Anderson to receive reports regarding the management of the Company, including those related to certain investment and operational risks, and the Independent Directors of the Company are encouraged to communicate directly with senior management.
The Company believes that Board’s roles in risk oversight must be evaluated on a case-by-case basis and that the Board’s existing role in risk oversight is appropriate. Management of the Company believes that the Company has robust internal processes in place and a strong internal control environment to identify and manage risks. However, not all risks that may affect the Company can be identified or processes and controls developed to eliminate or mitigate their occurrence or effects, and some risks are beyond any control of the Company or Kayne Anderson, its affiliates or other service providers.
Committees of the Board of Directors
The Company’s Board currently has two standing committees: The Audit Committee and the Nominating and Corporate Governance Committee (the “Nominating Committee”). The table below shows the directors currently serving on the committees of the Company:
| Audit Committee | Nominating Committee | |||||||
| Independent Directors | ||||||||
| Mariel A. Joliet(1) | X | X | ||||||
| George E. Marucci, Jr.(2) | X | X | ||||||
| Susan C. Schnabel(3)(4) | X | X | ||||||
| Rhonda S. Smith | X | X | ||||||
| Interested Directors | ||||||||
| Albert (A1) Rabil III | — | — | ||||||
| James (Jim) Robo | — | — | ||||||
| Terrence J. Quinn | — | — | ||||||
| (1) | Chairperson of the Nominating Committee. |
| (2) | Lead valuation director of the Audit Committee. |
| (3) | Chairperson of the Audit Committee. |
| (4) | Designated as an “audit committee financial expert” by the Board. |
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Audit Committee
The Audit Committee is currently composed of Mariel A. Joliet, George E. Marucci, Jr., Susan C. Schnabel and Rhonda S. Smith, all of whom are not considered “interested persons” of the Company, as that term is defined in Section 2(a)(19) of the 1940 Act, and meet the independence requirements of Rule 10A(m)(3) of the Exchange Act. Susan Schnabel serves as Chairperson of the Audit Committee. Our Board has determined that Susan C. Schnabel is an “audit committee financial expert” as that term is defined under Item 407 of Regulation S-K, as promulgated under the Exchange Act. The Audit Committee operates pursuant to a certificate of incorporation approved by our Board, which sets forth the responsibilities of the Audit Committee. The Audit Committee’s responsibilities include establishing guidelines and making recommendations to our Board regarding the selection of our independent registered public accounting firm, reviewing with such independent registered public accounting firm the planning, scope and results of their audit of our financial statements, pre-approving the fees for services performed, reviewing with the independent registered public accounting firm the adequacy of internal control systems, reviewing our annual financial statements and periodic filings, receiving our audit reports and financial statements and oversight of the Advisor’s fair value determinations of our portfolio holdings.
Nominating and Corporate Governance Committee
The members of the Nominating and Corporate Governance Committee are Mariel A. Joliet, George E. Marucci, Jr., Susan C. Schnabel and Rhonda S. Smith, all of whom are not considered “interested persons” of the Company, as that term is defined in Section 2(a)(19) of the 1940 Act. Mariel A. Joliet serves as Chairperson of the Nominating and Corporate Governance Committee. The Nominating and Corporate Governance Committee operates pursuant to a certificate of incorporation approved by our Board. The Nominating and Corporate Governance Committee is responsible for selecting, researching and nominating qualified nominees to be elected to the Board by our stockholders at the annual stockholder meeting, selecting qualified nominees to fill any vacancies on our Board or a committee of the Board (consistent with criteria approved by our Board), developing and recommending to our Board a set of corporate governance principles applicable to us and overseeing the evaluation of our Board and our management.
The Nominating and Corporate Governance Committee has not adopted a formal policy with regard to the consideration of diversity in identifying director nominees. In determining whether to recommend a director nominee, the Nominating and Corporate Governance Committee considers and discusses director diversity, among other factors, with a view toward the needs of our Board as a whole. The Nominating and Corporate Governance Committee generally conceptualizes diversity expansively to include concepts such as race, gender, national origin, differences of viewpoint, professional experience, education, skill and other qualities that contribute to our Board, when identifying and recommending director nominees. The Nominating and Corporate Governance Committee believes that the inclusion of diversity as one of many factors considered in selecting director nominees is consistent with the Nominating and Corporate Governance Committee’s goal of creating a Board that best serves our needs and the interests of our stockholders.
The Nominating and Corporate Governance Committee is responsible for matters with respect to compensation. While the Company does not currently directly pay compensation to its executive officers and does not anticipate directly paying compensation to its executive officers, the Nominating and Corporate Governance Committee shall determine, or recommend to the Board for determination, any compensation paid directly by the Company to the Company’s Chief Executive Officers and any other executive officers.
Compensation Committee
We currently do not have a separate compensation committee because our executive officers do not receive compensation from us. Compensation matters are handled by the Nominating and Corporate Governance Committee as described above.
Indemnification Agreements
We entered into indemnification agreements with our directors. The indemnification agreements are intended to provide our directors the maximum indemnification permitted under Delaware law and the 1940 Act. Each indemnification agreement provides that we will indemnify the director who is a party to the agreement, or an indemnitee, including the advancement of legal expenses, if, by reason of his or her corporate status, the indemnitee is, or is threatened to be, made a party to or a witness in any threatened, pending, or completed proceeding, to the maximum extent permitted by Delaware law and the 1940 Act.
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Dollar Range of Equity Securities Beneficially Owned by Directors
The following table sets forth the dollar range of equity securities of the Company beneficially owned by each trustee of December 31, 2023:
Dollar Range of Equity Securities in the Company(1)(2) | Dollar
Range of Equity Securities in the Fund | |||
| Interested Directors | ||||
| Albert (A1) Rabil III | over $100,000 | over $100,000 | ||
| James (Jim) Robo | over $100,000 | over $100,000 | ||
| Terrence J. Quinn | over $100,000 | over $100,000 | ||
| Independent Directors | ||||
| Mariel A. Joliet | None | None | ||
| George E. Marucci, Jr. | None | None | ||
| Susan C. Schnabel | None | None | ||
| Rhonda S. Smith | None | None |
| (1) | Dollar ranges are as follows: none, $1 – $10,000, $10,001 – $50,000, $50,001 – $100,000, or over $100,000. |
| (2) | Dollar ranges were determined using the number of shares that are beneficially owned as of December 31, 2023, multiplied by the Company’s net asset value per share as of December 31, 2023. |
| (3) | The “Fund Complex” includes Kayne DL 2021, Inc., of which none of the above Directors own and shares of Kayne DL 2021, Inc. |
Executive Compensation
None of our executive officers will receive direct compensation from us. Any compensation paid for services relating to our financial reporting and compliance functions will be paid by our Administrator, subject to reimbursement by us of an allocable portion of office facilities, overhead, and compensation paid to or compensatory distributions received by our officers (including our Chief Compliance Officer and Chief Financial Officer) and their respective staff who provide services to us. As we reimburse the Administrator for its expenses, we indirectly bear such cost. Our Administrator engaged Ultimus Fund Solutions, LLC under a sub-administration agreement to assist the Administrator in performing certain of its administrative duties. The Administrator may enter into additional sub-administration agreements with third-parties to perform other administrative and professional services on behalf of the Administrator. We pay the fees associated with such functions on a direct basis without profit to our Administrator.
Director Compensation
Directors and officers who are “interested persons” by virtue of their employment by Kayne Anderson, including all executive officers, serve without any compensation from the Company. For the Company, for the fiscal year ended December 31, 2023:
| ● | Independent Directors receive an annual retainer of $160,000 for his or her service. Independent Directors, voting separately, have authority to set their compensation. |
| ● | The lead independent director of the Company receives an annual retainer of $25,000. |
| ● | The Chairperson of the Audit Committee receives an annual retainer of $15,000. |
| ● | The lead valuation director of the Audit Committee receives an annual retainer of $15,000. |
| ● | Independent Directors receives $10,000 for service on the Audit Committee. |
| ● | Independent Directors receives $2,500 per special board meeting attended, whether in-person or telephonic. |
| ● | The Independent Directors are reimbursed for expenses incurred as a result of attendance at meetings of the Board and its committees. |
The annual retainers noted above were allocated to the Company and Kayne DL 2021, Inc. at 80% and 20%, respectively, for the year ended December 31, 2023.
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The following table sets forth the compensation paid by the Company for service during the fiscal year ended December 31, 2023, to the Independent Directors. The Company does not have a retirement or pension plan or any compensation plans under which the Company’s equity securities are authorized for issuance.
| KBDC Compensation | Total | |||||||
| Independent Directors | ||||||||
| Mariel A. Joliet | $ | 156,000 | $ | 195,000 | ||||
| George E. Marucci, Jr. | $ | 148,000 | $ | 185,000 | ||||
| Susan C. Schnabel | $ | 148,000 | $ | 185,000 | ||||
| Rhonda S. Smith | $ | 136,000 | $ | 170,000 | ||||
| Interested Directors | ||||||||
| Albert (A1) Rabil III | None | None | ||||||
| James (Jim) Robo | None | None | ||||||
| Terrence J. Quinn | None | None | ||||||
| (1) | The “Fund Complex” includes Kayne DL 2021, Inc. |
Upon completion of this offering, the Company will pay independent directors an annual retainer of $135,000. In addition, the lead independent director will receive an annual retainer of $20,000; the Chairperson of the Audit Committee will receive an annual retainer of $12,000; the lead valuation director of the Audit Committee will receive an annual retainer of $12,000; and the independent directors will receive $12,000 for service on the Audit Committee.
Portfolio Managers
The Company’s investment activities are managed by KA Credit Advisors, LLC and Kayne Anderson Private Credit. The Company’s portfolio managers are Douglas L. Goodwillie and Kenneth B. Leonard. Biographical information regarding the Company’s portfolio managers is as follows:
Douglas L. Goodwillie (Portfolio Manager), Co-Chief Executive Officer. Mr. Goodwillie is a Co-Chief Executive Officer of the Company since August 2023 and served as Co-Chief Investment Officer from 2020 to August 2023. Mr. Goodwillie is a managing partner and co-head of Kayne Anderson’s private credit group, which is a part of the credit investment team, and has over 20 years of experience in middle market lending. Prior to joining Kayne Anderson in November 2011, Mr. Goodwillie was a director at LBC Credit Partners, a middle market private debt fund. At LBC, he was responsible for originating senior and mezzanine loan transactions. Mr. Goodwillie also served as a rotational member of the LBC’s Investment Committee. Prior to joining LBC, Mr. Goodwillie was an operating director at Arsenal Capital Partners in New York where he led the firm’s capital markets efforts and served as an industry specialist in the financial services vertical sector. Mr. Goodwillie spent seven years at Dymas Capital Management in Chicago, a leading middle market finance company where he was responsible for originating, underwriting and managing senior and junior middle market loans. Mr. Goodwillie began his career with Gleacher Partners where he was focused on leveraged lending and mergers and acquisition advisory. Mr. Goodwillie holds a B.A. from Kenyon College and an M.B.A. from the University of Chicago.
Kenneth B. Leonard (Portfolio Manager), Co-Chief Executive Officer. Mr. Leonard is a Co-Chief Executive Officer of the Company since August 2023 and served as Co-Chief Investment Officer from 2020 to August 2023. Mr. Leonard is a managing partner and co-head of Kayne Anderson’s private credit group, which is part of the credit investment team. Prior to joining Kayne Anderson in 2011, Mr. Leonard was with Cerberus Capital Management, L.P. where he was a co-founder of Dymas Capital Management and helped lead the development of a middle market, private equity focused lending business. Prior to joining Cerberus Capital Management, L.P., Mr. Leonard was a senior vice president in the Merchant Banking Syndications Team at GE Capital from 2001 to 2002. From 1998 to 2001 he was in charge of the Corporate Finance Syndications Team of Heller Financial. From 1995 to 1998, he served as an investment professional in the Turnaround Private Equity Group of Heller Investments, Inc. From 1986 to 1995, he served in a variety of lending positions at Heller Financial, including real estate, asset-based lending and cash flow lending. Mr. Leonard is a graduate of the University of Iowa and received an M.B.A. from Northwestern University.
See “—Portfolio Management”, “—Other Accounts Managed”, “—Portfolio Manager Compensation” and “—Securities Ownership of the Portfolio Manager” which provides additional information about the portfolio managers’ compensation, other accounts managed by the portfolio managers and the portfolio managers’ ownership of securities of the Company.
Investment Committee
The Advisor’s investment committee is composed of Douglas Goodwillie, Kenneth B. Leonard, Paul S. Blank and Terrence J. Quinn. Biographical information regarding members of the Advisor’s investment committee, who are not Directors or our executive officers, is as follows:
Paul S. Blank, Partner, Chief Operating Officer and Head of Strategic Planning and External Affairs at Kayne Anderson. Mr. Blank is the co-portfolio manager of Kayne Anderson Non-Traditional Investments (“KANTI”), which is Kayne Anderson’s fund that invests across the Kayne Anderson platform. Mr. Blank also serves as liaison between senior management, investment teams and the sales and marketing group providing strategic positioning and guidance on development opportunities for Kayne Anderson. Mr. Blank is also responsible for external and internal communications and public affairs. Prior to re-joining Kayne Anderson in March 2011, Mr. Blank was a partner at the multi-media firm Joe Trippi & Associates where he provided senior strategic counsel, media relations and campaign management to corporations, non-profits, unions and political leaders worldwide. Mr. Blank helped pioneer the use of cutting-edge technologies in communications campaigns and served in leadership positions on two Presidential campaigns and as a senior Advisor to Governor Jerry Brown’s successful 2010 gubernatorial election. Early in his career, Mr. Blank worked at Kayne Anderson as a junior analyst, mainly focusing on energy infrastructure. Mr. Blank graduated magna cum laude with a B.A. in political science from Duke University and is a cum laude graduate of Phillips Exeter Academy.
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Portfolio Management
Set forth below is information regarding the team of professionals at the Advisor (who are not Directors) that support overseeing the day-to-day management of the Company. The Advisor utilizes a team approach, with decisions derived from interaction among various investment management sector specialists. Under this team approach, management of the Company’s portfolio will reflect a consensus of interdisciplinary views. Mr. Goodwillie and Mr. Leonard are jointly and primarily responsible for overseeing the day-to-day management of the Company.
Andrew D. Marek, Managing Partner, Middle Market Direct Lending at Kayne Anderson. Mr. Marek is a managing partner for Kayne Anderson’s middle market direct lending strategies. Prior to joining Kayne Anderson, Mr. Marek was with Cerberus Capital where he was a co-founder of Dymas Capital Management and helped lead the development of a middle market, private equity focused lending business. Prior to joining Cerberus, Mr. Marek worked at Heller Financial from 1989 to 2002, where he last served as a senior vice president and worked in loan restructuring, portfolio management and originations management and where he was a co-manager of a significant portfolio and a 22-member team of professionals responsible for originating, underwriting and managing loans to and investments with middle market private equity sponsors. From 1984 to 1989, he worked with Deloitte Haskins & Sells. Mr. Marek earned a B.S. in Accounting from the University of Illinois in 1984 and an M.B.A. from Northwestern University’s Kellogg School of Management.
John K. McNulty, Jr., Senior Managing Director – Investments, Middle Market Direct Lending at Kayne Anderson. Prior to joining Kayne Anderson in 2009, he was an executive director in the Leveraged Capital Markets Group at UBS Securities. Prior to joining UBS in 2006, Mr. McNulty worked in the Loan Markets Group at RBS where he was responsible for the origination, structuring, diligence and distribution of middle market financings. From 1996 to 2003, he worked in the Leveraged Finance Investment Banking Group at Merrill Lynch & Company. Mr. McNulty received a B.A. in Geology with a concentration in Economics from Dartmouth College.
Liam A. Alling, Managing Director – Investments, Middle Market Direct Lending at Kayne Anderson. Prior to joining Kayne Anderson in 2013, Mr. Alling was an Associate at AlpInvest Partners, focusing on execution of mezzanine debt and private equity investments in leveraged buyouts. Prior to AlpInvest Partners, Mr. Alling was an investment banking Analyst in the Financial Institutions Group at Citigroup, focusing on mergers and acquisitions, and debt and equity capital raising in the asset management and financial technology sectors. Mr. Alling graduated magna cum laude from Georgetown University with a B.S. in Finance and Accounting.
Timothy P. Davitt, Managing Director – Investments, Middle Market Direct Lending at Kayne Anderson. Prior to joining Kayne Anderson in 2017, Mr. Davitt held significant roles with several leading firms in the middle market leveraged lending industry such as Goldman Sachs, GE Capital, Cerberus Capital and Heller Financial. He has led highly collaborative deal teams through the full investment cycle, cultivated an extensive national network of private equity firms, investment banks and other intermediaries and has driven revenue growth and profitability in highly demanding and competitive markets. His expertise includes business development, risk assessment, credit underwriting and deal closing. Mr. Davitt is a graduate of the University of Minnesota and received an M.B.A. from the University of Wisconsin.
Lee E. Feingold, Managing Director – Investment Management, Middle Market Direct Lending at Kayne Anderson. Prior to joining Kayne Anderson in 2018, Mr. Feingold spent several years in middle market management consulting at the Keystone Group. Mr. Feingold’s primary focus was on turnaround situations within the manufacturing and distribution space. These projects included interim management, lender negotiations, and refinance initiatives. Mr. Feingold also served in a portfolio management role at The Riverside Company, where he monitored company performance, supported investor requests and performed ad hoc analyses on behalf of the fund managers. Mr. Feingold graduated magna cum laude with a BS in Finance from Indiana University and later received his MBA from New York University.
Brendan G. McKay, Managing Director – Investments, Middle Market Direct Lending at Kayne Anderson. Prior to joining Kayne Anderson in 2022, Brendan worked at ONEX – Falcon where he was responsible for west coast origination and coverage efforts. Prior to working at ONEX – Falcon, he was an investment banking analyst in the Consumer Retail & Business Services Group at Deutsche Bank in New York. Mr. McKay received a B.S. in Finance and B.S. in Accounting from The Carroll School of Management Honors Program at Boston College.
Rick W. Persutti, Managing Director – Investments, Middle Market Direct Lending at Kayne Anderson. Prior to joining Kayne Anderson in 2013, Mr. Persutti was a Senior Analyst in the Leveraged Finance group at Bank of America Merrill Lynch, focusing on the origination, execution and syndication of high yield and leveraged loan transactions. Prior to Bank of America Merrill Lynch, Mr. Persutti was an investment banking Analyst in the Public Finance group at M.R. Beal & Company, focusing on municipal underwriting. Mr. Persutti graduated from the College of the Holy Cross with a B.A. in Economics.
Steven M. Wierema, Jr., Managing Director – Investments, Middle Market Direct Lending at Kayne Anderson. Prior to joining Kayne Anderson in 2012, Mr. Wierema spent three years with Lake Capital Management, a middle market private equity firm focused on business services, most recently as a senior associate. Prior to Lake Capital, Mr. Wierema was an Analyst in the investment banking division of Citigroup. Mr. Wierema holds a B.B.A. from the University of Notre Dame and an M.B.A. from the University of Chicago Booth School of Business.
Other Accounts Managed
The table below identifies the number of accounts (other than the Company) for which the Company’s portfolio managers has day-to-day management responsibilities and the total assets in such accounts, within each of the following categories: registered investment companies, other pooled investment vehicles and other accounts. For each category, the number of accounts and total assets in the accounts where fees are based on performance is also indicated as of December 31, 2023.
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As of September 30, 2023, Douglas L. Goodwillie and Kenneth B. Leonard managed, or were a member of the management team for, the following client accounts:
| Number of Accounts | Assets of Accounts ($ in million) | Number of Accounts Subject to a Performance Fee | Assets Subject to a Performance Fee | |||||||||||||
| Registered Investment Companies | 1 | $ | 356.2 | - | $ | - | ||||||||||
| Pooled Investment Vehicles Other Than Registered Investment Companies | 14 | $ | 2,692.8 | 11 | $ | 2,295.8 | ||||||||||
| Other Accounts | 13 | $ | 1,494.4 | - | $ | - | ||||||||||
Portfolio Manager Compensation
The Advisor’s financial arrangements with its portfolio managers, its competitive compensation and its career path emphasis at all levels reflect the value senior management places on key resources. Compensation may include a variety of components and may vary from year to year based on a number of factors. The principal components of compensation include a base salary and a discretionary bonus.
Base Compensation. Generally, portfolio managers receive base compensation and employee benefits based on their individual seniority and/or their position with the Company.
Discretionary Compensation. In addition to base compensation, portfolio managers may receive discretionary compensation. Discretionary compensation of the portfolio managers is based on the portfolio managers and the Advisor sharing in the management fees and incentive allocation generated by separate accounts, privately offered pooled investment vehicles, and registered investment companies under management (including those managed by affiliates) after expenses, including analyst salaries and allocated overhead.
Securities Ownership of the Portfolio Manager
The following table shows the dollar range of equity securities owned by the portfolio manager in the Company as of December 31, 2023.
| Name of Portfolio Manager | Dollar
Range of | |||
| Douglas L. Goodwillie | $100,001 - $500,000 | |||
| Kenneth B. Leonard | $500,001 - $1,000,000 |
| (1) | Dollar ranges are as follows: none; $1–$10,000; $10,001–$50,000; $50,001–$100,000; $100,001–$500,000; $500,001–$1,000,000; or over $1,000,000. |
| (2) | Dollar ranges were determined using the number of shares that are beneficially owned as of December 31, 2023, multiplied by the Company’s net asset value per share as of December 31, 2023. |
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Kayne Anderson BDC Financing, LLC and Kayne Anderson BDC Financing II, LLC
Kayne Anderson BDC Financing, LLC (“KABDCF”) and Kayne Anderson BDC Financing II, LLC (“KABDCF II”, collectively, the “KABDCF Companies”) are wholly-owned, special purpose financing subsidiaries of the Company. The KABDCF Companies engage in investment activities in securities or other assets that are primarily controlled by the Company (“primarily controlled” means (1) that the Company controls KABDCF within the meaning of Section 2(a)(9) of the 1940 Act, and (2) the Company’s control is greater than that of any other person). Furthermore, the Company complies with the provisions of the 1940 Act governing the permissible functions and activities of BDCs on an aggregate basis with the KABDCF Companies. The Company complies with the provisions of the 1940 Act governing capital structure and leverage on an aggregate basis with the KABDCF Companies such that the Company treats the KABDCF Companies’ debt as its own. The KABDCF Companies comply with the provisions of the 1940 Act relating to affiliated transactions and custody. The investment advisory agreement between the Company and the Advisor covers the Company and its consolidated subsidiaries, including the KABDCF Companies, and thus the Advisor complies with provisions of the 1940 Act relating to investment advisory contracts under Section 2(a)(20) of the 1940 Act. The Company and each of its consolidated subsidiaries, including the KABDCF Companies, pay management fees to the Advisor as separate legal entities, but the aggregate management fees paid to the Advisor equal the base management fee as outlined in the investment advisory agreement.
The Company does not intend to create or acquire primary control of any entity that primarily engages in investment activities in securities and other assets other than joint ventures or entities wholly owned by the Company.
Management and Other Agreements
Investment Advisory Agreement
On February 5, 2021, the Company entered into the Investment Advisory Agreement with its Advisor. Pursuant to the Investment Advisory Agreement, the Company pays its Advisor a fee for investment advisory and management services consisting of two components—a base management fee and an incentive fee. The Advisor may, from time-to-time, grant waivers on the Company’s obligations, including waivers of the base management fee and/or incentive fee, pursuant to Section 3(c) of the Investment Advisory Agreement. Any base management fee or incentive fee so waived will not be subject to recoupment by the Advisor. The Investment Advisory Agreement automatically terminates in the event of its assignment, as defined in the 1940 Act, and may be terminated by either party without penalty upon 60 days’ prior written notice to the other. The Company may terminate the Investment Advisory Agreement upon 60 days' prior written notice to the Advisor: (i) upon the vote of the holders of a majority of the Company's outstanding voting securities, as defined in the 1940 Act, or (ii) by the vote of the independent directors of the Board. On March 6, 2024, the Company entered into the Amended Investment Advisory Agreement, which is effective upon the closing of this offering. The Investment Advisory Agreement will continue in effect from year to year after its current one-year term commencing on March 6, 2024 so long as its continuation is approved at least annually by our Board including a majority of Independent Directors or the vote of a majority of our outstanding voting securities.
On March 6, 2024, the Company entered into the Amended Investment Advisory Agreement, which is effective upon the closing of this offering. The Amended Investment Advisory Agreement is materially the same as the Investment Advisory Agreement except, following this offering, the base management fee will be calculated at an annual rate of 1.00% and the incentive fee on income will be subject to a twelve-quarter lookback quarterly hurdle rate of 1.50% as opposed to a single quarter measurement and will become subject to an Incentive Fee Cap (as defined below) based on the Company’s Cumulative Pre-Incentive Fee Net Return (as defined below). The Amended Investment Advisory Agreement will not result in higher incentive fees (taking into account all fees payable during the calculation period) payable to the Advisor than the incentive fees that would have otherwise been payable to the Advisor under the Investment Advisory Agreement.
The cost of both the management fee and the incentive fee under the Amended Investment Advisory Agreement will ultimately be borne by common stockholders. The Amended Investment Advisory Agreement was approved by the Board on March 6, 2024. Unless earlier terminated, the Amended Investment Advisory Agreement will renew automatically for successive annual periods, provided that such continuance is specifically approved at least annually by our Board including a majority of Independent Directors or the vote of a majority of our outstanding voting securities.
As discussed in more detail below, effective upon the closing of this offering, the Advisor entered into the Amended Investment Advisory Agreement to include a three-year total return lookback feature on the income incentive fee. Beginning with the first calendar quarter in which this offering is consummated, this lookback feature provides that the Advisor’s income incentive fee may be reduced if the Company’s portfolio experiences aggregate write-downs or net capital losses during the applicable Trailing Twelve Quarters (as defined below). Pursuant to the Fee Waiver Agreement effective upon the closing of this offering, the Advisor implemented waivers of (i) the income incentive fee for three calendar quarters commencing the quarter this offering is completed and (ii) a portion of the base management fee for one year following the completion of this offering. Amounts waived by the Advisor pursuant to the Fee Waiver Agreement are not subject to recoupment by the Advisor. The waivers of the base management fee and incentive income fee pursuant to the Fee Waiver Agreement may only be terminated by the Board and may not be terminated by the Advisor.
Base Management Fee
Effective upon the closing of this offering, the base management fee pursuant to the Amended Investment Advisory Agreement will be calculated at an annual rate of 1.00% of the fair market value of the Company’s investments. If this offering occurs on a date other than the first day of a calendar quarter, the management fee will be calculated for such calendar quarter at a weighted rate based on the fee rates applicable before and after the closing of this offering based on the number of days in such calendar quarter before and after the closing of this offering. Pursuant to the Fee Waiver Agreement effective upon the closing of this offering, the Advisor has implemented a waiver of the base management fee at an annual rate of 0.25% for one year following the completion of this offering.
Prior to the closing of this offering, the base management fee is calculated at an annual rate of 0.90% of the fair market value of the Company’s investments.
The base management fee under the Amended Investment Advisory Agreement will be payable quarterly in arrears and calculated based on the average of the Company’s fair market value of investments, at the end of the two most recently completed calendar quarters, including, in each case, assets purchased with borrowings under credit facilities and issuances of senior unsecured notes, but excluding cash, U.S. government securities and commercial paper instruments maturing within one year of purchase. Base management fees for any partial quarter will be appropriately pro-rated.
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Incentive Fee
The Company will also pay the Advisor an incentive fee. The incentive fee will consist of two parts—an incentive fee on income and an incentive fee on capital gains. Described in more detail below, these components of the incentive fee will be largely independent of each other with the result that one component may be payable even if the other is not.
Incentive Fee on Income
The incentive fee based on income (the “income incentive fee”) under the Amended Investment Advisory Agreement is determined and paid quarterly in arrears in cash (subject to the limitations described in “Payment of Incentive Fees” below).
Under the Amended Investment Advisory Agreement, the first part of the income incentive fee is calculated and payable quarterly in arrears based on the Company’s pre-incentive fee net investment income as defined in the Amended Investment Advisory Agreement. Pre-incentive fee net investment income means, as the context requires, either the dollar value of, or percentage rate of return on the value of the Company’s net assets at the beginning of each applicable calendar quarter from interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter, minus the Company’s operating expenses accrued for the quarter (including the management fee, expenses payable under the Administration Agreement (as defined below), and any interest expense or fees on any credit facilities or senior unsecured notes and dividends paid on any issued and outstanding preferred shares, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with pay in kind (“PIK”) interest and zero coupon securities), accrued income that the Company has not yet received in cash. Pre-incentive fee net investment income excludes any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.
Pursuant to the Investment Advisory Agreement, the Company is required to pay an income incentive fee of 10.0% prior to the closing of this offering and 1.00% following the closing of this offering, with a 1.50% quarterly hurdle and 100% catch-up. Pursuant to the Fee Waiver Agreement, the Advisor has waived its right to receive an income incentive fee during the three calendar quarters commencing with the calendar quarter in which this offering is completed and amounts waived by the Advisor pursuant to the Fee Waiver Agreement are not subject to recoupment by the Advisor.
Following the closing of this offering, the Company will pay the Advisor an income incentive fee based on its aggregate pre-incentive fee net investment income (as described above) with respect to (i) the First Calendar Quarter and (ii) each subsequent calendar quarter, with the then current calendar quarter and the eleven preceding calendar quarters beginning with the calendar quarter after the First Calendar Quarter (or the appropriate portion thereof in the case of any of the Company’s first eleven calendar quarters that commence after the First Calendar Quarter) (those calendar quarters after the First Calendar Quarter, the “Trailing Twelve Quarters”).
For the First Calendar Quarter, pre-incentive fee net investment income in respect of the First Calendar Quarter will be compared to a hurdle rate of 1.50% (6.00% annualized). The income incentive fee for the First Calendar Quarter will be determined as follows:
| ● | no income incentive fee is payable to the Advisor if the aggregate pre-incentive fee net investment income for the First Calendar Quarter does not exceed that hurdle rate; |
| ● | 100% of the aggregate pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds that hurdle rate, but is less than a quarterly rate of 1.6667% for the portion of the First Calendar Quarter before the initial public offering and a quarterly rate of 1.7647% for the portion of the First Calendar Quarter after the initial public offering, referred to the “catch-up.” The “catch-up” is meant to provide the Advisor with approximately 10.0% of the Company’s pre-incentive fee net investment income for the portion of the First Calendar Quarter before the initial public offering and 15.0% for the balance of that First Calendar Quarter, as if the hurdle rate did not apply; and |
| ● | 10.0% of the aggregate pre-incentive fee net investment income, if any, that exceeds a quarterly rate of 1.6667% for the portion of the First Calendar Quarter before the initial public offering and 15.0% of the aggregate pre-incentive fee net investment income, if any, that exceeds a quarterly rate of 1.7647% for the balance of the First Calendar Quarter. |
Commencing with the calendar quarter beginning immediately after the First Calendar Quarter, subject to the Incentive Fee Cap (described below), the pre-incentive fee net investment income in respect of the relevant Trailing Twelve Quarters will be compared to a “Hurdle Rate” equal to the product of (i) the hurdle rate of 1.50% per quarter (6.00% annualized) and (ii) the sum of our net assets at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters. The Hurdle Rate will be calculated after making appropriate adjustments to the Company's net asset value at the beginning of each applicable calendar quarter for all issuances by the Company of shares of its common stock, including issuances pursuant to its dividend reinvestment plan, and distributions during the applicable calendar quarter. The income incentive fee for each calendar quarter will be determined as follows:
| ● | no income incentive fee is payable to the Advisor in any calendar quarter in which aggregate pre-incentive fee net investment income in respect of the relevant Trailing Twelve Quarters does not exceed the Hurdle Rate; |
| ● | 100% of the aggregate pre-incentive fee net investment income in respect of the Trailing Twelve Quarters with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the Hurdle Rate, but is less than or equal to an amount, which we refer to as the “Catch-up Amount,” determined on a quarterly basis by multiplying 1.7647% by the Company’s net asset value at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters (after making appropriate adjustments to the Company’s net asset value at the beginning of each applicable calendar quarter for all issuances by the Company of shares of its common stock, including issuances pursuant to its dividend reinvestment plan, and distributions during the applicable calendar quarter); and |
| ● | 15.0% of the aggregate pre-incentive fee net investment income in respect of the Trailing Twelve Quarters that exceeds the Catch-up Amount. |
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Commencing with the quarter that begins immediately after the First Calendar Quarter, each income incentive fee will be subject to an “Incentive Fee Cap” that in respect of any calendar quarter is an amount equal to 15.0% of the Cumulative Pre-Incentive Fee Net Return (as defined herein) during the Trailing Twelve Quarters less the aggregate income incentive fees that were paid to the Advisor in the preceding eleven calendar quarters (or portion thereof) comprising the relevant Trailing Twelve Quarters. In the event the Incentive Fee Cap is zero or a negative value then no income incentive fee shall be payable and if the Incentive Fee Cap is less than the amount of income incentive fee that would otherwise be payable, the amount of income incentive fee shall be reduced to an amount equal to the Incentive Fee Cap.
“Cumulative Pre-Incentive Fee Net Return” means (x) with respect to the First Calendar Quarter, the sum of pre-incentive fee net investment income in respect of the First Calendar Quarter, (y) with respect to the relevant Trailing Twelve Quarters, the pre-incentive fee net investment income in respect of the relevant Trailing Twelve Quarters minus any Net Capital Loss (as defined below), if any, in respect of the relevant Trailing Twelve Quarters. If, in any quarter, the Incentive Fee Cap is zero or a negative value, the Company will pay no income incentive fee to the Advisor for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is a positive value but is less than the income incentive fee that is payable to the Advisor for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an income incentive fee to the Advisor equal to the Incentive Fee Cap for such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is equal to or greater than the income incentive fee that is payable to the Advisor for such quarter (before giving effect to the Incentive Fee Cap) calculated as described above, the Company will pay an income incentive fee to the Advisor equal to the incentive fee calculated as described above for such quarter without regard to the Incentive Fee Cap.
“Net Capital Loss” in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, in such period and (ii) aggregate capital gains, whether realized or unrealized, in such period.
These calculations are prorated for any period of less than three months and adjusted for any share issuances or repurchases during the relevant quarter. In no event will the amendments to the income incentive fee to include the three year income and total return lookback features allow the Advisor to receive greater cumulative income incentive fees under the Amended Investment Advisory Agreement than it would have under the Investment Advisory Agreement. Amounts waived by the Advisor pursuant to the Fee Waiver Agreement are not subject to recoupment by the Advisor.
The following are graphical representations of the calculations of the income incentive fee:
Quarterly Incentive Fee on
Pre-Incentive Fee Net Investment Income
Subsequent to This Offering
(expressed as a percentage of the value of net assets)
Pre-Incentive Fee Net Investment Income |
0% | 1.50% | 1.7647% |
| Quarterly Incentive Fee | ← 0% → | ← 100% → | ← 15.0% → |
Quarterly Incentive Fee on
Pre-Incentive Fee Net Investment Income
Prior to This Offering
(expressed as a percentage of the value of net assets)
Pre-Incentive Fee Net Investment Income |
0% | 1.50% | 1.6667% |
| Quarterly Incentive Fee | ← 0% → | ← 100% → | ← 10.0% → |
Incentive Fee on Capital Gains
The capital gains incentive fee will be calculated and payable in arrears in cash as follows:
| ● | After this offering: 15.0% of the Company’s realized capital gains, if any, on a cumulative basis from formation through the end of a given calendar year or upon termination of the Investment Advisory Agreement, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees. Following an Exchange Listing, solely for the purposes of calculating the capital gain incentive fee, the Company will be deemed to have previously paid capital gains incentive fees prior to an Exchange Listing equal to the product obtained by multiplying (a) the actual aggregate amount of previously paid capital gain incentive fees for all periods prior to an Exchange Listing by (b) the percentage obtained by dividing (x) 15% by (y) 10%. In the event that the Investment Advisory Agreement terminates as of a date that is not a fiscal year end, the termination date will be treated as though it were a fiscal year end for purposes of calculating and paying a capital gain incentive fee. |
| ● | Prior to this offering: 10.0% of the Company’s realized capital gains, if any, on a cumulative basis from formation through (a) the day before this offering, (b) upon consummation of a Liquidity Event or (c) upon the termination of the Investment Advisory Agreement, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis, less the aggregate amount of any previously paid capital gain incentive fees. For the purpose of computing the capital gain incentive fee, the calculation methodology will look through derivative financial instruments or swaps as if we owned the reference assets directly. |
Payment of Incentive Fees
Prior to this offering, any incentive fees earned by the Advisor shall accrue as earned but only become payable in cash to the Advisor upon closing of this offering. As of December 31, 2023, the Company had incurred incentive fees of $14.2 million that will become payable upon closing of this offering. To the extent the Company does not complete this offering, the incentive fees will be payable to the Advisor (a) upon consummation of a sale of the Company or (b) once substantially all the proceeds from a Company liquidation payable to the Company’s stockholders have been distributed to such stockholders.
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Examples of the Calculation of the Incentive Fee on Income, not Giving Effect to the Fee Waiver Contemplated by the Amended Advisory Agreement:
Example 1—Three Quarters under the Amended Advisory Agreement in which Pre-Incentive Fee Net Investment Income Exceeds the Hurdle Amount and Catch-up Amount
Assumptions
Stable NAV of $100 million across all quarters
Investment income for each of the quarters (including interest, dividends, fees, etc.) = 3.3500%
Hurdle rate = 1.5000%
Management fee = 0.2500%
Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.1000%
Pre-incentive fee net investment income for each of the quarters (investment income - (management fee + other expenses)) = 3.0000%
Realized capital gains of 1% each quarter
Assumes no other quarters in the applicable Trailing Twelve Quarters
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Incentive fee for first quarter
Aggregate pre-incentive fee net investment income = $3,000,000
Hurdle Amount = Q1 NAV × 1.5% = $100,000,000 × 1.5% = $1,500,000
Excess Income Amount = aggregate pre-incentive fee net investment income during the relevant Trailing Twelve Quarters - Hurdle Amount = $3,000,000 - $1,500,000 = $1,500,000
Catch-up Fee Amount = 100% of pre-incentive fee net investment income that is greater than $1,500,000 (the Hurdle Amount) but less than 1.7647% × Q1 NAV, or $1,764,706
This Catch-up Fee Amount equals $264,706
Post Catch-up Fee Amount = 15.0% of pre-incentive fee net investment income that exceeds the Catch-up Amount = 15.0% × ($3,000,000 - $1,764,706) = $185,294
Catch-Up Fee Amount + Post Catch-up Fee Amount = $450,000
$0 income incentive fee previously paid during the Trailing Twelve Quarters
Income incentive fee = $450,000
Incentive Fee Cap = 15.0% of Cumulative Net Return for the Trailing Twelve Quarters - income incentive fees previously paid for the Trailing Twelve Quarters = (15.0% × $3,000,000) - $0 = $450,000
Net Capital Loss = $0
Cumulative Net Return = aggregate pre-incentive fee net investment income during the relevant Trailing Twelve Quarters - Net Capital Loss during the relevant Trailing Twelve Quarters = $3,000,000 - $0 = $3,000,000
Therefore Incentive Fee Cap = (15.0% × $3,000,000) - $0 = $450,000. Since the Incentive Fee Cap ($450,000) is greater than or equal to the income incentive fee ($450,000), the Incentive Fee Cap is not applied and a $450,000 income incentive fee is paid for the quarter
Incentive fee for second quarter
Aggregate pre-incentive fee net investment income = $3,000,000 + $3,000,000 = $6,000,000
Hurdle Amount = (Q1 NAV + Q2 NAV) × 1.5% = $200,000,000 × 1.5% = $3,000,000
Excess Income Amount = aggregate pre-incentive fee net investment income during the relevant Trailing Twelve Quarters - Hurdle Amount = $6,000,000 - $3,000,000 = $3,000,000
Catch-up Fee Amount = 100% of pre-incentive fee net investment income that is greater than $3,000,000 (the Hurdle Amount) but less than 1.7647% × (Q1 NAV + Q2 NAV), or $3,529,412
The Catch-up Fee Amount equals $529,412
Post Catch-up Fee Amount = 15.0% of pre-incentive fee net investment income that exceeds the Catch-up Amount = 15.0% × ($6,000,000 - $3,529,412) = $370,588
Catch-Up Fee Amount + Post Catch-up Fee Amount = $900,000
$450,000 income incentive fee previously paid during the Trailing Twelve Quarters
Income incentive fee = $450,000
Incentive Fee Cap = 15.0% of Cumulative Net Return for the Trailing Twelve Quarters - income incentive fees previously paid for the Trailing Twelve Quarters = (15.0% × $6,000,000) - $450,000 = $450,000
Net Capital Loss = $0
Cumulative Net Return = aggregate pre-incentive fee net investment income during the relevant Trailing Twelve Quarters - Net Capital Loss during the relevant Trailing Twelve Quarters = $6,000,000 - $0 = $6,000,000
Therefore Incentive Fee Cap = (15.0% × $6,000,000) - $450,000 = $450,000. Since the Incentive Fee Cap ($450,000) is greater than or equal to the income incentive fee ($450,000), the Incentive Fee Cap is not applied and a $450,000 income incentive fee is paid for the quarter
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Incentive fee for third quarter
Aggregate pre-incentive fee net investment income = $3,000,000 + $3,000,000 + $3,000,000 = $9,000,000
Hurdle Amount = (Q1 NAV + Q2 NAV + Q3 NAV) × 1.5% = $300,000,000 × 1.5% = $4,500,000
Excess Income Amount = aggregate pre-incentive fee net investment income during the relevant Trailing Twelve Quarters - Hurdle Amount = $9,000,000 - $4,500,000 = $4,500,000
Catch-up Fee Amount = 100% of pre-incentive fee net investment income that is greater than $4,500,000 (the Hurdle Amount) but less than 1.7647% × (Q1 NAV + Q2 NAV+ Q3 NAV), or $5,294,118.
The Catch-up Fee Amount equals $794,118
Post Catch-up Fee Amount = 15.0% of pre-incentive fee net investment income that exceeds the Catch-up Amount = 15.0% × ($9,000,000 - $5,294,118) = $555,882
Catch-Up Fee Amount + Post Catch-up Fee Amount = $1,350,000
$900,000 income incentive fee previously paid during the Trailing Twelve Quarters
Income incentive fee = $450,000
Incentive Fee Cap = 15% of Cumulative Net Return for the Trailing Twelve Quarters - income incentive fees previously paid for the Trailing Twelve Quarters = (15.0% × $9,000,000) - $900,000 = $450,000
Net Capital Loss = $0
Cumulative Net Return = aggregate pre-incentive fee net investment income during the relevant Trailing Twelve Quarters - Net Capital Loss during the relevant Trailing Twelve Quarters = $9,000,000 - $0 = $9,000,000
Therefore Incentive Fee Cap = (15.0% × $9,000,000) - $900,000 = $450,000. Since the Incentive Fee Cap ($450,000) is greater than or equal to the income incentive fee ($450,000), the Incentive Fee Cap is not applied and a $450,000 income incentive fee is paid for the quarter
Example 2—Three Quarters under the Amended Advisory Agreement, in which Pre-Incentive Fee Net Investment Income does not meet the Hurdle Amount for one Quarter
Assumptions
Stable NAV of $100 million across all quarters
Investment income for Q1 (including interest, dividends, fees, etc.) = 0.3500%
Investment income for Q2 (including interest, dividends, fees, etc.) = 4.3500%
Investment income for Q3 (including interest, dividends, fees, etc.) = 4.3500%
Hurdle rate = 1.5000%
Management fee = 0.2500%
Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.1000%
Pre-incentive fee net investment income for Q1 (investment income - (management fee + other expenses)) = 0.0000%
Pre-incentive fee net investment income for Q2 (investment income - (management fee + other expenses)) = 4.0000%
Pre-incentive fee net investment income for Q3 (investment income - (management fee + other expenses)) = 4.0000%
Realized capital gains of 1% each quarter
Assumes no other quarters in the applicable Trailing Twelve Quarters
112
Incentive fee for first quarter
Aggregate pre-incentive fee net investment income = $0
Hurdle Amount = Q1 NAV × 1.5% = $100,000,000 × 1.5% = $1,500,000
Aggregate pre-incentive fee net investment income is less than the Hurdle Amount. Therefore, no income incentive fee is payable for the quarter
Incentive fee for second quarter
Aggregate pre-incentive fee net investment income = $0 + $4,000,000 = $4,000,000
Hurdle Amount = (Q1 NAV + Q2 NAV) × 1.5% = $200,000,000 × 1.5% = $3,000,000
Excess Income Amount = aggregate pre-incentive fee net investment income during the relevant Trailing Twelve Quarters - Hurdle Amount = $4,000,000 - $3,000,000 = $1,000,000
Catch-up Fee Amount = 100% of pre-incentive fee net investment income that is greater than $3,000,000 (the Hurdle Amount) but less than 1.7647% × (Q1 NAV + Q2 NAV), or $3,529,412
The Catch-up Fee Amount equals $529,412
Post Catch-up Fee Amount = 15.0% of pre-incentive fee net investment income that exceeds the Catch-up Amount = 15.0% × ($4,000,000 - $3,529,412) = $70,588
Catch-Up Fee Amount + Post Catch-up Fee Amount = $600,000
$0 income incentive fee previously paid during the Trailing Twelve Quarters
Income incentive fee = $600,000
Incentive Fee Cap = 15.0% of Cumulative Net Return for the Trailing Twelve Quarters - income incentive fees previously paid for the Trailing Twelve Quarters = (15.0% × $4,000,000) - $0 = $600,000
Net Capital Loss = $0
Cumulative Net Return = aggregate pre-incentive fee net investment income during the relevant Trailing Twelve Quarters - Net Capital Loss during the relevant Trailing Twelve Quarters = $4,000,000 - $0 = $4,000,000
Therefore Incentive Fee Cap = (15.0% × $4,000,000) - $0 = $600,000. Since the Incentive Fee Cap ($600,000) is greater than or equal to the income incentive fee ($600,000), the Incentive Fee Cap is not applied and a $600,000 income incentive fee is paid for the quarter
Incentive fee for third quarter
Aggregate pre-incentive fee net investment income = $0 + $4,000,000 + $4,000,000 = $8,000,000
Hurdle Amount = (Q1 NAV + Q2 NAV + Q3 NAV) × 1.5% = $300,000,000 × 1.5% = $4,500,000
Excess Income Amount = aggregate pre-incentive fee net investment income during the relevant Trailing Twelve Quarters - Hurdle Amount = $8,000,000 - $4,500,000 = $3,500,000
Catch-up Fee Amount = 100% of pre-incentive fee net investment income that is greater than $4,500,000 (the Hurdle Amount) but less than 1.7647% × (Q1 NAV + Q2 NAV+ Q3 NAV), or $5,294,118
The Catch-up Fee Amount equals $794,118
113
Post Catch-up Fee Amount = 15.0% of pre-incentive fee net investment income that exceeds the Catch-up Amount = 15.0% × ($8,000,000 - $5,294,118) = $405,882
Catch-Up Fee Amount + Post Catch-up Fee Amount = $1,200,000
$600,000 income incentive fee previously paid during the Trailing Twelve Quarters
Income incentive fee = $600,000
Incentive Fee Cap = 15.0% of Cumulative Net Return for the Trailing Twelve Quarters - income incentive fees previously paid for the Trailing Twelve Quarters = (15.0% × $8,000,000) - $600,000 = $600,000
Net Capital Loss = $0
Cumulative Net Return = aggregate pre-incentive fee net investment income during the relevant Trailing Twelve Quarters - Net Capital Loss during the relevant Trailing Twelve Quarters = $8,000,000 - $0 = $8,000,000
Therefore Incentive Fee Cap = (15.0% × $8,000,000) - $600,000 = $600,000. Since the Incentive Fee Cap ($600,000) is greater than or equal to the income incentive fee ($600,000), the Incentive Fee Cap is not applied and a $600,000 income incentive fee is paid for the quarter
Example 3—Three Quarters under the Amended Advisory Agreement in which Pre-Incentive Fee Net Investment Income Exceeds the Hurdle Rate with Net Capital Losses
Assumptions
Stable NAV of $100 million across all quarters
Investment income for each of the quarters (including interest, dividends, fees, etc.) = 4.3500%
Hurdle rate = 1.5000%
Management fee = 0.2500%
Other expenses (legal, accounting, custodian, transfer agent, etc.) = 0.1000%
Pre-incentive fee net investment income for each quarter (investment income - (management fee + other expenses)) = 4.0000%
Unrealized capital losses of 1.0% each of Q1 and Q2 and a 3.0% unrealized capital loss in Q3
Assumes no other quarters in the applicable Trailing Twelve Quarters
Incentive fee for first quarter
Aggregate pre-incentive fee net investment income = $4,000,000
Hurdle Amount = Q1 NAV × 1.5% = $100,000,000 × 1.5% = $1,500,000
Excess Income Amount = aggregate pre-incentive fee net investment income during the relevant Trailing Twelve Quarters - Hurdle Amount = $4,000,000 - $1,500,000 = $2,500,000
Catch-up Fee Amount = 100% of pre-incentive fee net investment income that is greater than $1,500,000 (the Hurdle Amount) but less than 1.7647% × Q1 NAV, or $1,764,706
This Catch-up Fee Amount equals $264,706
Post Catch-up Fee Amount = 15.0% of pre-incentive fee net investment income that exceeds the Catch-up Amount = 15.0% × ($4,000,000 - $1,764,706) = $335,294
Catch-Up Fee Amount + Post Catch-up Fee Amount = $600,000
$0 income incentive fee previously paid during the Trailing Twelve Quarters
Income incentive fee = $600,000
Incentive Fee Cap = 15.0% of Cumulative Net Return for the Trailing Twelve Quarters - income incentive fees previously paid for the Trailing Twelve Quarters = (15.0% × $3,000,000) - $0 = $450,000
Net Capital Loss = $1,000,000
114
Cumulative Net Return = aggregate pre-incentive fee net investment income during the relevant Trailing Twelve Quarters - Net Capital Loss during the relevant Trailing Twelve Quarters = $4,000,000 - $1,000,000 = $3,000,000
Therefore Incentive Fee Cap = (15.0% × $3,000,000) - $0 = $450,000. Since the Incentive Fee Cap ($450,000) is less than the income incentive fee ($600,000), the Incentive Fee Cap is applied and a $450,000 income incentive fee is paid for the quarter
Incentive fee for second quarter
Aggregate pre-incentive fee net investment income = $4,000,000 + $4,000,000 = $8,000,000
Hurdle Amount = (Q1 NAV + Q2 NAV) × 1.5% = $200,000,000 × 1.5% = $3,000,000
Excess Income Amount = aggregate pre-incentive fee net investment income during the relevant Trailing Twelve Quarters - Hurdle Amount = $8,000,000 - $3,000,000 = $5,000,000
Catch-up Fee Amount = 100% of pre-incentive fee net investment income that is greater than $3,000,000 (the Hurdle Amount) but less than 1.7647% × (Q1 NAV + Q2 NAV), or $3,529,412
The Catch-up Fee Amount equals $529,412
Post Catch-up Fee Amount = 15.0% of pre-incentive fee net investment income that exceeds the Catch-up Amount = 15.0% × ($8,000,000 - $3,529,412) = $670,588
Catch-Up Fee Amount + Post Catch-up Fee Amount = $1,200,000
$450,000 income incentive fee previously paid during the Trailing Twelve Quarters
Income incentive fee = $750,000
Incentive Fee Cap = 15.0% of Cumulative Net Return for the Trailing Twelve Quarters - income incentive fees previously paid for the Trailing Twelve Quarters = (15.0% × $6,000,000) - $450,000 = $450,000
Net Capital Loss = $2,000,000
Cumulative Net Return = aggregate pre-incentive fee net investment income during the relevant Trailing Twelve Quarters - Net Capital Loss during the relevant Trailing Twelve Quarters = $8,000,000 - $2,000,000 = $6,000,000
Therefore Incentive Fee Cap = (15.0% × $6,000,000) - $450,000 = $450,000. Since the Incentive Fee Cap ($450,000) is less than the income incentive fee ($750,000), the Incentive Fee Cap is applied and a $450,000 income incentive fee is paid for the quarter
Incentive fee for third quarter
Aggregate pre-incentive fee net investment income = $4,000,000 + $4,000,000 + $4,000,000 = $12,000,000
Hurdle Amount = (Q1 NAV + Q2 NAV + Q3 NAV) × 1.5% = $300,000,000 × 1.5% = $4,500,000
Excess Income Amount = aggregate pre-incentive fee net investment income during the relevant Trailing Twelve Quarters - Hurdle Amount = $12,000,000 - $4,500,000 = $7,500,000
Catch-up Fee Amount = 100% of pre-incentive fee net investment income that is greater than $4,500,000 (the Hurdle Amount) but less than 1.7647% × (Q1 NAV + Q2 NAV+ Q3 NAV), or $5,294,118
The Catch-up Fee Amount equals $794,118
Post Catch-up Fee Amount = 15.0% of pre-incentive fee net investment income that exceeds the Catch-up Amount = 15.0% × ($12,000,000 - $5,294,118) = $1,005,882
Catch-Up Fee Amount + Post Catch-up Fee Amount = $1,800,000
$900,000 income incentive fee previously paid during the Trailing Twelve Quarters
Income incentive fee = $900,000
Incentive Fee Cap = 15.0% of Cumulative Net Return for the Trailing Twelve Quarters-income incentive fees previously paid for the Trailing Twelve Quarters = (15.0% × $7,000,000) - $900,000 = $150,000
Net Capital Loss = $5,000,000
115
Cumulative Net Return = aggregate pre-incentive fee net investment income during the relevant Trailing Twelve Quarters - Net Capital Loss during the relevant Trailing Twelve Quarters = $12,000,000 - $5,000,000 = $7,000,000
Therefore Incentive Fee Cap = (15.0% × $7,000,000) - $900,000 = $150,000. Since the Incentive Fee Cap ($150,000) is less than the income incentive fee ($900,000), the Incentive Fee Cap is applied and a $150,000 income incentive fee is paid for the quarter
Example of Calculation of Capital Gains Portion of Incentive Fee:
Assumptions
| ● | Year 1: $5.0 million investment made in Company A (“Investment A”), and $5.0 million investment made in Company B (“Investment B”), and $5.0 million investment made in Company C (“Investment C”), $5.0 million investment made in Company D (“Investment D”), and $5.0 million investment made in Company E (“Investment E”). |
| ● | Year 2: Investment A sold for $10.0 million, fair market value (“FMV”) of Investment B determined to be $4.0 million, FMV of Investment C determined to be $6.0 million, and FMV of Investments D and E each determined to be $5.0 million. |
| ● | Year 3: FMV of Investment of B determined to be $4.0 million, FMV of Investment C determined to be $7.0 million, FMV of Investment D determined to be $7.0 million and FMV of Investment E determined to be $8.0 million. |
| ● | Year 4: $5.0 million investment made in Company F (“Investment F”), Investment D sold for $6.0 million, FMV of Investment B determined to be $5.0 million, FMV of Investment C determined to be $8.0 million and FMV of Investment E determined to be $7.0 million. |
| ● | Year 5: Investment C sold for $10.0 million, FMV of Investment B determined to be $7.0 million, FMV of Investment E determined to be $5.0 million and FMV of Investment F determined to $6.0 million. |
| ● | Year 6: Investment B sold for $8.0 million, FMV of Investment E determined to be $4.0 million and FMV of Investment F determined to be $7.0 million. |
| ● | Year 7: Investment E sold for $4.0 million and FMV of Investment F determined to be $8.0 million. |
| ● | Year 8: Investment F sold for $9.0 million. |
These assumptions are summarized in the following table:
| Investment A | Investment B | Investment C | Investment D | Investment E | Investment F |
Cumulative Unrealized Capital Depreciation |
Cumulative Realized Capital Losses |
Cumulative Realized Capital Gains |
|||||||||||
| Year 1 | $5 million (FMV/cost basis) | $5 million (FMV/cost basis) | $5 million (FMV/cost basis) | $5 million (FMV/cost basis) | $5 million (FMV/cost basis) | - | - | - | - | ||||||||||
| Year 2 | $10 million (sale price) | $4 million FMV | $6 million FMV | $5 million FMV | $5 million FMV | - | $1 million | - | $5 million | ||||||||||
| Year 3 | - | $4 million FMV | $7 million FMV | $7 million FMV | $8 million FMV | - | $1 million | - | $5 million | ||||||||||
| Year 4 | - | $5 million FMV | $8 million FMV | $6 million (sale price) | $7 million FMV | $5 million (FMV/cost basis) | - | - | $6 million | ||||||||||
| Year 5 | - | $7 million FMV | $10 million (sale price) | - | $5 million FMV | $6 million FMV | - | - | $11 million | ||||||||||
| Year 6 | - | $8 million (sale price) | - | - | $4 million FMV | $7 million FMV | $1 million | - | $14 million | ||||||||||
| Year 7 | - | - | - | - | $4 million (sale price) | $8 million FMV | - | $1 million | $14 million | ||||||||||
| Year 8 | - | - | - | - | - | $9 million (sale price) | - | $1 million | $18 million |
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The capital gains portion of the Incentive Fee, if any, would be:
| ● | Year 1: None |
| ● | Year 2: |
Capital Gains Incentive Fee = 15.00% multiplied by ($5.0 million realized capital gains less $1.0 million cumulative capital depreciation) = $0.60 million
| ● | Year 3: |
Capital Gains Incentive Fee = 15.00% multiplied by ($5.0 million cumulative realized capital gains less $1.0 million cumulative capital depreciation) less $0.60 million cumulative Capital Gains Incentive Fee previously paid = $0.60 million less $0.60 million = $0.00 million
| ● | Year 4: |
Capital Gains Incentive Fee = 15.00% multiplied by ($6.0 million cumulative realized capital gains less $0.0 million cumulative capital depreciation) less $0.60 million cumulative Capital Gains Incentive Fee previously paid = $0.90 million less $0.60 million = $0.30 million
| ● | Year 5: |
Capital Gains Incentive Fee = 15.00% multiplied by ($11.0 million cumulative realized capital gains less $0.0 million cumulative capital depreciation) less $0.90 million cumulative Capital Gains Incentive Fee previously paid = $1.65 million less $0.90 million = $0.75 million
| ● | Year 6: |
Capital Gains Incentive Fee = 15.0% multiplied by ($14.0 million cumulative realized capital gains less $1.0 million cumulative capital depreciation) less $1.65 million cumulative Capital Gains Incentive Fee previously paid = $1.95 million less $1.65 million = $0.30 million
| ● | Year 7: |
Capital Gains Incentive Fee = 15.0% multiplied by ($14.0 million cumulative realized capital gains less $1.0 million cumulative realized loss) less $1.95 million cumulative Capital Gains Incentive Fee previously paid = $1.95 million less $1.95 million = $0.00 million
| ● | Year 8: |
Capital Gains Incentive Fee = 15.0% multiplied by ($18.0 million cumulative realized capital gains less $1.0 million cumulative realized loss) less $1.95 million cumulative Capital Gains Incentive Fee previously paid = $2.55 million less $1.95 million = $0.60 million
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Administration Agreement
On February 5, 2021, the Company entered into the Administration Agreement with its Advisor, which serves as its Administrator and will provide or oversee the performance of its required administrative services and professional services rendered by others, which will include (but are not limited to), accounting, payment of our expenses, legal, compliance, operations, technology and investor relations, preparation and filing of its tax returns, and preparation of financial reports provided to its stockholders and filed with the SEC. On March 6, 2024, the Board approved a one-year renewal of the Administration Agreement through March 15, 2025.
The Company will reimburse the Administrator for its costs and expenses incurred in performing its obligations under the Administration Agreement, which may include, after completion of this offering, its allocable portion of office facilities, overhead, and compensation paid to or compensatory distributions received by its officers (including our Chief Compliance Officer and Chief Financial Officer) and its respective staff who provide services to the Company. As the Company reimburses the Administrator for its expenses, such costs (including the costs of the sub-administrator) will be ultimately borne by common stockholders. The Administrator does not receive compensation from the Company other than reimbursement of its expenses. The Administration Agreement may be terminated by either party with 60 days’ written notice.
Since the inception of the Company, the Administrator has engaged a sub-administrator to assist the Administrator in performing certain of its administrative duties. Since the inception of the Company, the Administrator has not sought reimbursement of its expenses other than expenses incurred by the sub-administrator. However, the Administrator has a contractual right to seek reimbursement for its costs and expenses incurred in performing its obligations under the Administration Agreement and may do so in the future. On March 28, 2023, the Administrator engaged Ultimus Fund Solutions, LLC under a sub-administration agreement. Under the terms of the sub-administration agreement, Ultimus Fund Solutions, LLC will provide fund administration and fund accounting services. Since March 28, 2023, the Company has paid fees to Ultimus Fund Solutions, LLC, which constitute reimbursable expenses under the Administration Agreement. The Administrator may enter into additional sub-administration agreements with third-parties to perform other administrative and professional services on behalf of the Administrator.
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CONTROL PERSONS AND PRINCIPAL Stockholders
The following tables set forth the number of shares of the Company’s common stock as of March 29, 2024 beneficially owned by the Company’s current directors and executive officers as a group, and certain other beneficial owners, according to information furnished to the Company by such persons. As of March 29, 2024, four persons beneficially owned more than 5% of the Company’s outstanding common stock. Beneficial ownership is determined in accordance with Rule 13d-3 under the 1934 Act and, unless indicated otherwise, includes voting or investment power with respect to the securities.
The address for each of our directors and executive officers is c/o Kayne Anderson BDC, Inc., 717 Texas Avenue, Suite 2200, Houston, Texas, 77002.
| Number of Shares | Percent
of Class(1) | |||||||
| Interested Directors & Executive Officers | ||||||||
| Douglas L. Goodwillie | 13,603 | * | ||||||
| Terry A. Hart | 15,176 | * | ||||||
| Frank P. Karl | 4,828 | * | ||||||
| Kenneth B. Leonard | 50,702 | * | ||||||
| Michael J. O’Neil | 3,405 | * | ||||||
| Albert (A1) Rabil III | 355,026 | * | ||||||
| James (Jim) Robo | 1,125,716 | 2.3 | % | |||||
| Terrence J. Quinn | 16,899 | * | ||||||
| All Interested Directors & Executive Officers as a Group (8 persons) | 1,585,355 | 3.2 | % | |||||
| Number of Shares | Percent of Class | |||||||
| Name of Beneficial Owner of Common Stock | ||||||||
| The Bank of New York Mellon, as Trustee for the Koch Companies Defined Benefit Master Trust | ||||||||
| 4111 East 37th Street North Wichita, KS 67220 | 9,080,390 | 18.6 | % | |||||
| State of Michigan Retirement System | ||||||||
| 2501 Coolidge Road, Suite 400 East Lansing, MI 48823 | 5,016,281 | 10.3 | % | |||||
| San Bernardino County Employees’ Retirement Association | ||||||||
| 348 West Hospitality Lane, Suite 100 San Bernardino, CA 92408 | 3,621,145 | 7.4 | % | |||||
| Adam Beren Family(2) | ||||||||
| 2020 North Bramblewood, Wichita, KS 67206 | 3,324,889 | 6.8 | % | |||||
| * | Less than 1% of class. |
| (1) | Based on 48,789,228 shares outstanding as of March 29, 2024. | |
| (2) | Adam Beren Family owns shares of the Company through several partnerships, family trusts and LLCs. |
The table below sets forth information about securities owned by the independent directors of the Company and their respective immediate family members, as of December 31, 2023, in entities directly or indirectly controlling, controlled by, or under common control with, the Company’s investment adviser or underwriters.
| Director | Name of Owners and Relationships to Director | Fund(1) | Title of Class | Dollar Range of Securities | Percent of Class | |||||||||
| Susan C. Schnabel | Self | Kayne Anderson Energy Fund VII, L.P. | Partnership Units | $ | 1,100,635 | * | ||||||||
| Kayne Anderson Energy Fund VIII, L.P. | Partnership Units | $ | 926,985 | * | ||||||||||
| * | Less than 1% of class. |
| (1) | Kayne Anderson may be deemed to “control” the fund by virtue of its role as the fund’s general partner. |
119
DETERMINATION OF NET ASSET VALUE
The net asset value per share of our outstanding shares of common stock is determined quarterly by dividing the value of total assets minus liabilities by the total number of shares outstanding.
Consistent with accounting principles generally accepted in the United States of America (“GAAP”) and the 1940 Act, we calculate the value of our investments in accordance with the procedures described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” included in this prospectus. Pursuant to Rule 2a-5 under the 1940 Act, our Board has designated the Advisor as the “valuation designee” to perform fair value determinations of the Company’s portfolio holdings, subject to oversight by and periodic reporting to the Board. The valuation designee performs fair valuation of the Company’s portfolio holdings in accordance with the Company’s Valuation Program. Our Advisor, with oversight from our Board, will determine the fair value of our assets on at least a quarterly basis.
120
DIVIDEND REINVESTMENT PLAN
We have adopted an “opt-out” dividend reinvestment plan (“DRIP”) that provides for reinvestment of any distributions we declare in cash on behalf of our stockholders, unless a stockholder elects to receive cash as provided below. As a result, if our Board authorizes, and we declare, a cash dividend, then our stockholders who have not “opted out” of our DRIP will have their cash dividends automatically reinvested in additional shares of our common stock, rather than receiving the cash dividends.
No action is required on the part of a registered stockholder to have their cash dividend reinvested in shares of our common stock. A registered stockholder may elect to receive an entire cash dividend in cash by notifying Equiniti Trust Company, LLC (the “DRIP Administrator”) in writing so that such notice is received by the DRIP Administrator no later than ten calendar days prior to the record date fixed by the Board for dividends to stockholders. Such notice may be delivered by mail at the address included below. The DRIP Administrator will set up an account for shares acquired through the DRIP for each stockholder who has not elected to receive dividends in cash and hold such shares in non-certificated form. We will notify stockholders of any applicable record date by means of a publicly disseminated press release published on the Company’s website.
Those stockholders whose shares are held by a broker or other financial intermediary may receive dividends in cash by notifying their broker or another financial intermediary of their election. If you hold your common stock with a broker that does not participate in the DRIP, you will not be able to participate in the DRIP and any distribution reinvestment may be effected on different terms than those described above. Consult your financial advisor for more information. See “Regulation” for further information.
To implement the DRIP, we may use newly issued shares or we may purchase shares in the open market, in each case to the extent permitted under applicable law, whether our shares are trading at, above or below net asset value. If our shares are trading at or above net asset value, we will issue new shares to implement the DRIP. If newly issued shares are used to implement the DRIP, the number of shares to be issued to a stockholder shall be determined by dividing the total dollar amount of the dividend payable to such stockholder by the market price per share of our common stock at the close of regular trading on The New York Stock Exchange on the dividend payment date. Market price per share on that date shall be the closing price for such shares on The New York Stock Exchange or, if no sale is reported for such day, at the average of their reported bid and asked prices. If our shares are trading below net asset value, we will purchase shares in the open market to implement the DRIP. If shares are purchased in the open market to implement the DRIP, the number of shares to be issued to a stockholder shall be determined by dividing the dollar amount of the cash dividend payable to such stockholder by the weighted average price per share for all shares purchased by the DRIP Administrator in the open market in connection with the dividend. The number of shares of our common stock to be outstanding after giving effect to payment of the dividend cannot be established until the value per share at which additional shares will be issued has been determined and elections of our stockholders have been tabulated.
There are no brokerage charges or other charges to stockholders who participate in the DRIP. The DRIP Administrator’s fees under the plan will ultimately be borne by our common stockholders. If a participant elects by notice to the DRIP Administrator to have the DRIP Administrator sell part or all of the shares held by the DRIP Administrator in the participant’s account and remit the proceeds to the participant, the DRIP Administrator is authorized to deduct a transaction fee of up to $15 plus a $0.10 per share fee from the proceeds.
Stockholders whose cash dividends are reinvested in shares of our common stock are subject to the same U.S. federal, state and local tax consequences as are stockholders who elect to receive their dividends in cash and will not receive a corresponding cash distribution with which to pay any applicable tax. A stockholder’s initial basis for determining gain or loss upon the sale of stock received in a dividend from us will be equal to the total dollar amount of the dividend payable to the stockholder. Any stock received on reinvestment of a cash dividend will have a new holding period for tax purposes commencing on the day following the day on which the shares are credited to the U.S. stockholder’s account. See “Certain Material U.S. Federal Income Tax Considerations.”
The DRIP may be terminated by us upon notice in writing mailed to each participant at least 30 calendar days prior to any record date for the payment of any dividend by us. Additional information about the DRIP may be obtained by contacting the DRIP Administrator by mail at PO Box 10027, Newark, NJ 07101 or by telephone at (800) 937-5449.
121
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following discussion is a general summary of the material U.S. federal income tax considerations applicable to us and to an investment in our shares of common stock. This summary does not purport to be a complete description of the U.S. federal income tax considerations applicable to such an investment. For example, we have not described certain considerations that may be relevant to certain types of holders subject to special treatment under U.S. federal income tax laws, including persons who hold our common stock as part of a straddle or hedging, integrated or constructive sale transaction, stockholders subject to the alternative minimum tax, tax-exempt organizations, insurance companies, brokers or dealers in securities, traders in securities that elect to mark-to-market their securities holdings, pension plans and trusts, persons that have a functional currency (as defined in Section 985 of the Code) other than the U.S. dollar, investors with “applicable financial statements” within the meaning of Section 451(b) of the Code, U.S. expatriates, regulated investment companies, real estate investment trusts, personal holding companies, persons who acquire an interest in the Company in connection with the performance of services and financial institutions. Such persons should consult with their own tax advisers as to the U.S. federal income tax consequences of an investment in our shares of common stock, which may differ substantially from those described herein. This summary assumes that investors hold our shares of common stock as capital assets (within the meaning of Section 1221 of the Code).
The discussion is based upon the Code, U.S. Treasury regulations, and administrative and judicial interpretations, each as of the date of the filing of this registration statement on Form N-2 and all of which are subject to change, possibly retroactively, which could affect the continuing validity of this discussion. We have not sought and will not seek any ruling from the IRS, regarding any offering of our shares of common stock. This summary does not discuss any aspects of U.S. estate or gift tax or foreign, state or local tax. It does not discuss the special treatment under U.S. federal income tax laws that could result if we invested in tax-exempt securities or certain other investment assets. For purposes of this discussion, references to “dividends” are to dividends within the meaning of the U.S. federal income tax laws and associated regulations and may include amounts subject to treatment as a return of capital under section 19(a) of the 1940 Act. A return of capital distribution is a return to stockholders of a portion of their original investment in the Company and does not represent income or capital gains.
A “U.S. stockholder” is a beneficial owner of our shares of common stock that is for U.S. federal income tax purposes:
| ● | a citizen or individual resident of the United States; |
| ● | a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of the United States or any state thereof or the District of Columbia; |
| ● | an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or |
| ● | a trust if either a U.S. court can exercise primary supervision over its administration and one or more U.S. persons have the authority to control all of its substantial decisions or the trust was in existence on August 20, 1996, was treated as a U.S. person prior to that date, and has made a valid election to be treated as a U.S. person. |
A “non-U.S. stockholder” is a beneficial owner of our shares of common stock that is neither a U.S. stockholder nor a partnership for U.S. federal income tax purposes.
If a partnership (or other pass-through entity, including an entity treated as a partnership for U.S. federal income tax purposes) holds shares of common stock, the tax treatment of a partner in the partnership will generally depend upon the status of the partner and the activities of the partnership. A prospective investor that is a partner in a partnership that will hold shares of common stock should consult its tax advisors with respect to the purchase, ownership and disposition of shares of common stock.
Tax matters are very complicated and the tax consequences to an investor of an investment in our shares of common stock will depend on the facts of his, her or its particular situation. We encourage investors to consult their own tax advisors regarding the specific consequences of such an investment, including tax reporting requirements, the applicability of U.S. federal, state, local and foreign tax laws, eligibility for the benefits of any applicable tax treaty, and the effect of any possible changes in the tax laws.
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Election to Be Taxed as a RIC
We have elected to be treated, and intend to qualify each year, as a RIC under Subchapter M of the Code. As a RIC, we generally will not have to pay corporate-level U.S. federal income taxes on any net ordinary income or capital gains that we timely distribute to our stockholders as dividends. To qualify as a RIC, we must, among other things, meet certain source-of-income and asset diversification requirements (as described below). In addition, to qualify for RIC treatment, we must distribute to our stockholders, for each taxable year, dividends of an amount at least equal to the sum of 90% of our “investment company taxable income,” which is generally our net ordinary income plus the excess of realized net short-term capital gains over realized net long-term capital losses and determined without regard to any deduction for dividends paid, and 90% of our net tax-exempt interest income, if any (the “Annual Distribution Requirement”). Although not required for us to maintain our RIC tax status, in order to preclude the imposition of a 4% non-deductible U.S. federal excise tax imposed on RICs, we must distribute to our stockholders in respect of each calendar year dividends 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 the calendar year, (2) 98.2% of the excess (if any) of our realized capital gains over our realized capital losses, or capital gain net income (adjusted for certain ordinary losses), generally for the one-year period ending on October 31 of the 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 U.S. federal income tax (the “Excise Tax Avoidance Requirement”).
Taxation as a RIC
If we:
| ● | qualify as a RIC; and |
| ● | satisfy the Annual Distribution Requirement; |
then we will not be subject to U.S. federal income tax on the portion of our investment company taxable income and net capital gain, defined as net long-term capital gains in excess of net short-term capital losses, we distribute to stockholders. As a RIC, we will be subject to U.S. federal income tax at regular corporate rates on any net income or net capital gain not distributed (or deemed distributed) as dividends to our stockholders.
In order to qualify as a RIC for U.S. federal income tax purposes, we must, among other things:
| ● | have in effect an election to be treated as a BDC under the 1940 Act at all times during each taxable year; |
| ● | derive in each taxable year at least 90% of our gross income from dividends, interest, payments with respect to certain securities loans, gains from the sale of stock or other securities, or other income derived with respect to our business of investing in such stock or securities, or currencies, other income derived with respect to its business of investing in such stock, securities or currencies and net income derived from interests in “qualified publicly traded partnerships” (partnerships that are traded on an established securities market or tradable on a secondary market, other than partnerships that derive 90% of their income from interest, dividends and other permitted RIC income) (the “90% Income Test”); and |
| ● | diversify our holdings so that at the end of each quarter of the taxable year: |
| ● | at least 50% of the value of our assets consists of cash, cash equivalents, U.S. government securities, securities of other RICs, and other securities if such other securities of any one issuer do not represent more than 5% of the value of our assets or more than 10.0% of the outstanding voting securities of the issuer; and |
| ● | no more than 25% of the value of our assets is invested in the securities, other than U.S. government securities or securities of other RICs, of one issuer or of two or more issuers that are controlled, as determined under applicable tax rules, by us and that are engaged in the same or similar or related trades or businesses or in the securities of one or more qualified publicly traded partnerships. |
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We may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rules as having OID (such as debt instruments with PIK interest or, in certain cases, increasing interest rates or issued with warrants), we must include in income each year a portion of the OID that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. We may also have to include in income other amounts that we have not yet received in cash, such as PIK interest and deferred loan origination fees that are paid after origination of the loan. Because any OID or other amounts accrued will be included in our investment company taxable income for the year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received the corresponding cash amount.
We may invest in partnerships, including qualified publicly traded partnerships, which may result in our being subject to state, local or foreign income, franchise or other tax liabilities.
In addition, as a RIC, we are subject to ordinary income and capital gain distribution requirements under U.S. federal excise tax rules for each calendar year (as discussed above). If we do not meet the required distributions, we will be subject to a 4% non-deductible U.S. federal excise tax on the undistributed amount. The failure to meet U.S. federal excise tax distribution requirements will not cause us to lose our RIC status. Although we currently intend to make sufficient distributions each taxable year to satisfy the U.S. federal excise tax requirements, under certain circumstances, we may choose to retain taxable income or capital gains in excess of current year distributions into the next tax year in an amount less than what would trigger payments of U.S. federal income tax under Subchapter M of the Code. We may then be required to pay a 4% non-deductible U.S. federal excise tax on such income or capital gains.
A RIC is limited in its ability to deduct expenses in excess of its investment company taxable income. If our deductible expenses in a given taxable year exceed our investment company taxable income, we may incur a net operating loss for that taxable year. However, a RIC is not permitted to carry forward net operating losses to subsequent taxable years and such net operating losses do not pass through to its stockholders. In addition, deductible expenses can be used only to offset investment company taxable income, not net capital gain. A RIC may not use any net capital losses (that is, the excess of realized capital losses over realized capital gains) to offset its investment company taxable income, but may carry forward such net capital losses, and use them to offset future capital gains, indefinitely. Due to these limits on deductibility of expenses and net capital losses, we may for tax purposes have aggregate taxable income for several taxable years that we are required to distribute and that is taxable to our stockholders even if such taxable income is greater than the net income we actually earn during those taxable years.
Any underwriting fees paid by us with respect to our own stock are not deductible. We may be required to recognize taxable income in circumstances in which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rules as having OID (such as debt instruments with PIK interest or, in certain cases, with increasing interest rates or issued with warrants), we must include in income each year a portion of the OID that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. Because any OID accrued will be included in our investment company taxable income for the taxable year of accrual, we may be required to make a distribution to our stockholders in order to satisfy the Annual Distribution Requirement, even though we will not have received any corresponding cash amount. Furthermore, a portfolio company in which we hold equity or debt instruments may face financial difficulty that requires us to work out, modify, or otherwise restructure such equity or debt instruments. Any such restructuring could, depending upon the terms of the restructuring, cause us to incur unusable or non-deductible losses or recognize future non-cash taxable income.
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Certain of our investment practices may be subject to special and complex U.S. federal income tax provisions that may, among other things, (1) treat dividends that would otherwise constitute qualified dividend income as non-qualified dividend income, (2) treat dividends that would otherwise be eligible for the corporate dividends received deduction as ineligible for such treatment, (3) disallow, suspend or otherwise limit the allowance of certain losses or deductions, (4) convert lower-taxed long-term capital gain into higher-taxed short-term capital gain or ordinary income, (5) convert an ordinary loss or a deduction into a capital loss (the deductibility of which is more limited), (6) cause us to recognize income or gain without a corresponding receipt of cash, (7) adversely affect the time as to when a purchase or sale of stock or securities is deemed to occur, (8) adversely alter the characterization of certain complex financial transactions and (9) produce income that will not be qualifying income for purposes of the 90% Income Test. We intend to monitor our transactions and may make certain tax elections to mitigate the effect of these provisions and prevent our ability to be subject to tax as a RIC.
Gain or loss realized by us from warrants acquired by us as well as any loss attributable to the lapse of such warrants generally will be treated as capital gain or loss. Such gain or loss generally will be long term or short term, depending on how long we held a particular warrant.
Although we do not presently expect to do so, we are authorized to make borrowings under credit facilities, issue senior unsecured notes and to sell assets in order to satisfy distribution requirements. However, under the 1940 Act, we are not permitted to make distributions to our stockholders while our debt obligations and other senior securities are outstanding unless certain “asset coverage” tests are met. See “Regulation as a Business Development Company—Senior Securities and Indebtedness.” Moreover, our ability to dispose of assets to meet our distribution requirements may be limited by (1) the illiquid nature of our portfolio and/or (2) other requirements relating to our qualification as a RIC, including the diversification tests described above (the “Diversification Tests”). If we dispose of assets in order to meet the Annual Distribution Requirement or the Excise Tax Avoidance Requirement, we may make such dispositions at times that, from an investment standpoint, are not advantageous.
Some of the income and fees that we may recognize, such as fees for providing managerial assistance, certain fees earned with respect to our investments, income recognized in a work-out or restructuring of a portfolio investment, or income recognized from an equity investment in an operating partnership, will not satisfy the 90% Income Test. In order to manage the risk that such income and fees might disqualify us as a RIC for a failure to satisfy the 90% Income Test, we may be required to recognize such income and fees indirectly through one or more entities treated as corporations for U.S. federal income tax purposes (therefore, received amounts treated as dividends of such corporations). Such corporations will be required to pay U.S. corporate income tax on their earnings, which ultimately will reduce our return on such income and fees.
Failure to Qualify as a RIC
If we were unable to qualify for treatment as a RIC and are unable to cure the failure, for example, by disposing of certain investments quickly or raising additional capital to prevent the loss of RIC status, we would be subject to tax on all of our taxable income at regular corporate rates. The Code provides some relief from RIC disqualification due to failures to comply with the 90% Income Test and the Diversification Tests, although there may be additional taxes due in such cases. We cannot assure you that we would qualify for any such relief should we fail the 90% Income Test or the Diversification Tests.
Should failure occur, not only would all our taxable income be subject to tax at regular corporate rates, we would not be able to deduct dividend distributions to stockholders, nor would they be required to be made. Distributions, including distributions of net long-term capital gain, would generally be taxable to our stockholders as ordinary dividend income to the extent of our current and accumulated earnings and profits. Subject to certain limitations under the Code, certain corporate stockholders would be eligible to claim a dividends received deduction with respect to such dividends and non-corporate stockholders would generally be able to treat such dividends as “qualified dividend income,” which is subject to reduced rates of U.S. federal income tax. Distributions in excess of our current and accumulated earnings and profits would be treated first as a return of capital to the extent of the stockholder’s tax basis, and any remaining distributions would be treated as a capital gain. If we fail to qualify as a RIC, we may be subject to regular corporate tax on any net built-in gains with respect to certain of our assets (i.e., the excess of the aggregate gains, including items of income, over aggregate losses that would have been realized with respect to such assets if we had been liquidated) that we elect to recognize on requalification or when recognized over the next five taxable years.
The remainder of this discussion assumes that we qualify as a RIC and have satisfied the Annual Distribution Requirement for each taxable year.
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Taxation of U.S. Stockholders
Distributions by us generally are taxable to U.S. stockholders as ordinary income or capital gains. Distributions of our “investment company taxable income” (which is, generally, our net ordinary income plus net short-term capital gains in excess of net long-term capital losses) will be taxable as ordinary income to U.S. stockholders to the extent of our current or accumulated earnings and profits, whether paid in cash or reinvested in additional shares of common stock. To the extent such distributions paid by us to non-corporate stockholders (including individuals) are attributable to dividends from U.S. corporations and certain qualified foreign corporations and if certain holding period requirements are met, such distributions generally will be treated as qualified dividend income and generally eligible for a maximum U.S. federal tax rate of either 15% or 20%, depending on whether the individual stockholder’s income exceeds certain threshold amounts, and if other applicable requirements are met, such distributions generally will be eligible for the corporate dividends received deduction to the extent such dividends have been paid by a U.S. corporation. In this regard, it is anticipated that distributions paid by us will generally not be attributable to dividends and, therefore, generally will not qualify for the preferential maximum U.S. federal tax rate applicable to non-corporate stockholders as well as will not be eligible for the corporate dividends received deduction.
Distributions of our net capital gains (which is generally our realized net long-term capital gains in excess of realized net short-term capital losses) properly reported by us as “capital gain dividends” will be taxable to a U.S. stockholder as long-term capital gains (currently generally at a maximum rate of either 15% or 20%, depending on whether the individual stockholder’s income exceeds certain threshold amounts) in the case of individuals, trusts or estates, regardless of the U.S. stockholder’s holding period for his, her or its shares of common stock and regardless of whether paid in cash or reinvested in additional shares of common stock. Distributions in excess of our earnings and profits first will reduce a U.S. stockholder’s adjusted tax basis in such stockholder’s shares of common stock and, after the adjusted basis is reduced to zero, will constitute capital gains to such U.S. stockholder. Stockholders receiving dividends or distributions in the form of additional shares of common stock purchased in the market should be treated for U.S. federal income tax purposes as receiving a distribution in an amount equal to the amount of money that the stockholders receiving cash dividends or distributions will receive, and should have a cost basis in the shares received equal to such amount. Stockholders receiving dividends in newly issued shares of common stock will be treated as receiving a distribution equal to the value of the shares received and should have a cost basis of such amount.
Although we currently intend to distribute any net capital gains at least annually, we may in the future decide to retain some or all of our net capital gains but designate the retained amount as a “deemed distribution.” In that case, among other consequences, we will pay tax on the retained amount, each U.S. stockholder will be required to include their share of the deemed distribution in income as if it had been distributed to the U.S. stockholder, and the U.S. stockholder will be entitled to claim a credit or refund equal to their allocable share of the tax paid on the deemed distribution by us. The amount of the deemed distribution net of such tax will be added to the U.S. stockholder’s tax basis for their shares of common stock. Since we expect to pay tax on any retained net capital gains at our regular corporate tax rate, and since that rate is in excess of the maximum rate currently payable by individuals on long-term capital gains, the amount of tax that individual stockholders will be treated as having paid and for which they will receive a credit or refund will exceed the tax they owe on the retained net capital gain. Such excess generally may be claimed as a credit against the U.S. stockholder’s other U.S. federal income tax obligations or may be refunded to the extent it exceeds a stockholder’s liability for U.S. federal income tax. A stockholder that is not subject to U.S. federal income tax or otherwise required to file a U.S. federal income tax return would be required to file a U.S. federal income tax return on the appropriate form in order to claim a refund for the taxes we paid. In order to utilize the deemed distribution approach, we must provide written notice to our stockholders prior to the expiration of 60 days after the close of the relevant taxable year. We cannot treat any of our investment company taxable income as a “deemed distribution.”
For purposes of determining (1) whether the Annual Distribution Requirement is satisfied for any tax year and (2) the amount of capital gain dividends paid for that tax year, we may, under certain circumstances, elect to treat a dividend that is paid during the following tax year as if it had been paid during the tax year in question. If we make such an election, the U.S. stockholder will still be treated as receiving the dividend in the tax year in which the distribution is made. However, any dividend declared by us in October, November or December of any calendar year, payable to stockholders of record on a specified date in such a month and actually paid during January of the following calendar year, will be treated as if it had been received by our U.S. stockholders on December 31 of the calendar year in which the dividend was declared.
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With respect to the reinvestment of dividends, if a U.S. stockholder owns shares of common stock registered in its own name, the U.S. stockholder will have all cash distributions automatically reinvested in additional shares of common stock unless the U.S. stockholder opts out of the reinvestment of dividends by delivering a written notice to our dividend paying agent prior to the record date of the next dividend or distribution. Any distributions reinvested will nevertheless remain taxable to the U.S. stockholder. The U.S. stockholder will have an adjusted tax basis in the additional shares of common stock purchased through the reinvestment equal to the amount of the reinvested distribution. The additional shares of common stock will have a new holding period commencing on the day following the day on which the shares are credited to the U.S. stockholder’s account.
If an investor purchases shares of common stock shortly before the record date of a distribution, the price of the shares of common stock will include the value of the distribution and the investor will be subject to tax on the distribution even though it represents a return of their investment.
A stockholder generally will recognize taxable gain or loss if the stockholder sells or otherwise disposes of their shares of common stock. Any gain arising from such sale or disposition generally will be treated as long-term capital gain or loss if the stockholder has held their shares of common stock for more than one year. Otherwise, it would be classified as short-term capital gain or loss. However, any capital loss arising from the sale or disposition of shares of common stock held for six months or less will be treated as long-term capital loss to the extent of the amount of capital gain dividends received, or undistributed capital gain deemed received, with respect to such shares of common stock. In addition, all or a portion of any loss recognized upon a disposition of shares of common stock may be disallowed if other shares of common stock are purchased (whether through reinvestment of distributions or otherwise) within 30 days before or after the disposition. In such a case, the basis of shares of common stock acquired will be increased to reflect the disallowed loss.
In general, individual U.S. stockholders are subject to a maximum U.S. federal income tax rate of either 15% or 20% (depending on whether the individual U.S. stockholder’s income exceeds certain threshold amounts) on their net capital gain, i.e., the excess of realized net long-term capital gain over realized net short-term capital loss for a taxable year, including a long-term capital gain derived from an investment in our shares of common stock. Such rate is lower than the maximum U.S. federal income tax rate on ordinary taxable income currently payable by individuals. Corporate U.S. stockholders currently are subject to U.S. federal income tax on net capital gain at the maximum 21% rate also applied to ordinary income. Non-corporate stockholders incurring net capital losses for a tax year (i.e., net capital losses in excess of net capital gains) generally may deduct up to $3,000 of such losses against their ordinary income each tax year; any net capital losses of a non-corporate stockholder in excess of $3,000 generally may be carried forward and used in subsequent tax years as provided in the Code. Corporate stockholders generally may not deduct any net capital losses for a tax year, but may carry back such losses for three tax years or carry forward such losses for five tax years.
We will send to each of our U.S. stockholders, as promptly as possible after the end of each calendar year, a notice detailing, on a per share and per distribution basis, the amounts includible in such U.S. stockholder’s taxable income for such year as ordinary income and as long-term capital gain. In addition, the U.S. federal tax status of each calendar year’s distributions generally will be reported to the IRS. Distributions may also be subject to additional state, local and foreign taxes depending on a U.S. stockholder’s particular situation. Dividends distributed by us generally will not be eligible for the dividends-received deduction or the lower tax rates applicable to certain qualified dividends.
Backup withholding, currently at a rate of 24%, may be applicable to all taxable distributions to any non-corporate U.S. stockholder (1) who fails to furnish us with a correct taxpayer identification number or a certificate that such stockholder is exempt from backup withholding or (2) with respect to whom the IRS notifies us that such stockholder has failed to properly report certain interest and dividend income to the IRS and to respond to notices to that effect. An individual’s taxpayer identification number is his or her social security number. Any amount withheld under backup withholding is allowed as a credit against the U.S. stockholder’s U.S. federal income tax liability and may entitle such stockholder to a refund, provided that proper information is timely provided to the IRS.
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If a U.S. stockholder recognizes a loss with respect to shares of common stock of $2 million or more for an individual stockholder in any single tax year (or $4 million in any combination of tax years) or $10 million or more for a corporate stockholder in any single tax year (or $20 million in any combination of tax years), the stockholder must file with the IRS a disclosure statement on Form 8886. Direct stockholders of portfolio securities are in many cases exempted from this reporting requirement, but under current guidance, stockholders of a RIC are not exempted. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer’s treatment of the loss is proper. U.S. stockholders should consult their tax advisors to determine the applicability of these regulations in light of their specific circumstances.
A U.S. stockholder that is a tax-exempt organization for U.S. federal income tax purposes and therefore generally exempt from U.S. federal income taxation may nevertheless be subject to taxation to the extent that it is considered to derive unrelated business taxable income (“UBTI”). The direct conduct by a tax-exempt U.S. stockholder of the activities we propose to conduct could give rise to UBTI. However, a BDC (and RIC) is a corporation for U.S. federal income tax purposes and its business activities generally will not be attributed to its stockholders for purposes of determining their treatment under current law. Therefore, a tax-exempt U.S. stockholder generally should not be subject to U.S. taxation solely as a result of the stockholder’s ownership of our shares of common stock and receipt of dividends with respect to such common stock. Moreover, under current law, if we incur indebtedness, such indebtedness will not be attributed to a tax-exempt U.S. stockholder. Therefore, a tax-exempt U.S. stockholder should not be treated as earning income from “debt-financed property” and dividends we pay should not be treated as “unrelated debt-financed income” solely as a result of indebtedness that we incur. Legislation has been introduced in Congress in the past, and may be introduced again in the future, which would change the treatment of “blocker” investment vehicles interposed between tax-exempt investors and non-qualifying investments if enacted. In the event that any such proposals were to be adopted and applied to BDCs (and RICs), the treatment of dividends payable to tax-exempt investors could be adversely affected. In addition, special rules would apply if we were to invest in certain real estate mortgage investment conduits, which we do not currently plan to do, that could result in a tax-exempt U.S. stockholder recognizing income that would be treated as UBTI.
An additional 3.8% federal tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions received from us and net gains from redemptions or other taxable dispositions of our shares) of U.S. individuals, estates and trusts to the extent that such person’s “modified adjusted gross income” (in the case of an individual) or “adjusted gross income” (in the case of an estate or trust) exceed certain threshold amounts.
Taxation of Non-U.S. Stockholders
The following discussion only applies to certain non-U.S. stockholders. Whether an investment in the shares of common stock is appropriate for a non-U.S. stockholder will depend upon that person’s particular circumstances. An investment in the shares of common stock by a non-U.S. stockholder may have adverse tax consequences. Non-U.S. stockholders should consult their tax advisors before investing in our shares of common stock.
Subject to the discussion below, distributions of our “investment company taxable income” to non-U.S. stockholders (including interest income, net short-term capital gain or foreign-source dividend and interest income, which generally would be free of withholding if paid to non-U.S. stockholders directly) will be subject to withholding of U.S. federal tax at a 30% rate (or lower rate provided by an applicable treaty) to the extent of our current and accumulated earnings and profits unless the distributions are effectively connected with a U.S. trade or business of the non-U.S. stockholder (and, if treaty applies, are attributable to a U.S. permanent establishment of the non-U.S. stockholder), in which case the distributions will generally be subject to U.S. federal income tax at the rates applicable to U.S. persons. In that case, we will not be required to withhold U.S. federal tax if the non-U.S. stockholder complies with applicable certification and disclosure requirements such as providing IRS Form W-8ECI. Special certification requirements apply to a non-U.S. stockholder that is a foreign partnership or a foreign trust, and such entities are urged to consult their own tax advisors.
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Certain properly reported dividends received by a non-U.S. stockholder generally are exempt from U.S. federal withholding tax when they (1) are paid in respect of our “qualified net interest income” (generally, our U.S. source interest income, other than certain contingent interest and interest from obligations of a corporation or partnership in which we are at least a 10% stockholder, reduced by expenses that are allocable to such income), or (2) are paid in connection with our “qualified short-term capital gains” (generally, the excess of our net short-term capital gain over our long-term capital loss for a tax year) as well as if certain other requirements are satisfied. Nevertheless, it should be noted that in the case of shares of our stock held through an intermediary, the intermediary may have withheld U.S. federal income tax even if we reported the payment as an interest-related dividend or short-term capital gain dividend. Moreover, depending on the circumstances, we may report all, some or none of our potentially eligible dividends as derived from such qualified net interest income or as qualified short-term capital gains, or treat such dividends, in whole or in part, as ineligible for this exemption from withholding.
Actual or deemed distributions of our net capital gains to a non-U.S. stockholder, and gains realized by a non-U.S. stockholder upon the sale of our shares of common stock, will not be subject to U.S. federal withholding tax and generally will not be subject to U.S. federal income tax unless the distributions or gains, as the case may be, are effectively connected with a U.S. trade or business of the non-U.S. stockholder and, if an income tax treaty applies, are attributable to a permanent establishment maintained by the non-U.S. stockholder in the United States or, in the case of an individual non-U.S. stockholder, the stockholder is present in the United States for 183 days or more during the year of the sale or capital gain dividend and certain other conditions are met.
If we distribute our net capital gains in the form of deemed rather than actual distributions (which we may do in the future), a non-U.S. stockholder will be entitled to a U.S. federal income tax credit or tax refund equal to the stockholder’s allocable share of the tax we pay on the capital gains deemed to have been distributed. In order to obtain the refund, the non-U.S. stockholder must obtain a U.S. taxpayer identification number and file a U.S. federal income tax return even if the non-U.S. stockholder would not otherwise be required to obtain a U.S. taxpayer identification number or file a U.S. federal income tax return. For a corporate non-U.S. stockholder, distributions (both actual and deemed), and gains realized upon the sale of our shares of common stock that are effectively connected with a U.S. trade or business may, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate (or at a lower rate if provided for by an applicable treaty).
A non-U.S. stockholder who is a non-resident alien individual, and who is otherwise subject to withholding of U.S. federal income tax, may be subject to information reporting and backup withholding of U.S. federal income tax on dividends unless the non-U.S. stockholder provides us or the dividend paying agent with a U.S. nonresident withholding tax certification (e.g., an IRS Form W-8BEN, IRS Form W-8BEN-E, or an acceptable substitute form) or otherwise meets documentary evidence requirements for establishing that it is a non-U.S. stockholder or otherwise establishes an exemption from backup withholding.
Withholding of U.S. tax (at a 30% rate) is required by the Foreign Account Tax Compliance Act, or FATCA, provisions of the Code with respect to payments of dividends made to certain non-U.S. entities that fail to comply (or be deemed compliant) with extensive new reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned foreign investment accounts. Under proposed U.S. Treasury regulations, which may be relied upon until final U.S. Treasury regulations are published, there is no FATCA withholding on gross proceeds from the sale of disposition of shares of common stock or on certain capital gain distributions. Stockholders may be requested to provide additional information to enable the applicable withholding agent to determine whether withholding is required.
An investment in shares by a non-U.S. person may also be subject to U.S. federal estate tax. Non-U.S. persons should consult their own tax advisors with respect to the U.S. federal income tax, U.S. federal estate tax, withholding tax, and state, local and foreign tax consequences of acquiring, owning or disposing of our shares of common stock.
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DESCRIPTION OF OUR CAPITAL STOCK
The following description is based on relevant portions of the DGCL and our certificate of incorporation and bylaws. This summary is not necessarily complete, and we refer you to the DGCL and the full text of our certificate of incorporation and bylaws for a more detailed description of the provisions summarized below.
Capital Stock
Our authorized stock consists of 100 million shares of common stock, par value $0.001 per share, and 1,000,000 shares of preferred stock, par value $0.001 per share. There are no outstanding options or warrants to purchase our shares of common stock. No stock has been authorized for issuance under any equity compensation plans. Under Delaware law, our stockholders generally are not personally liable for our debts or obligations.
The following is authorized
and outstanding classes of
Title of Class (1) | (2) Amount Authorized | (3) Amount Held by us or for Our Account | (4) Amount Outstanding Exclusive of Amounts Shown Under (3) | |||||||||
| Common Stock | 100,000,000 | — | ||||||||||
| Preferred Stock | 1,000,000 | — | — | |||||||||
Under our certificate of incorporation, our Board is authorized to classify and reclassify any unissued shares of stock into other classes or series of stock and authorize the issuance of shares of stock without obtaining stockholder approval. As permitted by the DGCL, our certificate of incorporation provides that the Board, without any action by our stockholders, may amend the certificate of incorporation from time to time to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we have authority to issue.
All of our shares of common
stock have equal rights as to earnings, assets, dividends and other distributions and voting and, when they are issued, will be duly
authorized, validly issued, fully paid and nonassessable.
Provisions of the DGCL and Our Certificate of incorporation and Bylaws
Limitation on Liability of Directors and Officers; Indemnification and Advance of Expenses
The indemnification of our officers and directors will be governed by Section 145 of the DGCL, our certificate of incorporation and bylaws. Subsection (a) of DGCL Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation) by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by the person in connection with such action, suit or proceeding if (1) such person acted in good faith, (2) in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and (3) with respect to any criminal action or proceeding, such person had no reasonable cause to believe the person’s conduct was unlawful.
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Subsection (b) of DGCL Section 145 empowers a corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that the person is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner the person reasonably believed to be in, or not opposed to, the best interests of the corporation, and except that no indemnification may be made in respect of any claim, issue or matter as to which such person has been adjudged to be liable to the corporation unless and only to the extent that the Delaware Court of Chancery or the court in which such action or suit was brought determines upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court deems proper.
DGCL Section 145 further provides that to the extent that a present or former director or officer is successful, on the merits or otherwise, in the defense of any action, suit or proceeding referred to in subsections (a) and (b) of Section 145, or in defense of any claim, issue or matter therein, such person will be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with such action, suit or proceeding. In all cases in which indemnification is permitted under subsections (a) and (b) of Section 145 (unless ordered by a court), it will be made by the corporation only as authorized in the specific case upon a determination that indemnification of the present or former director, officer, employee or agent is proper in the circumstances because the applicable standard of conduct has been met by the party to be indemnified. Such determination must be made, with respect to a person who is a director or officer at the time of such determination, (1) by a majority vote of the directors who are not parties to such action, suit or proceeding, even though less than a quorum, (2) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, (3) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion or (4) by the stockholders. The statute authorizes the corporation to pay expenses incurred by an officer or director in advance of the final disposition of a proceeding upon receipt of an undertaking by or on behalf of the person to whom the advance will be made, to repay the advances if it is ultimately determined that he or she was not entitled to indemnification. DGCL Section 145 also provides that indemnification and advancement of expenses permitted under such Section are not to be exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors, or otherwise. DGCL Section 145 also authorizes the corporation to purchase and maintain liability insurance on behalf of its directors, officers, employees and agents regardless of whether the corporation would have the statutory power to indemnify such persons against the liabilities insured.
Our certificate of incorporation provides that our directors will not be liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director to the fullest extent permitted by the current DGCL or as the DGCL may be amended. DGCL Section 102(b)(7) provides that the personal liability of a director to a corporation or its stockholders for breach of fiduciary duty as a director may be eliminated except for liability (1) for any breach of the director’s duty of loyalty to the registrant or its stockholders, (2) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (3) under Section 174 of the DGCL, relating to unlawful payment of dividends or unlawful stock purchases or redemption of stock or (4) for any transaction from which the director derives an improper personal benefit.
As a BDC, we are not permitted to and will not indemnify the Advisor, any of our executive officers and directors, or any other person against liability arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office, or by reason of reckless disregard of obligations and duties of such person arising under contract or agreement.
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Election of Directors
Our bylaws provide that the affirmative vote of a majority of the total votes cast “for” or “against” a nominee for director at a duly called meeting of stockholders at which a quorum is present is required to elect a director in an uncontested election. In a contested election, directors are elected by a plurality of the votes cast at a meeting of stockholders duly called and at which is a quorum is present. Our bylaws provide that our Board may amend the bylaws to alter the vote required to elect directors.
Classified Board of Directors
Our Board is divided into three classes of directors serving staggered three-year terms, with the term of office of only one of the three classes expiring each year. At each annual meeting of stockholders, directors of the class of directors whose term expires at such meeting will be elected to hold office for a term expiring at the third succeeding annual meeting of stockholders following the meeting at which they were elected and until their successors are duly elected and qualified. A classified Board may render a change in control of us or removal of our incumbent management more difficult. We believe, however, that the longer time required to elect a majority of a classified Board helps to ensure the continuity and stability of our management and policies.
Number of Directors; Removal; Vacancies
Our certificate of incorporation and bylaws provide that the number of directors will be set only by the Board. Our bylaws provide that a majority of our entire Board may at any time increase or decrease the number of directors. However, unless our bylaws are amended, the number of directors may never be less than four nor more than eight. Except as may be provided by the Board in setting the terms of any class or series of preferred stock, any and all vacancies on the Board, including a vacancy resulting from an enlargement of the Board, may be filled only by vote of a majority of the directors then in office, even if the remaining directors do not constitute a quorum, and any director elected to fill a vacancy will serve for the remainder of the full term of the directorship in which the vacancy occurred and until a successor is elected and qualified, subject to any applicable requirements of the 1940 Act. Our certificate of incorporation provides that a director may be removed only for cause, as defined in our certificate of incorporation, and then only by the affirmative vote of at least two-thirds of the votes entitled to be cast in the election of directors. The limitations on the ability of our stockholders to remove directors and fill vacancies could make it more difficult for a third-party to acquire, or discourage a third party from seeking to acquire, control of us.
Action by Stockholders
Pursuant to our certificate of incorporation, any action required or permitted to be taken by the stockholders must be effected at an annual or special meeting of the stockholders, and may not be taken by written consent. These provisions, combined with the requirements of our bylaws regarding the calling of a stockholder-requested meeting of stockholders discussed below, may have the effect of delaying consideration of a stockholder proposal until the next annual meeting.
Advance Notice Provisions for Stockholder Nominations and Stockholder Proposals
Our bylaws provide that with respect to an annual meeting of stockholders, nominations of persons for election to the Board and the proposal of business to be considered by stockholders may be made only (1) by or at the direction of the Board, (2) pursuant to our notice of meeting or (3) by a stockholder who was a stockholder of record at the time of provision of notice, at the record date and at the time of the meeting, who is entitled to vote at the meeting and who has complied with the advance notice procedures of the bylaws. With respect to special meetings of stockholders, only the business specified in our notice of the meeting may be brought before the meeting. Nominations of persons for election to the Board at a special meeting may be made only (1) by or at the direction of the Board or (2) provided that the special meeting has been called in accordance with our bylaws for the purposes of electing directors, by a stockholder who was a stockholder of record at the time of provision of notice, at the record date and at the time of the meeting, who is entitled to vote at the meeting and who has complied with the advance notice provisions of the bylaws.
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The purpose of requiring stockholders to give us advance notice of nominations and other business is to afford our Board a meaningful opportunity to consider the qualifications of the proposed nominees and the advisability of any other proposed business and, to the extent deemed necessary or desirable by our Board, to inform stockholders and make recommendations about such qualifications or business, as well as to provide a more orderly procedure for conducting meetings of stockholders. Although our bylaws do not give our Board any power to disapprove stockholder nominations for the election of directors or proposals will recommend certain action, they may have the effect of precluding a contest for the election of directors or the consideration of stockholder proposals if proper procedures are not followed and of discouraging or deterring a third party from conducting a solicitation of proxies to elect its own slate of directors or to approve its own proposal without regard to whether consideration of such nominees or proposals might be harmful or beneficial to us and our stockholders.
Calling of Special Meetings of Stockholders
Our certificate of incorporation and bylaws provide that special meetings of stockholders may be called by our Board, the chairman of our Board and our Chief Executive Officer.
Delaware Anti-takeover Law
The DGCL contains provisions that may discourage, delay or make more difficult a change in control of us or the removal of our directors. Our certificate of incorporation and bylaws contain provisions that limit liability and provide for indemnification of our directors and officers. These provisions and others which we may adopt also may have the effect of deterring hostile takeovers or delaying changes in control or management. We are subject to Section 203 of the DGCL, the application of which is subject to any applicable requirements of the 1940 Act. This section generally prohibits us from engaging in mergers and other business combinations with stockholders that beneficially own 15% or more of our voting stock, either individually or together with their affiliates, unless our directors or stockholders approve the business combination in the prescribed manner. Section 203 of the DGCL may discourage third parties from trying to acquire control of us and increase the difficulty of consummating such an offer.
We are subject to the provisions of Section 203 of the DGCL regulating corporate takeovers. In general, these provisions prohibit a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years following the date that the stockholder became an interested stockholder, unless:
| ● | prior to such time, the Board approved either the business combination or the transaction which resulted in the stockholder becoming an interested stockholder; |
| ● | upon consummation of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or |
| ● | at or subsequent to such time, the business combination is approved by the Board and authorized at a meeting of stockholders, by at least two-thirds of the outstanding voting stock that is not owned by the interested stockholder. |
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Section 203 of the DGCL defines “business combination” to include the following:
| ● | any merger or consolidation involving the corporation and the interested stockholder; |
| ● | any sale, transfer, pledge or other disposition (in one transaction or a series of transactions) of 10% or more of either the aggregate market value of all the assets of the corporation or the aggregate market value of all the outstanding stock of the corporation involving the interested stockholder; |
| ● | subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder; |
| ● | any transaction involving the corporation that has the effect of increasing the proportionate share of the stock of any class or series of the corporation owned by the interested stockholder; or |
| ● | the receipt by the interested stockholder of the benefit of any loans, advances, guarantees, pledges or other financial benefits provided by or through the corporation. |
In general, Section 203 of the DGCL defines an interested stockholder as any entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation and any entity or person affiliated with or controlling or controlled by any of these entities or persons.
The statute could prohibit or delay mergers or other takeover or change in control attempts and, accordingly, may discourage attempts to acquire us.
Conflict with 1940 Act
Our bylaws provide that, if and to the extent that any provision of the DGCL, or any provision of our bylaws conflicts with any provision of the 1940 Act, the applicable provision of the 1940 Act will control.
Exclusive Forum
Our certificate of incorporation provides that, to the fullest extent permitted by law, unless we consent in writing to the selection of an alternative forum, the sole and exclusive forum for (A)(1) any derivative action or proceeding brought on behalf of the Company, (2) any action asserting a claim of breach of a fiduciary duty owed by any director, officer or other employee of the Company to the Company or the Company’s stockholders, (3) any action asserting a claim arising pursuant to any provision of the DGCL, our certificate of incorporation or bylaws or the securities, antifraud, unfair trade practices or similar laws of any international, national, state, provincial, territorial, local or other governmental or regulatory authority, including, in each case, the applicable rules and regulations promulgated thereunder, or (4) any action asserting a claim governed by the internal affairs doctrine will be a federal or state court located in the state of Delaware; and (B) the resolution of any complaint asserting a cause of action arising under the Securities Act, shall be the federal district courts of the United States. Any person or entity purchasing or otherwise acquiring any interest in shares of capital stock of the Company will be deemed, to the fullest extent permitted by law, to have notice of and consented to these exclusive forum provisions in our certificate of incorporation and to have irrevocably submitted to, and waived any objection to, the exclusive jurisdiction of such courts in connection with any such action or proceeding and consented to process being served in any such action or proceeding, without limitation, by United States mail addressed to the stockholder at the stockholder’s address as it appears on the records of the Company, with postage thereon prepaid. The exclusive forum provisions in our certificate of incorporation may increase costs to bring a claim and may discourage claims or limit investors’ ability to bring a claim in a judicial forum that they find favorable. In addition, there may exist questions of law as to whether a court would enforce the exclusive forum provisions in our certificate of incorporation. The exclusive forum provisions in our certificate of incorporation do not apply to claims arising under the federal securities laws.
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REGULATION
General
A BDC is a specialized investment vehicle that elects to be regulated under the 1940 Act as an investment company but is generally subject to less onerous requirements than other registered investment companies under a regime designed to encourage lending to U.S.-based small and mid-sized businesses. Unlike many similar types of investment vehicles that are restricted to being private entities, the stock of a BDC is permitted to trade in the public equity markets. BDCs are also eligible to elect to be treated as a RIC under Subchapter M of the Code. A RIC typically does not incur significant entity-level income taxes, because it is generally entitled to deduct distributions made to its stockholders.
Qualifying Assets
Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as qualifying assets, unless, at the time the acquisition is made, qualifying assets represent at least 70% of the BDC’s total assets. The principal categories of qualifying assets relevant to our proposed business are the following:
| (1) | Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer (subject to certain limited exceptions) is an eligible portfolio company, or from any person who is, or has been during the preceding 13 months, an affiliated person of an eligible portfolio company, or from any other person, subject to such rules as may be prescribed by the SEC. An eligible portfolio company is defined in the 1940 Act as any issuer which: |
| (a) | is organized under the laws of, and has its principal place of business in, the United States; |
| (b) | is not an investment company (other than a small business investment company wholly owned by the BDC) or a company that would be an investment company but for certain exclusions under the 1940 Act; and |
| (c) | satisfies either of the following: |
| (i) | does not have any class of securities listed on a national securities exchange or has any class of securities listed on a national securities exchange subject to a $250 million market capitalization maximum; |
| (ii) | is controlled by a BDC or a group of companies including a BDC, the BDC actually exercises a controlling influence over the management or policies of the eligible portfolio company, and, as a result, the BDC has an affiliated person who is a director of the eligible portfolio company; or |
| (iii) | is a small and solvent company having total assets of not more than $4 million and capital and surplus of not less than $2 million. |
| (2) | Securities of any eligible portfolio company which we control. |
| (3) | Securities purchased in a private transaction from a U.S. issuer that is not an investment company or from an affiliated person of the issuer, or in transactions incident thereto, if the issuer is in bankruptcy and subject to reorganization or if the issuer, immediately prior to the purchase of its securities, was unable to meet its obligations as they came due without material assistance other than conventional lending or financing arrangements. |
| (4) | Securities of an eligible portfolio company purchased from any person in a private transaction if there is no ready market for such securities and we already own 60% of the outstanding equity of the eligible portfolio company. |
| (5) | Securities received in exchange for or distributed on or with respect to securities described in (1) through (4) above, or pursuant to the exercise of warrants or rights relating to such securities. |
| (6) | Cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment. |
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In addition, a BDC must be operated for the purpose of making investments in the types of securities described in (1), (2) or (3) above. We may invest up to 30% of our portfolio opportunistically in “non-qualifying assets.”
Managerial Assistance to Portfolio Companies
In addition, a BDC must be organized and have its principal place of business in the United States and must be operated for the purpose of making investments in the types of securities described in (1), (2), or (3) above under “—Regulation as a Business Development Company—Qualifying Assets.” However, in order to count portfolio securities as qualifying assets for the purpose of the 70% test, the BDC must either control the issuer of the securities or must offer to make available to the issuer of the securities significant managerial assistance. However, when the BDC purchases securities in conjunction with one or more other persons acting together, one of the other persons in the group may make available such managerial assistance. Making available managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted, does so provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company through monitoring of portfolio company operations, selective participation in board and management meetings, consulting with and advising a portfolio company’s officers or other organizational or financial guidance.
Temporary Investments
Pending investment in other types of “qualifying assets,” as described above, our investments may consist of cash, cash equivalents, U.S. government securities or high-quality debt securities maturing in one year or less from the time of investment, which we refer to, collectively, as temporary investments, so that 70% of our assets are qualifying assets.
Warrants
Under the 1940 Act, a BDC is subject to restrictions on the issuance, terms and amount of warrants, options or rights to purchase shares that it may have outstanding at any time. In particular, the amount of shares that would result from the conversion or exercise of all outstanding warrants, options or rights to purchase shares cannot exceed 25% of the BDC’s total outstanding shares.
Senior Securities and Indebtedness
We will be permitted, under specified conditions, to issue multiple classes of indebtedness and one class of stock senior to our shares of common stock if our asset coverage, as defined in the 1940 Act, is at least equal to 150% immediately after each such issuance. As defined in the 1940 Act, asset coverage of 150% means that for every $100 of net assets we hold, we may raise $200 from borrowing and issuing senior securities. We currently intend to target asset coverage of 200% to 180% (which equates to a debt-to-equity ratio of 1.0x to 1.25x) but may alter this target based on market conditions. In addition, while any senior securities remain outstanding, we must make provisions to prohibit any distribution to our stockholders or the repurchase of such securities or shares unless we meet the applicable asset coverage ratios at the time of the distribution or repurchase. We may also borrow under credit facilities and issue senior unsecured notes in amounts up to 5% of the value of our total assets for temporary purposes without regard to asset coverage. Regulations governing our operations as a BDC will affect our ability to raise, and the method of raising, additional capital, which may expose us to risks.
Codes of Ethics
We and our Advisor have adopted a code of ethics pursuant to Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act, respectively, that establishes procedures for personal investments and restricts certain personal securities transactions. Personnel subject to the joint code may invest in securities for their personal investment accounts, including securities that may be purchased or held by us, so long as such investments are made in accordance with the code’s requirements. In addition, we have adopted a code of ethics applicable to our principal executive officers, principal accounting officer and senior financial officers pursuant to Section 406 of the Sarbanes-Oxley Act of 2022. You may review or download the codes of ethics from the SEC’s EDGAR database as part of our filings under www.sec.gov, or by written request to the following: Chief Compliance Officer, Kayne Anderson, 717 Texas Avenue, Suite 2200, Houston, TX 77002.
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Compliance Policies and Procedures
We make investments alongside certain entities and accounts advised by our Advisor and its affiliates. Under the 1940 Act, we are prohibited from knowingly participating in certain joint transactions with our affiliates without the prior approval of the independent directors and, in some cases, prior approval by the SEC. However, we generally make investments alongside affiliated entities and accounts pursuant to exemptive relief granted by the SEC to us, our Advisor, and certain of our affiliates on February 4, 2020. Pursuant to such exemptive relief, and subject to certain conditions, we are permitted to co-invest in the same security with our affiliates in a manner that is consistent with our investment objective, investment strategy, regulatory consideration and other relevant factors. If opportunities arise that would otherwise be appropriate for us and an affiliate to purchase different securities in the same issuer, our Advisor will need to decide which account will proceed with such investment. Our Advisor’s investment allocation policy incorporates the conditions of exemptive relief to seek to ensure that investment opportunities are allocated in a manner that is fair and equitable.
We will be periodically examined by the SEC for compliance with the 1940 Act.
We are required to provide and maintain a bond issued by a reputable fidelity insurance company to protect us against larceny and embezzlement. Furthermore, as a BDC, we will be prohibited from protecting any director or officer against any liability to us or our stockholders arising from willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of such person’s office.
We and our Advisor have adopted and implemented written policies and procedures reasonably designed to detect and prevent violation of the federal securities laws and will be required to review these compliance policies and procedures annually for their adequacy and the effectiveness of their implementation and designate a chief compliance officer to be responsible for administering the policies and procedures.
Sarbanes-Oxley Act
The Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, imposes a variety of regulatory requirements on companies with a class of securities registered under the Exchange Act and their insiders. Many of these requirements affect us. For example:
| ● | pursuant to Rule 13a-14 under the Exchange Act our principal executive officers and principal financial officer must certify the accuracy of the financial statements contained in our periodic reports; |
| ● | pursuant to Item 307 under Regulation S-K under the Securities Act our periodic reports must disclose our conclusions about the effectiveness of our disclosure controls and procedures; |
| ● | pursuant to Rule 13a-15 of the Exchange Act, our management must prepare an annual report regarding its assessment of our internal control over financial reporting and (once we cease to be an emerging growth company under the JOBS Act, or if later, for the year following our first annual report required to be filed with the SEC as a public company) must obtain an audit of the effectiveness of internal control over financial reporting performed by its independent registered public accounting firm; and |
| ● | pursuant to Item 308 of Regulation S-K under the Securities Act and Rule 13a-15 under the Exchange Act, our periodic reports must disclose whether there were significant changes in our internal controls over financial reporting or in other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. |
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The Sarbanes-Oxley Act requires us to review our current policies and procedures to determine whether we comply with the Sarbanes-Oxley Act and the regulations promulgated under such act. We will continue to monitor our compliance with all regulations that are adopted under the Sarbanes-Oxley Act and will take actions necessary to ensure that we comply with that act in the future.
JOBS Act
We currently are and expect to remain an “emerging growth company,” as defined in the JOBS Act, until the earliest of:
| ● | the last day of the fiscal year ending after the fifth anniversary of an exchange listing occurs; |
| ● | the end of the fiscal year in which our total annual gross revenues first exceed $1.235 billion; |
| ● | the date on which we have, during the prior three-year period, issued more than $1.0 billion in non-convertible debt; and |
| ● | the last day of a fiscal year in which we (1) have an aggregate worldwide market value of our shares of common stock held by non-affiliates of $700 million or more, computed at the end of each fiscal year as of the last business day of our most recently completed second fiscal quarter and (2) have been an Exchange Act reporting company for at least one year (and filed at least one annual report under the Exchange Act). |
Under the JOBS Act and Dodd-Frank, we are exempt from the provisions of Section 404(b) of the Sarbanes-Oxley Act, which would require that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting, until such time as we cease to be an emerging growth company and become an accelerated filer as defined in Rule 12b-2 under the Exchange Act. This may increase the risk that material weaknesses or other deficiencies in our internal control over financial reporting go undetected.
Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have made an irrevocable election not to take advantage of this exemption from new or revised accounting standards. We therefore are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
Commodities Exchange Act
The CFTC and the SEC have issued final rules establishing that certain swap transactions are subject to CFTC regulation. Engaging in such swap transactions may cause us to fall within the definition of “commodity pool” under the Commodity Exchange Act and related CFTC regulations. The Advisor will rely on an exclusion from the definition of a CPO under CFTC Rule 4.5 because of our limited trading in commodity interests, and the Advisor will operate us as if we were not registered as a CPO, so that unlike a registered CPO, with respect to us, the Advisor is not required to deliver a Disclosure Document or an Annual Report (as those terms are used in the CFTC’s rules) to stockholders.
Proxy Voting Policies and Procedures
We have delegated our proxy voting responsibility to our Advisor. A summary of the Proxy Voting Policies and Procedures of our Advisor are set forth below. These policies and procedures will be reviewed periodically by our Advisor and, subsequent to our election to be regulated as a BDC, our non-interested directors, and, accordingly, are subject to change. For purposes of these Proxy Voting Policies and Procedures described below, “we” “our” and “us” refers to our Advisor.
An investment advisor registered under the Advisers Act has a fiduciary duty to act solely in the best interests of its clients. As part of this duty, we recognize that we must vote the Company’s securities in a timely manner free of conflicts of interest and in the best interests of the Company and its stockholders.
These policies and procedures for voting proxies for our investment advisory clients are intended to comply with Section 206 of, and Rule 206(4)-6 under, the Advisers Act.
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We will vote proxies relating to our portfolio securities in what we believe to be the best interest of our stockholders. To ensure that our vote is not the product of a conflict of interest, we will require that: (1) anyone involved in the decision making process disclose to our chief compliance officer any potential conflict that he or she is aware of and any contact that he or she has had with any interested party regarding a proxy vote; and (2) employees involved in the decision making process or vote administration are prohibited from revealing how we intend to vote on a proposal in order to reduce any attempted influence from interested parties.
You may obtain information about how we voted proxies by making a written request for proxy voting information to: KA Credit Advisors, LLC, 717 Texas Avenue, Suite 2200, Houston, TX 77002, Attention: Chief Compliance Officer.
Employees
We do not have any employees. Our day-to-day investment operations are managed by our Advisor and the Administrator. Any compensation paid for services relating to our financial reporting and compliance functions will be paid by our Administrator, subject to reimbursement by us of an allocable portion of office facilities, overhead, and compensation paid to or compensatory distributions received by our officers (including our Chief Compliance Officer and Chief Financial Officer) and their respective staff who provide services to us. As we reimburse the Administrator for its expenses, we will indirectly bear such cost.
Our Administrator engaged Ultimus Fund Solutions, LLC under a sub-administration agreement to assist the Administrator in performing certain of its administrative duties. The Administrator may enter into additional sub-administration agreements with third-parties to perform other administrative and professional services on behalf of the Administrator. We will pay the fees associated with such functions on a direct basis without profit to our Administrator.
Privacy Principles
We are committed to maintaining the privacy of our investors and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information we collect, how we protect that information and why, in certain cases, we may share information with select other parties.
We do not disclose any non-public personal information about our stockholders or a former stockholder to anyone, except as permitted by law or as is necessary in order to service stockholder accounts (for example, to a transfer agent or third-party administrator).
We restrict access to non-public personal information about our stockholders to employees of our Advisor and its affiliates with a legitimate business need for the information. We will maintain physical, electronic and procedural safeguards designed to protect the non-public personal information of our stockholders.
Reporting Obligations
As a BDC, we make available on our website (www.kaynebdc.com) our annual reports on Form 10-K, quarterly reports on Form 10-Q and our current reports on Form 8-K. Stockholders and the public may also read and copy any materials we file with the SEC at the SEC’s Public Reference Room, 100 F Street, N.E., Washington, D.C. 20549 and on the SEC’s website at www.sec.gov. Information on the operation of the SEC’s public reference room may be obtained by calling the SEC at (202) 551-8090 or (800) SEC-0330. The reference to our website and the SEC’s website is an inactive textual reference only, and the information should not be considered a part of this prospectus.
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SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common stock. We cannot predict the effect, if any, that sales of shares or the availability of shares for sale will have on the market price of our common stock prevailing from time to time. Sales of substantial amounts of our common stock in the public market, or the perception that such sales could occur, could adversely affect the prevailing market price of our common stock.
Prior to this offering, we had shares of common stock outstanding. Upon completion of this offering, , shares of our common stock will be issued and outstanding. If the underwriters exercise their option to purchase additional shares of common stock in full, shares of common stock will be issued and outstanding immediately after the completion of this offering.
Rule 144
Up to of the shares of our common stock outstanding prior to the closing of this offering will not be considered “restricted” securities under the meaning of Rule 144 and will be eligible for resale pursuant to Rule 144 and shares of our common stock outstanding prior to the closing of this offering will be “restricted” securities under the meaning of Rule 144 under the Securities Act, and may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available, including the exemption provided by Rule 144. Additionally, any shares purchased in this offering by our affiliates, as that term is defined in Rule 144 under the Securities Act, would only be able to be sold in compliance with the Rule 144 limitations described below
In general, under Rule 144 under the Securities Act, a person (or persons whose shares are aggregated) who is not deemed to have been an affiliate of ours at any time during the three months preceding a sale, and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months (including any period of consecutive ownership of preceding non-affiliated holders) would be entitled to sell those shares, subject only to the availability of current public information about us. A non-affiliated person who has beneficially owned restricted securities within the meaning of Rule 144 for at least one year would be entitled to sell those shares without regard to the provisions of Rule 144.
A person (or persons whose shares are aggregated) who is deemed to be an affiliate of ours and who has beneficially owned restricted securities within the meaning of Rule 144 for at least six months would be entitled to sell within any three-month period a number of shares that does not exceed the greater of 1% of the then outstanding shares of our beneficial interest or the average weekly trading volume of our shares of common stock during the four calendar weeks preceding such sale. Such sales are also subject to certain manner of sale provisions, notice requirements and the availability of current public information about us (which requires that we are current in our periodic reports under the Exchange Act).
Transfer and Resale Restrictions
Pursuant to the terms of each current stockholder’s subscription agreement (with limited exceptions) transfers of our shares of common stock are restricted unless approved by the Advisor. In addition, our current stockholders, other than our directors and officers and the Advisor, have agreed to not (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock beneficially owned (as such term is used in Rule 13d-3 of the Exchange Act) by such stockholder or any other securities so owned convertible into or exercisable or exchangeable for Common Stock or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise without the prior written consent of any two of Morgan Stanley & Co. LLC, BofA Securities, Inc., and Wells Fargo Securities, LLC on behalf of the underwriters, subject to certain exceptions; provided, however that (i) 33.3% of the shares of the Company’s Common Stock held by such stockholders prior to this offering will be automatically released from the transfer restrictions at any time beginning 180 days after the date of the prospectus, (ii) an additional 33.3% of the shares of the Company’s Common Stock held by such stockholder prior to this offering will be automatically released from the transfer restrictions at any time beginning 270 days after the date of the prospectus, and (iii) the remaining 33.3% of the shares of the Company’s Common Stock held by such stockholder prior to this offering will be released from such transfer restrictions 365 days after the date of the prospectus. See “Underwriters.”
Following the period ending 180 days after the date of the prospectus, the Company may file a registration statement with the SEC relating to an offering by stockholders of the Company of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock pursuant to registration rights agreements entered into prior to the date of this prospectus.
In addition, the Advisor, our directors and officers have agreed for a period of 365 days after the date of this prospectus not to (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock beneficially owned (as such term is used in Rule 13d-3 of the Exchange Act) by such stockholder or any other securities so owned convertible into or exercisable or exchangeable for Common Stock or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise without the prior written consent of any two of Morgan Stanley & Co. LLC, BofA Securities, Inc., and Wells Fargo Securities, LLC on behalf of the underwriters, subject to certain exceptions. See “Underwriters.”
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UNDERWRITERS
Under the terms and subject to the conditions in an underwriting agreement dated the date of this prospectus, the underwriters named below, for whom Morgan Stanley & Co. LLC, BofA Securities, Inc., Wells Fargo Securities, LLC and RBC Capital Markets, LLC are acting as representatives, have severally agreed to purchase, and we have agreed to sell to them, severally, the number of shares indicated below:
| Name | Number of Shares | |||
| Morgan Stanley & Co. LLC | ||||
| BofA Securities, Inc. | ||||
| Wells Fargo Securities, LLC | ||||
| RBC Capital Markets, LLC | ||||
| UBS Securities LLC | ||||
| Keefe, Bruyette & Woods, Inc. | ||||
| SMBC Nikko Securities America, Inc. | ||||
| Regions Securities LLC | ||||
| Academy Securities, Inc. | ||||
| Samuel A. Ramirez & Company, Inc. | ||||
| Total | ||||
The underwriters and the representatives are collectively referred to as the “underwriters” and the “representatives,” respectively. The underwriters are offering the shares of common stock subject to their acceptance of the shares from us. The underwriting agreement provides that the obligations of the several underwriters to pay for and accept delivery of the shares of common stock offered by this prospectus are subject to the review of certain legal matters by their counsel and to certain other conditions. The underwriters are obligated to take and pay for all of the shares of common stock offered by this prospectus if any such shares are taken. However, the underwriters are not required to take or pay for the shares covered by the underwriters’ over-allotment option to purchase additional shares of common stock described below.
The underwriters initially propose to offer part of the shares of common stock directly to the public at the offering price listed on the cover page of this prospectus and part to certain dealers at a price that represents a concession not in excess of $ per share under the public offering price. After the initial offering of the shares of common stock, the offering price and other selling terms may from time to time be varied by the representatives.
We have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to additional shares of common stock at the public offering price listed on the cover page of this prospectus, less underwriting discounts and commissions. The underwriters may exercise this option solely for the purpose of covering over-allotments, if any, made in connection with the offering of the shares of common stock offered by this prospectus. To the extent the option is exercised, each underwriter will become obligated, subject to certain conditions, to purchase about the same percentage of the additional shares of common stock as the number listed next to the underwriter’s name in the preceding table bears to the total number of shares of common stock listed next to the names of all underwriters in the preceding table.
The following table shows the per share and total public offering price, underwriting discounts and commissions, and proceeds to us. These amounts are shown assuming both no exercise and full exercise of the underwriters’ option to purchase up to an additional shares of common stock.
| Price to Public | Sales
load (underwriting discounts and commissions)(1) | Proceeds to us (2) | ||||||||||
| Per Share | $ | $ | $ | |||||||||
| Total | $ | $ | $ | |||||||||
| (1) | Because the sales load is an expense of the Company, our common stockholders will bear indirectly the sales load of this offering, which as a result will immediately reduce the net asset value of each common share purchased in this offering. See “Underwriters” for a more completed description of underwriting compensation. |
| (2) | We estimate that we will incur offering expenses of approximately $ million, or approximately $ per share for the number of shares in this offering, in connection with this offering. Our common stockholders will bear indirectly the offering expenses of this offering, which as a result will immediately reduce the net asset value of each common share purchased in this offering. For more information about such offering expenses, please see “Item 27. Other Expenses of Issuance and Distribution.” |
The estimated offering expenses payable by us, exclusive of the underwriting discounts and commissions, are approximately $ . We have agreed to reimburse the underwriters for expense relating to clearance of this offering with the Financial Industry Regulatory Authority up to $ .
The underwriters have informed us that they do not intend sales to discretionary accounts to exceed 5% of the total number of shares of common stock offered by them.
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We intend to apply to list our common stock on The New York Stock Exchange under the symbol “KBDC”.
We and all directors and officers and the holders of all of our outstanding stock and stock options have agreed that, without the prior written consent of any two of Morgan Stanley & Co. LLC, BofA Securities, Inc., and Wells Fargo Securities, LLC on behalf of the underwriters, we and they will not, and will not publicly disclose an intention to, during the restricted period (as defined below):
| ● | offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, lend or otherwise transfer or dispose of, directly or indirectly, any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock; |
| ● | file any registration statement with the SEC relating to the offering of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock; or |
| ● | enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock. |
whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. In addition, we and each such person agrees that, without the prior written consent of any two of Morgan Stanley & Co. LLC, BofA Securities, Inc., and Wells Fargo Securities, LLC on behalf of the underwriters, we or such other person will not, during the restricted period, make any demand for, or exercise any right with respect to, the registration of any shares of common stock or any security convertible into or exercisable or exchangeable for common stock.
The restrictions described in the immediately preceding paragraph to do not apply to:
| ● | the sale of shares of common stock to the underwriters; |
| ● | the issuance by the Company of shares of common stock upon the exercise of an option or a warrant or the conversion of a security outstanding on the date of this prospectus of which the underwriters have been advised in writing; |
| ● | transactions by any person other than us relating to shares of common stock or other securities acquired in open market transactions after the completion of the offering of the shares of common stock; provided that no filing under Section 16(a) of the Exchange Act, is required or voluntarily made in connection with subsequent sales of the common stock or other securities acquired in such open market transactions; |
| ● | transfers of shares of common stock or any security convertible into common stock as a bona fide gift; provided that, (i) each donee or distributee enters into a lock-up agreement and (ii) no filing under Section 16(a) of the Exchange Act, reporting a reduction in beneficial ownership of shares of common stock, is required or made during the restricted period unless such filing indicates in the footnotes thereto that such transfer was made in connection with a bona fide gift or gifts; | |
| ● | distributions of shares of common stock or any security convertible into Common Stock to limited partners or stockholders of the signatory; provided that, (i) each donee or distributee enters into a lock-up agreement and (ii) no filing under Section 16(a) of the Exchange Act, reporting a reduction in beneficial ownership of shares of common stock, is required or made during the restricted period unless such filing indicates in the footnotes thereto that such transfer was made in connection with a bona fide gift or gifts; or | |
| ● | facilitating the establishment of a trading plan on behalf of a shareholder, officer or director of the Company pursuant to Rule 10b5-1 under the Exchange Act for the transfer of shares of common stock; provided that (i) such plan does not provide for the transfer of common stock during the restricted period and (ii) to the extent a public announcement or filing under the Exchange Act, if any, is required of or voluntarily made by the stockholder party to the lock-up or the Company regarding the establishment of such plan, such announcement or filing shall include a statement to the effect that no transfer of common stock may be made under such plan during the restricted period. |
As used in this section, “restricted period” shall mean the (i) with respect to the Company, its officers, directors and the Advisor, the period ending 365 days after the date of this prospectus and (ii) for the Company’s existing shareholders, the tiered release of 33 1/3% of the shares of common stock subject to transfer restrictions at 180 and 270 days after the date of this prospectus. For the avoidance of doubt, the remainder of the Company’s shares of common stock subject to the transfer restrictions shall be released from such transfer restrictions 365 days after the date of this prospectus. In addition, following the period ending 180 days after the date of the prospectus, the Company may file a registration statement with the SEC relating to an offering by stockholders of the Company of any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock pursuant to registration rights agreements entered into prior to the date of this prospectus.
In order to facilitate the offering of the common stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock. Specifically, the underwriters may sell more shares than they are obligated to purchase under the underwriting agreement, creating a short position. A short sale is covered if the short position is no greater than the number of shares available for purchase by the underwriters under the over-allotment option. The underwriters can close out a covered short sale by exercising the over-allotment option or purchasing shares in the open market. In determining the source of shares to close out a covered short sale, the underwriters will consider, among other things, the open market price of shares compared to the price available under the over-allotment option. The underwriters may also sell shares in excess of the over-allotment option, creating a naked short position. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market after pricing that could adversely affect investors who purchase in this offering. As an additional means of facilitating this offering, the underwriters may bid for, and purchase, shares of common stock in the open market to stabilize the price of the common stock. These activities may raise or maintain the market price of the common stock above independent market levels or prevent or retard a decline in the market price of the common stock. The underwriters are not required to engage in these activities and may end any of these activities at any time.
We and the underwriters have agreed to indemnify each other against certain liabilities, including liabilities under the Securities Act.
A prospectus in electronic format may be made available on websites maintained by one or more underwriters, or selling group members, if any, participating in this offering. The representatives may agree to allocate a number of shares of common stock to underwriters for sale to their online brokerage account holders. Internet distributions will be allocated by the representatives to underwriters that may make Internet distributions on the same basis as other allocations.
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The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their respective affiliates have, from time to time, performed, and may in the future perform, various financial advisory and investment banking services for us, for which they received or will receive customary fees and expenses.
In addition, in the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers and may at any time hold long and short positions in such securities and instruments. Such investment and securities activities may involve our securities and instruments. The underwriters and their respective affiliates may also make investment recommendations or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long or short positions in such securities and instruments. Affiliates of certain underwriters serve as lenders under certain of our credit facilities. Accordingly, affiliates of certain underwriters are expected to receive more than 5% of the proceeds of this offering to the extent the proceeds are used to pay down outstanding indebtedness under such credit facilities.
Our Board has approved the Company 10b5-1 Plan prior to the closing of this offering, pursuant to which we may purchase up to $ million in the aggregate of our outstanding shares of common stock in the open market at prices below our NAV per share within one year of the closing of this offering. Any purchase of our shares pursuant to the Company 10b5-1 Plan will be conducted in accordance with the guidelines and conditions specified in Rule 10b-18 and Rule 10b5-1 of the Exchange Act. We intend to put the Company 10b5-1 Plan in place because we believe that, in the current market conditions, if our shares of common stock are trading below our then-current NAV per share, it will be in the best interest of our stockholders for us to reinvest in our portfolio. , which is acting as an underwriter in this offering, will act as agent under the Company 10b5-1 Plan. See “The Company—Share Repurchase Plan.”
Pricing of the Offering
Prior to this offering, there has been no public market for our common stock. The initial public offering price was determined by negotiations between us and the representatives. Among the factors considered in determining the initial public offering price were our future prospects and those of our industry in general, our sales, earnings and certain other financial and operating information in recent periods, including NAV, and the price-earnings ratios, price-sales ratios, market prices of securities, and certain financial and operating information of companies engaged in activities similar to ours.
At our request, the underwriters have reserved % of the shares of common stock to be issued by the Company and offered by this prospectus for sale, at the initial public offering price, to certain officers and employees of our Advisor and its affiliates who have expressed an interest in purchasing common stock in this offering. The number of shares of common stock available for sale to the general public will be reduced to the extent these individuals purchase such reserved shares. Any reserved shares that are not so purchased will be offered by the underwriters to the general public on the same basis as the other shares offered by this prospectus. KA Associates, our affiliated broker-dealer, will participate in this offering to accommodate these investments.
Principal Business Addresses
The principal business address of Morgan Stanley & Co. LLC is 1585 Broadway, New York, NY 10036. The principal business address of BofA Securities, Inc. is One Bryant Park, New York, NY 10036. The principal business address of Wells Fargo Securities, LLC is 550 South Tryon Street, Charlotte, NC 28202. The principal business address of RBC Capital Markets, LLC is 200 Vesey Street, 8th Floor, New York, NY 10281.
Selling Restrictions
Notice to Prospective Investors in Canada
This prospectus constitutes an “exempt offering document” as defined in and for the purposes of applicable Canadian securities laws. No prospectus has been filed with any securities commission or similar regulatory authority in Canada in connection with the offer and sale of the shares. No securities commission or similar regulatory authority in Canada has reviewed or in any way passed upon this prospectus or on the merits of the shares and any representation to the contrary is an offence.
Canadian investors are advised that this prospectus has been prepared in reliance on section 3A.3 of National Instrument 33-105 Underwriting Conflicts (“NI 33-105”). Pursuant to section 3A.3 of NI 33-105, the company and the underwriters in the offering are exempt from the requirement to provide Canadian investors with certain conflicts of interest disclosure pertaining to “connected issuer” and/or “related issuer” relationships as would otherwise be required pursuant to subsection 2.1(1) of NI 33-105.
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Resale Restrictions
The offer and sale of the shares in Canada is being made on a private placement basis only and is exempt from the requirement that the Company prepares and files a prospectus under applicable Canadian securities laws. Any resale of shares by a Canadian investor in this offering must be made in accordance with applicable Canadian securities laws, which may vary depending on the relevant jurisdiction, and which may require resales to be made in accordance with Canadian prospectus requirements, a statutory exemption from the prospectus requirements, in a transaction exempt from the prospectus requirements or otherwise under a discretionary exemption from the prospectus requirements granted by the applicable local Canadian securities regulatory authority. These resale restrictions may under certain circumstances apply to resales of the shares outside of Canada.
Representations of Purchasers
Each Canadian investor who purchases the shares will be deemed to have represented to the Company, the underwriters and to each dealer from whom a purchase confirmation is received, as applicable, that the investor is (i) purchasing as principal, or is deemed to be purchasing as principal in accordance with applicable Canadian securities laws; (ii) an “accredited investor” as such term is defined in section 1.1 of National Instrument 45-106 Prospectus Exemptions or, in Ontario, as such term is defined in section 73.3(1) of the Securities Act (Ontario); and (iii) a “permitted client” as such term is defined in section 1.1 of National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.
Taxation and Eligibility for Investment
Any discussion of taxation and related matters contained in this prospectus does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a Canadian investor when deciding to purchase the shares and, in particular, does not address any Canadian tax considerations. No representation or warranty is hereby made as to the tax consequences to a resident, or deemed resident, of Canada of an investment in the shares or with respect to the eligibility of the shares for investment by such investor under relevant Canadian federal and provincial legislation and regulations.
Rights of Action for Damages or Rescission
Securities legislation in certain of the Canadian jurisdictions provides certain purchasers of securities pursuant to an offering memorandum (such as this prospectus), including where the distribution involves an “eligible foreign security” as such term is defined in Ontario Securities Commission Rule 45-501 Ontario Prospectus and Registration Exemptions and in Multilateral Instrument 45-107 Listing Representation and Statutory Rights of Action Disclosure Exemptions, as applicable, with a remedy for damages or rescission, or both, in addition to any other rights they may have at law, where the offering memorandum, or other offering document that constitutes an offering memorandum, and any amendment thereto, contains a “misrepresentation” as defined under applicable Canadian securities laws. These remedies, or notice with respect to these remedies, must be exercised or delivered, as the case may be, by the purchaser within the time limits prescribed under, and are subject to limitations and defenses under, applicable Canadian securities legislation. In addition, these remedies are in addition to and without derogation from any other right or remedy available at law to the investor.
Language of Documents
Upon receipt of this document, each Canadian investor hereby confirms that it has expressly requested that all documents evidencing or relating in any way to the sale of the securities described herein (including for greater certainty any purchase confirmation or any notice) be drawn up in the English language only.
Notice to Prospective Investors in Singapore
This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (the “SFA”), (ii) to a relevant person (as defined in Section 275(2) of the SFA) pursuant to Section 275(1) of the SFA, or any person pursuant to Section 275(1A) of the SFA, and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
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| a) | a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or |
| b) | a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities (as defined in Section 239(1) of the SFA) of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the shares pursuant to an offer made under Section 275 of the SFA except: |
| 1. | to an institutional investor or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA; |
| 2. | where no consideration is or will be given for the transfer; |
| 3. | where the transfer is by operation of law; |
| 4. | as specified in Section 276(7) of the SFA; or |
| 5. | as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore. |
Notice to Prospective Investors in Dubai International Financial Centre
This document relates to a company which is not subject to any form of regulation or approval by the Dubai Financial Services Authority (“DFSA”).
The DFSA has not approved this document nor has any responsibility for reviewing or verifying any document or other documents in connection with this company. Accordingly, the DFSA has not approved this document or any other associated documents nor taken any steps to verify the information set out in this document, and has no responsibility for it.
The shares have not been offered and will not be offered to any persons in the Dubai International Financial Centre except on that basis that an offer is:
| i. | an “Exempt Offer” in accordance with the Markets Rules (MKT) module of the DFSA; and |
| ii. | made only to persons who meet the Professional Client criteria set out in Rule 2.3.2 of the DFSA Conduct of Business Module |
This document must not, therefore, be delivered to, or relied on by, any other type of person.
The fund to which this document relates may be illiquid and/or subject to restrictions on its resale. Prospective purchasers should conduct their own due diligence on the Company.
Notice to Prospective Investors in Australia
No placement document, prospectus, product disclosure statement or other disclosure document has been lodged with the Australian Securities and Investments Commission (“ASIC”), in relation to the offering. This prospectus does not constitute a prospectus, product disclosure statement or other disclosure document under the Corporations Act 2001 (the “Corporations Act”), and does not purport to include the information required for a prospectus, product disclosure statement or other disclosure document under the Corporations Act.
Any offer in Australia of the common shares may only be made to persons (the “Exempt Investors”) who are “sophisticated investors” (within the meaning of section 708(8) of the Corporations Act), “professional investors” (within the meaning of section 708(11) of the Corporations Act) or otherwise pursuant to one or more exemptions contained in section 708 of the Corporations Act so that it is lawful to offer the common shares without disclosure to investors under Chapter 6D of the Corporations Act.
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The common shares applied for by Exempt Investors in Australia must not be offered for sale in Australia in the period of 12 months after the date of allotment under the offering, except in circumstances where disclosure to investors under Chapter 6D of the Corporations Act would not be required pursuant to an exemption under section 708 of the Corporations Act or otherwise or where the offer is pursuant to a disclosure document which complies with Chapter 6D of the Corporations Act. Any person acquiring common shares must observe such Australian on-sale restrictions.
This prospectus contains general information only and does not take account of the investment objectives, financial situation or particular needs of any particular person. It does not contain any securities recommendations or financial product advice. Before making an investment decision, investors need to consider whether the information in this Prospectus is appropriate to their needs, objectives and circumstances, and, if necessary, seek expert advice on those matters.
Notice to Prospective Investors in Hong Kong
The shares of common shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the common shares has been or may be issued or has been or may be in the possession of any person for the purposes of issue, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to shares of common shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.
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Sub-Administrator, Fund Accountant, Custodian, Transfer and Dividend Paying Agent and Registrar
The Administrator has a sub-administration agreement with Ultimus Fund Solutions, LLC to serve as our sub-administrator and fund accountant. The principal business address of Ultimus Fund Solutions, LLC is 225 Pictoria Drive, Suite 450, Cincinnati, Ohio, 45246, telephone number: (816) 435-3455. Our securities are held under a custody agreement by Wilmington Trust, N.A. The address of the custodian is 1100 North Market Street, Wilmington, Delaware, 19890. Equiniti Trust Company, LLC acts as our transfer agent and dividend disbursing agent for our common shares. The principal business address of Equiniti Trust Company, LLC is PO Box 10027, Newark, NJ 07101, telephone number: (800) 937-5449.
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BROKERAGE ALLOCATION AND OTHER PRACTICES
Since we will generally acquire and dispose of our investments in privately negotiated transactions, we will infrequently use brokers in the normal course of our business. Subject to policies established by the Board, if any, the Advisor will be primarily responsible for the execution of any publicly-traded securities portfolio transactions and the allocation of brokerage commissions. The Advisor does not expect to execute transactions through any particular broker or dealer, but will seek to obtain the best net results for us, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order, difficulty of execution, and operational facilities of the firm and the firm’s risk and skill in positioning blocks of securities. While the Advisor generally will seek reasonably competitive trade execution costs, we will not necessarily pay the lowest spread or commission available. Subject to applicable legal requirements, the Advisor may select a broker based partly upon brokerage or research services provided to it and us and any other clients. In return for such services, we may pay a higher commission than other brokers would charge if the Advisor determines in good faith that such commission is reasonable in relation to the services provided.
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LEGAL MATTERS
Certain legal matters in connection with the securities offered hereby will be passed upon for us by Paul Hastings, LLP, Houston, Texas (“Paul Hastings”) and for the Underwriters by Ropes & Gray LLP.
EXPERTS
The financial statements as of December 31, 2023, and December 31, 2022, and for each of the three years in the period ended December 31, 2023, and the senior securities table under the heading “Senior Securities”, included in this Form N-2 have been so included in reliance on the reports of PricewaterhouseCoopers LLP, 601 S Figueroa St Suite 900, Los Angeles, California 90017 an independent registered public accounting firm, given on the authority of said firm as experts in auditing and accounting.
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AVAILABLE INFORMATION
We have filed with the SEC a registration statement on Form N-2, together with all amendments and related exhibits, under the Securities Act, with respect to the shares of our common stock offered by this prospectus. The registration statement contains additional information about us and the shares of our common stock being offered by this prospectus.
We also file with or submit to the SEC periodic and current reports, proxy statements and other information meeting the informational requirements of the Exchange Act.
We furnish our stockholders with annual reports containing audited financial statements, quarterly reports, and such other periodic reports as we determine to be appropriate or as may be required by law.
We make available on our website (www.kaynebdc.com) our annual reports on Form 10-K, quarterly reports on Form 10-Q and our current reports on Form 8-K. The SEC also maintains a website that contains such information. The reference to our website is an inactive textual reference only and the information contained on our website and in our reports filed with the SEC is not a part of this registration statement.
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Index to Consolidated Financial Statements
F-1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Kayne Anderson BDC, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of assets and liabilities, including the consolidated schedules of investments, of Kayne Anderson BDC Inc. and subsidiaries (the “Company”) as of December 31, 2023, and December 31, 2022, the related consolidated statements of operations, changes in net assets and cash flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and December 31, 2022, and the results of its operations, changes in its net assets and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these consolidated financial statements in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our procedures included confirmation of securities owned as of December 31, 2023, by correspondence with the custodian. We believe that our audits provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Los Angeles, California
February 29, 2024
We have served as the auditor of one or more investment companies in Kayne Anderson Funds Family since 2004.
F-2
Kayne Anderson BDC, Inc.
Consolidated Statements of Assets and Liabilities
(amounts in 000’s, except share and per share amounts)
| December 31, 2023 | December 31, 2022 | |||||||
| Assets: | ||||||||
| Investments, at fair value: | ||||||||
| Long-term investments (amortized cost of $1,343,223 and $1,147,788) | $ | 1,363,498 | $ | 1,165,119 | ||||
| Short-term investments (amortized cost of $12,802 and $9,847) | 12,802 | 9,847 | ||||||
| Cash and cash equivalents | 34,069 | 8,526 | ||||||
| Receivable for principal payments on investments | 104 | 111 | ||||||
| Interest receivable | 12,874 | 10,444 | ||||||
| Prepaid expenses and other assets | 319 | 347 | ||||||
| Total Assets | $ | 1,423,666 | $ | 1,194,394 | ||||
| Liabilities: | ||||||||
| Corporate Credit Facility (Note 6) | $ | 234,000 | $ | 269,000 | ||||
| Unamortized Corporate Credit Facility issuance costs | (1,715 | ) | (2,517 | ) | ||||
| Revolving Funding Facility (Note 6) | 306,000 | 200,000 | ||||||
| Unamortized Revolving Funding Facility issuance costs | (2,019 | ) | (2,827 | ) | ||||
| Revolving Funding Facility II (Note 6) | 70,000 | - | ||||||
| Unamortized Revolving Funding Facility II issuance costs | (1,805 | ) | - | |||||
| Subscription Credit Agreement (Note 6) | 10,750 | 108,000 | ||||||
| Unamortized Subscription Credit Facility issuance costs | (41 | ) | (65 | ) | ||||
| Notes (Note 6) | 75,000 | - | ||||||
| Unamortized notes issuance costs | (851 | ) | - | |||||
| Payable for investments purchased | - | 956 | ||||||
| Distributions payable | 22,050 | 15,428 | ||||||
| Management fee payable | 2,996 | 2,415 | ||||||
| Incentive fee payable | 14,195 | 4,762 | ||||||
| Accrued expenses and other liabilities | 11,949 | 7,201 | ||||||
| Accrued excise tax expense | 101 | - | ||||||
| Total Liabilities | $ | 740,610 | $ | 602,353 | ||||
| Commitments and contingencies (Note 8) | ||||||||
| Net Assets: | ||||||||
| Common Shares, $0.001 par value; 100,000,000 shares authorized; 41,603,666 and 35,879,291 as of December 31, 2023 and December 31, 2022, respectively, issued and outstanding | $ | 42 | $ | 36 | ||||
| Additional paid-in capital | 669,990 | 574,540 | ||||||
| Total distributable earnings (deficit) | 13,024 | 17,465 | ||||||
| Total Net Assets | $ | 683,056 | $ | 592,041 | ||||
| Total Liabilities and Net Assets | $ | 1,423,666 | $ | 1,194,394 | ||||
| Net Asset Value Per Common Share | $ | 16.42 | $ | 16.50 | ||||
See accompanying notes to consolidated financial statements.
F-3
Kayne Anderson BDC, Inc.
Consolidated Statements of Operations
(amounts in 000’s, except share and per share amounts)
| For the years ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Income: | ||||||||||||
| Investment income from investments: | ||||||||||||
| Interest income | $ | 160,433 | $ | 74,829 | $ | 18,755 | ||||||
| Dividend income | 571 | - | - | |||||||||
| Total Investment Income | 161,004 | 74,829 | 18,755 | |||||||||
| Expenses: | ||||||||||||
| Management fees | 11,433 | 7,147 | 2,095 | |||||||||
| Incentive fees | 9,433 | 4,698 | 65 | |||||||||
| Interest expense | 52,314 | 20,292 | 4,455 | |||||||||
| Professional fees | 691 | 645 | 597 | |||||||||
| Directors fees | 611 | 460 | 307 | |||||||||
| Offering costs | - | 29 | 257 | |||||||||
| Excise tax | 101 | - | - | |||||||||
| Initial organization costs | - | - | 175 | |||||||||
| Other general and administrative expenses | 1,604 | 1,379 | 677 | |||||||||
| Total Expenses | 76,187 | 34,650 | 8,628 | |||||||||
| Net Investment Income (Loss) | 84,817 | 40,179 | 10,127 | |||||||||
| Realized and unrealized gains (losses) on investments | ||||||||||||
| Net realized gains (losses): | ||||||||||||
| Investments | (10,686 | ) | 84 | 332 | ||||||||
| Total net realized gains (losses) | (10,686 | ) | 84 | 332 | ||||||||
| Net change in unrealized gains (losses): | ||||||||||||
| Investments | 2,944 | 5,502 | 11,829 | |||||||||
| Total net change in unrealized gains (losses) | 2,944 | 5,502 | 11,829 | |||||||||
| Total realized and unrealized gains (losses) | (7,742 | ) | 5,586 | 12,161 | ||||||||
| Net Increase (Decrease) in Net Assets Resulting from Operations | $ | 77,075 | $ | 45,765 | $ | 22,288 | ||||||
| Per Common Share Data: | ||||||||||||
| Basic and diluted net investment income per common share | $ | 2.16 | $ | 1.48 | $ | 0.94 | ||||||
| Basic and diluted net increase in net assets resulting from operations | $ | 1.96 | $ | 1.68 | $ | 2.08 | ||||||
| Weighted Average Common Shares Outstanding - Basic and Diluted | 39,250,232 | 27,184,302 | 10,718,083 | |||||||||
See accompanying notes to consolidated financial statements.
F-4
Kayne Anderson BDC, Inc.
Consolidated Statements of Changes in Net Assets
(amounts in 000’s)
| For the years ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Increase (Decrease) in Net Assets Resulting from Operations: | ||||||||||||
| Net investment income (loss) | $ | 84,817 | $ | 40,179 | $ | 10,127 | ||||||
| Net realized gains (losses) on investments | (10,686 | ) | 84 | 332 | ||||||||
| Net change in unrealized gains (losses) on investments | 2,944 | 5,502 | 11,829 | |||||||||
| Net Increase (Decrease) in Net Assets Resulting from Operations | 77,075 | 45,765 | 22,288 | |||||||||
| Decrease in Net Assets Resulting from Stockholder Distributions | ||||||||||||
| Dividends and distributions to stockholders | (81,617 | ) | (39,553 | ) | (10,514 | ) | ||||||
| Net Decrease in Net Assets Resulting from Stockholder Distributions | (81,617 | ) | (39,553 | ) | (10,514 | ) | ||||||
| Increase in Net Assets Resulting from Capital Share Transactions | ||||||||||||
| Issuance of common shares | 90,575 | 268,218 | 299,501 | |||||||||
| Reinvestment of distributions | 4,982 | 5,642 | 1,492 | |||||||||
| Net Increase in Net Assets Resulting from Capital Share Transactions | 95,557 | 273,860 | 300,993 | |||||||||
| Total Increase (Decrease) in Net Assets | 91,015 | 280,072 | 312,767 | |||||||||
| Net Assets, Beginning of Period | 592,041 | 311,969 | (798 | ) | ||||||||
| Net Assets, End of Period | $ | 683,056 | $ | 592,041 | $ | 311,969 | ||||||
See accompanying notes to consolidated financial statements.
F-5
Kayne Anderson BDC, Inc.
Consolidated Statements of Cash Flows
(amounts in 000’s)
| For the years ended December 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Cash Flows from Operating Activities: | ||||||||||||
| Net increase (decrease) in net assets resulting from operations | $ | 77,075 | $ | 45,765 | $ | 22,288 | ||||||
| Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating activities: | ||||||||||||
| Net realized (gains)/losses on investments | 10,686 | (84 | ) | (332 | ) | |||||||
| Net change in unrealized (gains)/losses on investments | (2,944 | ) | (5,502 | ) | (11,829 | ) | ||||||
| Net accretion of discount on investments | (9,777 | ) | (4,819 | ) | (1,175 | ) | ||||||
| Sales (purchases) of short-term investments, net | (2,955 | ) | (6,173 | ) | (3,674 | ) | ||||||
| Purchases of portfolio investments | (391,341 | ) | (718,236 | ) | (647,460 | ) | ||||||
| Proceeds from sales of investments and principal repayments | 196,649 | 142,118 | 82,524 | |||||||||
| Paid-in-kind interest from portfolio investments | (1,652 | ) | (151 | ) | (173 | ) | ||||||
| Amortization of deferred financing cost | 2,694 | 2,122 | 260 | |||||||||
| Increase/(decrease) in operating assets and liabilities: | ||||||||||||
| (Increase)/decrease in interest and dividends receivable | (2,430 | ) | (8,311 | ) | (2,133 | ) | ||||||
| (Increase)/decrease in deferred offering costs | - | 29 | 202 | |||||||||
| (Increase)/decrease in receivable for principal payments on investments | 7 | (111 | ) | - | ||||||||
| Increase/(decrease) in excise tax payable | 101 | - | - | |||||||||
| (Increase)/decrease in prepaid expenses and other assets | 28 | (199 | ) | 29 | ||||||||
| Increase/(decrease) in payable for investments purchased | (956 | ) | 956 | - | ||||||||
| Increase/(decrease) in management fees payable | 581 | 1,463 | 952 | |||||||||
| Increase/(decrease) in incentive fee payable | 9,433 | 4,697 | 65 | |||||||||
| Increase/(decrease) in payable to affiliate | - | - | (1,075 | ) | ||||||||
| Increase/(decrease) in accrued organizational and offering costs, net | - | (6 | ) | (135 | ) | |||||||
| Increase/(decrease) in accrued other general and administrative expenses | 4,748 | 4,672 | 2,529 | |||||||||
| Net cash used in operating activities | (110,053 | ) | (541,770 | ) | (559,137 | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||||||
| Borrowings/(payments) on Corporate Credit Facility, net | (35,000 | ) | 269,000 | - | ||||||||
| Borrowings on Revolving Funding Facility, net | 106,000 | 200,000 | - | |||||||||
| Borrowings on Revolving Funding Facility II, net | 70,000 | - | - | |||||||||
| (Payments)/Borrowings on Loan and Security Agreement, net | - | (162,000 | ) | 162,000 | ||||||||
| Borrowings/(payments) on Subscription Credit Agreement, net | (97,250 | ) | 3,000 | 105,000 | ||||||||
| Payments of debt issuance costs | (3,716 | ) | (6,859 | ) | (932 | ) | ||||||
| Distributions paid in cash | (70,013 | ) | (23,098 | ) | (4,407 | ) | ||||||
| Proceeds from issuance of common shares | 90,575 | 268,218 | 299,501 | |||||||||
| Proceeds from issuance of Notes | 75,000 | - | - | |||||||||
| Net cash provided by financing activities | 135,596 | 548,261 | 561,162 | |||||||||
| Net increase in cash and cash equivalents | 25,543 | 6,491 | 2,025 | |||||||||
| Cash and cash equivalents, beginning of period | 8,526 | 2,035 | 10 | |||||||||
| Cash and cash equivalents, end of period | $ | 34,069 | $ | 8,526 | $ | 2,035 | ||||||
| Supplemental and Non-Cash Information: | ||||||||||||
| Interest paid during the period | $ | 44,384 | $ | 14,211 | $ | 2,346 | ||||||
| Non-cash financing activities not included herein consisted of reinvestment of dividends | $ | 4,982 | $ | 5,642 | $ | 1,492 | ||||||
See accompanying notes to consolidated financial statements.
F-6
Kayne Anderson BDC, Inc.
Consolidated Schedule of Investments
As of December 31, 2023
(amounts in 000’s, except number of shares, units)
| Maturity | Principal / | Amortized | Fair | Percentage | ||||||||||||||||||||||
| Portfolio Company(1) | Footnotes | Investment (2) | Interest Rate | Date | Par | Cost(3)(4) | Value | of Net Assets | ||||||||||||||||||
| Debt and Equity Investments | ||||||||||||||||||||||||||
| Private Credit Investments(5) | ||||||||||||||||||||||||||
| Aerospace & defense | ||||||||||||||||||||||||||
| Basel U.S. Acquisition Co., Inc. (IAC) | (6) | First lien senior secured revolving loan | 11.51% (S + 6.00%) | 12/5/2028 | $ | - | $ | - | $ | - | 0.0 | % | ||||||||||||||
| First lien senior secured loan | 11.51% (S + 6.00%) | 12/5/2028 | 18,494 | 18,066 | 18,679 | 2.7 | % | |||||||||||||||||||
| Fastener Distribution Holdings, LLC | First lien senior secured loan | 12.00% (S + 6.50%) | 10/1/2025 | 20,494 | 20,090 | 20,494 | 3.0 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 12.00% (S + 6.50%) | 10/1/2025 | 9,098 | 9,009 | 9,098 | 1.3 | % | |||||||||||||||||||
| Precinmac (US) Holdings, Inc. | First lien senior secured loan | 11.46% (S + 6.00%) | 8/31/2027 | 5,352 | 5,281 | 5,272 | 0.8 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 11.46% (S + 6.00%) | 8/31/2027 | 1,102 | 1,087 | 1,086 | 0.2 | % | |||||||||||||||||||
| Vitesse Systems Parent, LLC | First lien senior secured loan | 12.63% (S + 7.00%) | 12/22/2028 | 31,208 | 30,430 | 31,208 | 4.6 | % | ||||||||||||||||||
| 85,748 | 83,963 | 85,837 | 12.6 | % | ||||||||||||||||||||||
| Automobile components | ||||||||||||||||||||||||||
| Speedstar Holding LLC | First lien senior secured loan | 12.79% (S + 7.25%) | 1/22/2027 | 6,012 | 5,925 | 5,982 | 0.9 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 12.78% (S + 7.25%) | 1/22/2027 | 271 | 265 | 270 | 0.0 | % | |||||||||||||||||||
| Vehicle Accessories, Inc. | First lien senior secured loan | 10.72% (S + 5.25%) | 11/30/2026 | 21,011 | 20,770 | 21,011 | 3.1 | % | ||||||||||||||||||
| First lien senior secured revolving loan | 10.72% (S + 5.25%) | 11/30/2026 | - | - | - | 0.0 | % | |||||||||||||||||||
| 27,294 | 26,960 | 27,263 | 4.0 | % | ||||||||||||||||||||||
| Biotechnology | ||||||||||||||||||||||||||
| Alcami Corporation (Alcami) | First lien senior secured delayed draw loan | 12.46% (S + 7.00%) | 6/30/2024 | - | - | - | 0.0 | % | ||||||||||||||||||
| First lien senior secured revolving loan | 12.46% (S + 7.00%) | 12/21/2028 | - | - | - | 0.0 | % | |||||||||||||||||||
| First lien senior secured loan | 12.46% (S + 7.00%) | 12/21/2028 | 11,618 | 11,197 | 11,850 | 1.7 | % | |||||||||||||||||||
| 11,618 | 11,197 | 11,850 | 1.7 | % | ||||||||||||||||||||||
| Building products | ||||||||||||||||||||||||||
| Ruff Roofers Buyer, LLC | First lien senior secured loan | 11.08% (S + 5.75%) | 11/19/2029 | 7,186 | 6,910 | 7,186 | 1.1 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 11.08% (S + 5.75%) | 11/17/2024 | - | - | - | 0.0 | % | |||||||||||||||||||
| First lien senior secured delayed draw loan | 11.08% (S + 5.75%) | 11/17/2025 | - | - | - | 0.0 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 11.08% (S + 5.75%) | 11/19/2029 | - | - | - | 0.0 | % | |||||||||||||||||||
| Eastern Wholesale Fence | First lien senior secured loan | 13.50% (S + 8.00%) | 10/30/2025 | 20,271 | 19,875 | 20,069 | 2.9 | % | ||||||||||||||||||
| First lien senior secured revolving loan | 13.50% (S + 8.00%) | 10/30/2025 | 368 | 364 | 365 | 0.0 | % | |||||||||||||||||||
| 27,825 | 27,149 | 27,620 | 4.0 | % | ||||||||||||||||||||||
| Capital markets | ||||||||||||||||||||||||||
| Atria Wealth Solutions, Inc. | First lien senior secured loan | 11.97% (S + 6.50%) | 5/31/2024 | 5,087 | 5,080 | 5,087 | 0.7 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 11.97% (S + 6.50%) | 5/31/2024 | 3,218 | 3,211 | 3,218 | 0.5 | % | |||||||||||||||||||
| 8,305 | 8,291 | 8,305 | 1.2 | % | ||||||||||||||||||||||
| Chemicals | ||||||||||||||||||||||||||
| FAR Technologies Holdings, Inc.(f/k/a Cyalume Technologies Holdings, Inc.) | First lien senior secured loan | 10.61% (S + 5.00%) | 8/30/2024 | 1,274 | 1,271 | 1,274 | 0.2 | % | ||||||||||||||||||
| Fralock Buyer LLC | First lien senior secured loan | 11.61% (S + 6.00%) | 4/17/2024 | 11,654 | 11,628 | 11,567 | 1.7 | % | ||||||||||||||||||
| First lien senior secured revolving loan | 11.61% (S + 6.00%) | 4/17/2024 | 449 | 449 | 446 | 0.1 | % | |||||||||||||||||||
| Shrieve Chemical Company, LLC | First lien senior secured loan | 11.90% (S + 6.38%) | 12/2/2024 | 8,720 | 8,628 | 8,720 | 1.3 | % | ||||||||||||||||||
| USALCO, LLC | First lien senior secured loan | 11.61% (S + 6.00%) | 10/19/2027 | 18,989 | 18,684 | 18,989 | 2.8 | % | ||||||||||||||||||
| First lien senior secured revolving loan | 11.47% (S + 6.00%) | 10/19/2026 | 1,049 | 1,021 | 1,049 | 0.1 | % | |||||||||||||||||||
| 42,135 | 41,681 | 42,045 | 6.2 | % | ||||||||||||||||||||||
| Commercial services & supplies | ||||||||||||||||||||||||||
| Advanced Environmental Monitoring | (7) | First lien senior secured loan | 12.01% (S + 6.50%) | 1/29/2026 | 10,158 | 9,994 | 10,158 | 1.5 | % | |||||||||||||||||
| Allentown, LLC | First lien senior secured loan | 11.46% (S + 6.00%) | 4/22/2027 | 7,586 | 7,535 | 7,586 | 1.1 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 11.46% (S + 6.00%) | 4/22/2027 | 1,370 | 1,354 | 1,370 | 0.2 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 13.50% (P + 5.00%) | 4/22/2027 | 235 | 234 | 235 | 0.0 | % | |||||||||||||||||||
| American Equipment Holdings LLC | First lien senior secured loan | 11.86% (S + 6.00%) | 11/5/2026 | 20,045 | 19,812 | 19,945 | 2.9 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 11.88% (S + 6.00%) | 11/5/2026 | 6,239 | 6,167 | 6,208 | 0.9 | % | |||||||||||||||||||
| First lien senior secured delayed draw loan | 11.81% (S + 6.00%) | 11/5/2026 | 4,969 | 4,905 | 4,944 | 0.7 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 11.74% (S + 6.00%) | 11/5/2026 | 2,736 | 2,672 | 2,723 | 0.4 | % | |||||||||||||||||||
| Arborworks Acquisition LLC | (8)(9)(10) | First lien senior secured loan | 11/6/2028 | 4,688 | 4,688 | 4,688 | 0.7 | % | ||||||||||||||||||
| First lien senior secured revolving loan | 11/6/2028 | 1,253 | 1,253 | 1,253 | 0.2 | % | ||||||||||||||||||||
| BLP Buyer, Inc. (Bishop Lifting Products) | First lien senior secured loan | 11.11% (S + 5.75%) | 12/22/2029 | 26,099 | 25,549 | 26,099 | 3.8 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 11.11% (S + 5.75%) | 12/22/2025 | - | - | - | 0.0 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 11.11% (S + 5.75%) | 12/22/2029 | 273 | 196 | 273 | 0.0 | % | |||||||||||||||||||
| Gusmer Enterprises, Inc. | First lien senior secured loan | 12.47% (S + 7.00%) | 5/7/2027 | 4,747 | 4,682 | 4,735 | 0.7 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 12.47% (S + 7.00%) | 5/7/2027 | 7,951 | 7,798 | 7,931 | 1.2 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 12.47% (S + 7.00%) | 5/7/2027 | - | - | - | 0.0 | % | |||||||||||||||||||
| PMFC Holding, LLC | First lien senior secured loan | 13.02% (S + 7.50%) | 7/31/2025 | 5,561 | 5,427 | 5,561 | 0.8 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 13.03% (S + 7.50%) | 7/31/2025 | 2,789 | 2,787 | 2,789 | 0.4 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 13.03% (S + 7.50%) | 7/31/2025 | 547 | 547 | 547 | 0.1 | % | |||||||||||||||||||
| Regiment Security Partners LLC | First lien senior secured loan | 13.52% (S + 8.00%) | 9/15/2026 | 6,383 | 6,309 | 6,383 | 1.0 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 13.52% (S + 8.00%) | 9/15/2026 | 2,609 | 2,588 | 2,609 | 0.4 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 13.52% (S + 8.00%) | 9/15/2026 | 1,448 | 1,427 | 1,448 | 0.2 | % | |||||||||||||||||||
| 117,686 | 115,924 | 117,485 | 17.2 | % | ||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
F-7
Kayne Anderson BDC, Inc.
Consolidated Schedule of Investments
As of December 31, 2023
(amounts in 000’s, except number of shares, units)
| Maturity | Principal / | Amortized | Fair | Percentage | ||||||||||||||||||||||
| Portfolio Company(1) | Footnotes | Investment (2) | Interest Rate | Date | Par | Cost(3)(4) | Value | of Net Assets | ||||||||||||||||||
| Containers & packaging | ||||||||||||||||||||||||||
| Carton Packaging Buyer, Inc. (Century Box) | First lien senior secured loan | 11.39% (S + 6.00%) | 10/30/2028 | 24,261 | 23,605 | 24,262 | 3.6 | % | ||||||||||||||||||
| First lien senior secured revolving loan | 11.39% (S + 6.00%) | 10/30/2028 | - | - | - | 0.0 | % | |||||||||||||||||||
| Drew Foam Companies, Inc. | First lien senior secured loan | 12.75% (S + 7.25%) | 11/5/2025 | 7,052 | 6,997 | 6,999 | 1.0 | % | ||||||||||||||||||
| First lien senior secured loan | 12.80% (S + 7.25%) | 11/5/2025 | 20,045 | 19,789 | 19,895 | 2.9 | % | |||||||||||||||||||
| FCA, LLC (FCA Packaging) | First lien senior secured loan | 11.90% (S + 6.50%) | 7/18/2028 | 18,673 | 18,419 | 19,047 | 2.8 | % | ||||||||||||||||||
| First lien senior secured revolving loan | 11.90% (S + 6.50%) | 7/18/2028 | - | - | - | 0.0 | % | |||||||||||||||||||
| Innopak Industries, Inc. | First lien senior secured loan | 11.71% (S + 6.25%) | 3/5/2027 | 28,224 | 27,564 | 28,224 | 4.1 | % | ||||||||||||||||||
| 98,255 | 96,374 | 98,427 | 14.4 | % | ||||||||||||||||||||||
| Diversified telecommunication services | ||||||||||||||||||||||||||
| Network Connex (f/k/a NTI Connect, LLC) | First lien senior secured loan | 11.00% (S + 5.50%) | 1/31/2026 | 5,195 | 5,140 | 5,196 | 0.8 | % | ||||||||||||||||||
| 5,195 | 5,140 | 5,196 | 0.8 | % | ||||||||||||||||||||||
| Food products | ||||||||||||||||||||||||||
| BC CS 2, L.P. (Cuisine Solutions) | (6)(11) | 13.55% (S + 8.00%) | 7/8/2028 | 21,555 | 21,063 | 21,555 | 3.2 | % | ||||||||||||||||||
| BR PJK Produce, LLC (Keany) | First lien senior secured loan | 11.50% (S + 6.00%) | 11/14/2027 | 29,564 | 28,973 | 29,564 | 4.3 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 11.46% (S + 6.00%) | 11/14/2027 | 2,938 | 2,812 | 2,938 | 0.4 | % | |||||||||||||||||||
| City Line Distributors, LLC | First lien senior secured loan | 11.47% (S + 6.00%) | 8/31/2028 | 8,895 | 8,576 | 8,895 | 1.3 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 11.47% (S + 6.00%) | 3/3/2025 | - | - | - | 0.0 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 11.47% (S + 6.00%) | 8/31/2028 | - | - | - | 0.0 | % | |||||||||||||||||||
| Gulf Pacific Holdings, LLC | First lien senior secured loan | 11.25% (S + 5.75%) | 9/30/2028 | 20,180 | 19,847 | 20,079 | 2.9 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 11.38% (S + 5.75%) | 9/30/2028 | 1,701 | 1,618 | 1,693 | 0.2 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 11.29% (S + 5.75%) | 9/30/2028 | 2,697 | 2,602 | 2,683 | 0.4 | % | |||||||||||||||||||
| IF&P Foods, LLC (FreshEdge) | First lien senior secured loan | 11.07% (S + 5.63%) | 10/3/2028 | 27,245 | 26,684 | 26,904 | 4.0 | % | ||||||||||||||||||
| First lien senior secured loan | 11.48% (S + 6.00%) | 10/3/2028 | 216 | 211 | 213 | 0.0 | % | |||||||||||||||||||
| First lien senior secured delayed draw loan | 11.07% (S + 5.63%) | 10/3/2028 | 4,045 | 3,969 | 3,994 | 0.6 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 10.91% (S + 5.63%) | 10/3/2028 | 1,759 | 1,690 | 1,737 | 0.3 | % | |||||||||||||||||||
| J&K Ingredients, LLC | First lien senior secured loan | 11.63% (S + 6.25%) | 11/16/2028 | 11,581 | 11,295 | 11,581 | 1.7 | % | ||||||||||||||||||
| Siegel Egg Co., LLC | First lien senior secured loan | 11.99% (S + 6.50%) | 12/29/2026 | 15,466 | 15,290 | 14,616 | 2.1 | % | ||||||||||||||||||
| First lien senior secured revolving loan | 11.99% (S + 6.50%) | 12/29/2026 | 2,594 | 2,557 | 2,451 | 0.4 | % | |||||||||||||||||||
| Worldwide Produce Acquisition, LLC | First lien senior secured delayed draw loan | 11.60% (S + 6.25%) | 1/18/2029 | 631 | 587 | 625 | 0.1 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 11.60% (S + 6.25%) | 4/18/2024 | - | - | - | 0.0 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 11.60% (S + 6.25%) | 1/18/2029 | 198 | 190 | 196 | 0.0 | % | |||||||||||||||||||
| First lien senior secured loan | 11.60% (S + 6.25%) | 1/18/2029 | 2,860 | 2,786 | 2,832 | 0.4 | % | |||||||||||||||||||
| 154,125 | 150,750 | 152,556 | 22.3 | % | ||||||||||||||||||||||
| Health care providers & services | ||||||||||||||||||||||||||
| Brightview, LLC | First lien senior secured loan | 11.47% (S + 6.00%) | 12/14/2026 | 12,870 | 12,855 | 12,645 | 1.9 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 11.47% (S + 6.00%) | 12/14/2026 | 1,719 | 1,714 | 1,689 | 0.3 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 11.47% (S + 6.00%) | 12/14/2026 | 774 | 774 | 761 | 0.1 | % | |||||||||||||||||||
| Guardian Dentistry Partners | First lien senior secured loan | 11.97% (S + 6.50%) | 8/20/2026 | 8,057 | 7,929 | 8,057 | 1.2 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 11.97% (S + 6.50%) | 8/20/2026 | 15,682 | 15,464 | 15,682 | 2.3 | % | |||||||||||||||||||
| First lien senior secured delayed draw loan | 11.97% (S + 6.50%) | 8/20/2026 | 5,808 | 5,808 | 5,808 | 0.9 | % | |||||||||||||||||||
| Guided Practice Solutions: Dental, LLC (GPS) | First lien senior secured delayed draw loan | 11.72% (S + 6.25%) | 12/29/2025 | 6,475 | 6,056 | 6,475 | 0.9 | % | ||||||||||||||||||
| Light Wave Dental Management LLC | First lien senior secured revolving loan | 12.35% (S + 7.00%) | 6/30/2029 | 2,181 | 2,099 | 2,181 | 0.3 | % | ||||||||||||||||||
| First lien senior secured loan | 12.35% (S + 7.00%) | 6/30/2029 | 22,423 | 21,834 | 22,423 | 3.3 | % | |||||||||||||||||||
| SGA Dental Partners Holdings, LLC | First lien senior secured loan | 11.67% (S + 6.00%) | 12/30/2026 | 11,828 | 11,683 | 11,828 | 1.7 | % | ||||||||||||||||||
| First lien senior secured loan | 11.61% (S + 6.00%) | 12/30/2026 | 1,681 | 1,563 | 1,681 | 0.2 | % | |||||||||||||||||||
| First lien senior secured delayed draw loan | 11.67% (S + 6.00%) | 12/30/2026 | 11,024 | 10,856 | 11,024 | 1.6 | % | |||||||||||||||||||
| First lien senior secured delayed draw loan | 11.67% (S + 6.00%) | 4/19/2024 | - | - | - | 0.0 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 11.67% (S + 6.00%) | 12/30/2026 | - | - | - | 0.0 | % | |||||||||||||||||||
| 100,522 | 98,635 | 100,254 | 14.7 | % | ||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
F-8
Kayne Anderson BDC, Inc.
Consolidated Schedule of Investments
As of December 31, 2023
(amounts in 000’s, except number of shares, units)
| Maturity | Principal / | Amortized | Fair | Percentage | ||||||||||||||||||||||
| Portfolio Company(1) | Footnotes | Investment (2) | Interest Rate | Date | Par | Cost(3)(4) | Value | of Net Assets | ||||||||||||||||||
| Health care equipment & supplies | ||||||||||||||||||||||||||
| LSL Industries, LLC (LSL Healthcare) | First lien senior secured loan | 12.15% (S + 6.50%) | 11/3/2027 | 19,529 | 18,911 | 19,334 | 2.8 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 12.15% (S + 6.50%) | 11/3/2024 | - | - | - | 0.0 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 12.15% (S + 6.50%) | 11/3/2027 | - | - | - | 0.0 | % | |||||||||||||||||||
| 19,529 | 18,911 | 19,334 | 2.8 | % | ||||||||||||||||||||||
| Household durables | ||||||||||||||||||||||||||
| Curio Brands, LLC | First lien senior secured loan | 10.96% (S + 5.50%) | 12/21/2027 | 17,173 | 16,859 | 16,830 | 2.5 | % | ||||||||||||||||||
| First lien senior secured revolving loan | 10.96% (S + 5.50%) | 12/21/2027 | - | - | - | 0.0 | % | |||||||||||||||||||
| First lien senior secured delayed draw loan | 10.96% (S + 5.50%) | 12/21/2027 | 4,121 | 4,121 | 4,039 | 0.6 | % | |||||||||||||||||||
| 21,294 | 20,980 | 20,869 | 3.1 | % | ||||||||||||||||||||||
| Household products | ||||||||||||||||||||||||||
| Home Brands Group Holdings, Inc. (ReBath) | First lien senior secured loan | 10.29% (S + 4.75%) | 11/8/2026 | 17,052 | 16,826 | 16,967 | 2.5 | % | ||||||||||||||||||
| First lien senior secured revolving loan | 10.29% (S + 4.75%) | 11/8/2026 | - | - | - | 0.0 | % | |||||||||||||||||||
| 17,052 | 16,826 | 16,967 | 2.5 | % | ||||||||||||||||||||||
| Insurance | ||||||||||||||||||||||||||
| Allcat Claims Service, LLC | First lien senior secured loan | 11.53% (S + 6.00%) | 7/7/2027 | 7,717 | 7,551 | 7,717 | 1.1 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 11.53% (S + 6.00%) | 7/7/2027 | 21,605 | 21,266 | 21,605 | 3.2 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 11.53% (S + 6.00%) | 7/7/2027 | - | - | - | 0.0 | % | |||||||||||||||||||
| 29,322 | 28,817 | 29,322 | 4.3 | % | ||||||||||||||||||||||
| IT services | ||||||||||||||||||||||||||
| Domain Information Services Inc. (Integris) | First lien senior secured loan | 11.29% (S + 5.75%) | 9/30/2025 | 20,444 | 20,122 | 20,342 | 3.0 | % | ||||||||||||||||||
| Improving Acquisition LLC | First lien senior secured loan | 12.22% (S + 6.50%) | 7/26/2027 | 31,650 | 31,140 | 31,492 | 4.6 | % | ||||||||||||||||||
| First lien senior secured revolving loan | 12.22% (S + 6.50%) | 7/26/2027 | - | - | - | 0.0 | % | |||||||||||||||||||
| 52,094 | 51,262 | 51,834 | 7.6 | % | ||||||||||||||||||||||
| Leisure products | ||||||||||||||||||||||||||
| BCI Burke Holding Corp. | First lien senior secured loan | 11.11% (S + 5.50%) | 12/14/2027 | 15,373 | 15,219 | 15,603 | 2.3 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 11.11% (S + 5.50%) | 12/14/2027 | 578 | 545 | 586 | 0.1 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 11.11% (S + 5.50%) | 6/14/2027 | - | - | - | 0.0 | % | |||||||||||||||||||
| VENUplus, Inc. (f/k/a CTM Group, Inc.) | First lien senior secured loan | 12.29% (S + 6.75%) | 11/30/2026 | 4,420 | 4,325 | 4,398 | 0.6 | % | ||||||||||||||||||
| MacNeill Pride Group | First lien senior secured loan | 11.86% (S + 6.25%) | 4/22/2026 | 8,254 | 8,198 | 8,151 | 1.2 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 11.86% (S + 6.25%) | 4/22/2026 | 3,277 | 3,221 | 3,236 | 0.5 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 11.86% (S + 6.25%) | 4/22/2026 | - | - | - | 0.0 | % | |||||||||||||||||||
| Trademark Global LLC | First lien senior secured loan | 12.97% (S +7.50%, 1.50% is PIK) | 7/30/2024 | 11,798 | 11,776 | 10,736 | 1.6 | % | ||||||||||||||||||
| First lien senior secured revolving loan | 12.97% (S +7.50%, 1.50% is PIK) | 7/30/2024 | 2,630 | 2,627 | 2,393 | 0.3 | % | |||||||||||||||||||
| 46,330 | 45,911 | 45,103 | 6.6 | % | ||||||||||||||||||||||
| Machinery | ||||||||||||||||||||||||||
| Pennsylvania Machine Works, LLC | First lien senior secured loan | 11.61% (S + 6.00%) | 3/6/2027 | 1,908 | 1,896 | 1,908 | 0.3 | % | ||||||||||||||||||
| PVI Holdings, Inc | First lien senior secured loan | 12.16% (S + 6.77%) | 1/18/2028 | 23,895 | 23,602 | 24,074 | 3.5 | % | ||||||||||||||||||
| Techniks Holdings, LLC / Eppinger Holdings Germany GMBH | (6) | First lien senior secured loan | 12.75% (S + 7.25%) | 2/4/2025 | 24,812 | 24,468 | 24,688 | 3.6 | % | |||||||||||||||||
| First lien senior secured revolving loan | 11.80% (S + 6.25%) | 2/4/2025 | 1,050 | 1,003 | 1,045 | 0.2 | % | |||||||||||||||||||
| 51,665 | 50,969 | 51,715 | 7.6 | % | ||||||||||||||||||||||
| Personal care products | ||||||||||||||||||||||||||
| DRS Holdings III, Inc. (Dr. Scholl’s) | First lien senior secured loan | 11.71% (S + 6.25%) | 11/1/2025 | 11,004 | 10,954 | 11,004 | 1.6 | % | ||||||||||||||||||
| First lien senior secured revolving loan | 11.71% (S + 6.25%) | 11/1/2025 | - | - | - | 0.0 | % | |||||||||||||||||||
| PH Beauty Holdings III, Inc. | First lien senior secured loan | 10.65% (S + 5.00%) | 9/28/2025 | 9,442 | 9,278 | 9,183 | 1.3 | % | ||||||||||||||||||
| Silk Holdings III Corp. (Suave) | First lien senior secured loan | 13.10% (S + 7.75%) | 5/1/2029 | 19,900 | 19,351 | 20,298 | 3.0 | % | ||||||||||||||||||
| 40,346 | 39,583 | 40,485 | 5.9 | % | ||||||||||||||||||||||
| Pharmaceuticals | ||||||||||||||||||||||||||
| Foundation Consumer Brands | First lien senior secured loan | 11.79% (S + 6.25%) | 2/12/2027 | 6,781 | 6,744 | 6,832 | 1.0 | % | ||||||||||||||||||
| First lien senior secured revolving loan | 11.79% (S + 6.25%) | 2/12/2027 | - | - | - | 0.0 | % | |||||||||||||||||||
| 6,781 | 6,744 | 6,832 | 1.0 | % | ||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
F-9
Kayne Anderson BDC, Inc.
Consolidated Schedule of Investments
As of December 31, 2023
(amounts in 000’s, except number of shares, units)
| Maturity | Principal / | Amortized | Fair | Percentage | ||||||||||||||||||||||
| Portfolio Company(1) | Footnotes | Investment (2) | Interest Rate | Date | Par | Cost(3)(4) | Value | of Net Assets | ||||||||||||||||||
| Professional services | ||||||||||||||||||||||||||
| 4 Over International, LLC | First lien senior secured loan | 12.46% (S + 7.00%) | 12/7/2026 | 19,438 | 18,757 | 19,438 | 2.8 | % | ||||||||||||||||||
| DISA Holdings Corp. (DISA) | First lien senior secured delayed draw loan | 10.84% (S + 5.50%) | 9/9/2028 | 3,714 | 3,578 | 3,714 | 0.5 | % | ||||||||||||||||||
| First lien senior secured revolving loan | 10.84% (S + 5.50%) | 9/9/2028 | 392 | 347 | 392 | 0.1 | % | |||||||||||||||||||
| First lien senior secured loan | 10.84% (S + 5.50%) | 9/9/2028 | 22,177 | 21,625 | 22,177 | 3.2 | % | |||||||||||||||||||
| Universal Marine Medical Supply International, LLC (Unimed) | First lien senior secured loan | 13.01% (S + 7.50%) | 12/5/2027 | 13,527 | 13,253 | 13,527 | 2.0 | % | ||||||||||||||||||
| First lien senior secured revolving loan | 13.00% (S + 7.50%) | 12/5/2027 | 2,544 | 2,494 | 2,544 | 0.4 | % | |||||||||||||||||||
| 61,792 | 60,054 | 61,792 | 9.0 | % | ||||||||||||||||||||||
| Software | ||||||||||||||||||||||||||
| AIDC Intermediate Co 2, LLC (Peak Technologies) | First lien senior secured loan | 11.80% (S + 6.25%) | 7/22/2027 | 34,650 | 33,736 | 34,650 | 5.1 | % | ||||||||||||||||||
| Specialty retail | ||||||||||||||||||||||||||
| Sundance Holdings Group, LLC | (7) | First lien senior secured loan | 15.03% (S + 9.50%, 1.50% is PIK) | 5/1/2024 | 9,210 | 9,022 | 8,911 | 1.3 | % | |||||||||||||||||
| First lien senior secured delayed draw loan | 15.03% (S + 9.50%, 1.50% is PIK) | 5/1/2024 | - | - | - | 0.0 | % | |||||||||||||||||||
| 9,210 | 9,022 | 8,911 | 1.3 | % | ||||||||||||||||||||||
| Textiles, apparel & luxury goods | ||||||||||||||||||||||||||
| American Soccer Company, Incorporated (SCORE) | First lien senior secured loan | 12.75% (S + 7.25%) | 7/20/2027 | 29,816 | 29,317 | 29,145 | 4.3 | % | ||||||||||||||||||
| First lien senior secured revolving loan | 12.75% (S + 7.25%) | 7/20/2027 | 2,128 | 2,067 | 2,080 | 0.3 | % | |||||||||||||||||||
| BEL USA, LLC | First lien senior secured loan | 12.53% (S + 7.00%) | 6/2/2026 | 5,804 | 5,774 | 5,804 | 0.8 | % | ||||||||||||||||||
| First lien senior secured loan | 12.53% (S + 7.00%) | 6/2/2026 | 96 | 95 | 96 | 0.0 | % | |||||||||||||||||||
| YS Garments, LLC | First lien senior secured loan | 13.00% (S + 7.50%) | 8/9/2026 | 6,849 | 6,758 | 6,729 | 1.0 | % | ||||||||||||||||||
| 44,693 | 44,011 | 43,854 | 6.4 | % | ||||||||||||||||||||||
| Trading companies & distributors | ||||||||||||||||||||||||||
| BCDI Meteor Acquisition, LLC (Meteor) | First lien senior secured loan | 12.45% (S + 7.00%) | 6/29/2028 | 16,297 | 15,955 | 16,297 | 2.4 | % | ||||||||||||||||||
| Broder Bros., Co. | First lien senior secured loan | 11.61% (S+ 6.00%) | 12/4/2025 | 4,640 | 4,439 | 4,640 | 0.7 | % | ||||||||||||||||||
| CGI Automated Manufacturing, LLC | First lien senior secured loan | 12.61% (S + 7.00%) | 12/17/2026 | 20,510 | 19,849 | 20,459 | 3.0 | % | ||||||||||||||||||
| First lien senior secured loan | 12.61% (S + 7.00%) | 12/17/2026 | 6,681 | 6,559 | 6,664 | 1.0 | % | |||||||||||||||||||
| First lien senior secured delayed draw loan | 12.61% (S + 7.00%) | 12/17/2026 | 3,616 | 3,510 | 3,607 | 0.5 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 12.61% (S + 7.00%) | 12/17/2026 | 327 | 244 | 327 | 0.0 | % | |||||||||||||||||||
| EIS Legacy, LLC | First lien senior secured loan | 11.24% (S + 5.75%) | 11/1/2027 | 18,079 | 17,838 | 18,079 | 2.6 | % | ||||||||||||||||||
| First lien senior secured loan | 11.27% (S + 5.75%) | 11/1/2027 | 9,666 | 9,356 | 9,666 | 1.4 | % | |||||||||||||||||||
| First lien senior secured delayed draw loan | 11.24% (S + 5.75%) | 4/20/2025 | - | - | - | 0.0 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 11.24% (S + 5.75%) | 11/1/2027 | - | - | - | 0.0 | % | |||||||||||||||||||
| Engineered Fastener Company, LLC (EFC International) | First lien senior secured loan | 12.00% (S + 6.50%) | 11/1/2027 | 23,604 | 23,113 | 23,899 | 3.5 | % | ||||||||||||||||||
| Genuine Cable Group, LLC | First lien senior secured loan | 10.96% (S + 5.50%) | 11/1/2026 | 29,057 | 28,336 | 28,984 | 4.2 | % | ||||||||||||||||||
| First lien senior secured loan | 10.96% (S + 5.50%) | 11/1/2026 | 5,506 | 5,347 | 5,492 | 0.8 | % | |||||||||||||||||||
| I.D. Images Acquisition, LLC | First lien senior secured loan | 11.75% (S + 6.25%) | 7/30/2026 | 13,651 | 13,538 | 13,651 | 2.0 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 11.75% (S + 6.25%) | 7/30/2026 | 2,486 | 2,450 | 2,486 | 0.4 | % | |||||||||||||||||||
| First lien senior secured loan | 11.70% (S + 6.25%) | 7/30/2026 | 4,522 | 4,457 | 4,522 | 0.7 | % | |||||||||||||||||||
| First lien senior secured loan | 11.75% (S + 6.25%) | 7/30/2026 | 1,043 | 1,033 | 1,043 | 0.2 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 11.75% (S + 6.25%) | 7/30/2026 | - | - | - | 0.0 | % | |||||||||||||||||||
| Krayden Holdings, Inc. | First lien senior secured delayed draw loan | 11.20% (S + 5.75%) | 3/1/2025 | - | - | - | 0.0 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 11.20% (S + 5.75%) | 3/1/2025 | - | - | - | 0.0 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 11.20% (S + 5.75%) | 3/1/2029 | - | - | - | 0.0 | % | |||||||||||||||||||
| First lien senior secured loan | 11.20% (S + 5.75%) | 3/1/2029 | 9,491 | 9,099 | 9,491 | 1.4 | % | |||||||||||||||||||
| OAO Acquisitions, Inc. (BearCom) | First lien senior secured loan | 11.61% (S + 6.25%) | 12/27/2029 | 21,370 | 20,979 | 21,370 | 3.1 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 11.61% (S + 6.25%) | 12/27/2025 | - | - | - | 0.0 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 11.61% (S + 6.25%) | 12/27/2029 | - | - | - | 0.0 | % | |||||||||||||||||||
| United Safety & Survivability Corporation (USSC) | First lien senior secured loan | 11.79% (S + 6.25%) | 9/30/2027 | 12,436 | 12,147 | 12,436 | 1.8 | % | ||||||||||||||||||
| First lien senior secured loan | 11.79% (S + 6.25%) | 9/28/2027 | 1,607 | 1,490 | 1,607 | 0.3 | % | |||||||||||||||||||
| First lien senior secured delayed draw loan | 11.79% (S + 6.25%) | 9/30/2027 | 3,160 | 3,110 | 3,160 | 0.5 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 11.79% (S + 6.25%) | 9/30/2027 | 870 | 860 | 870 | 0.1 | % | |||||||||||||||||||
| 208,619 | 203,709 | 208,750 | 30.6 | % | ||||||||||||||||||||||
| Wireless telecommunication services | ||||||||||||||||||||||||||
| Centerline Communications, LLC | First lien senior secured loan | 11.53% (S + 6.00%) | 8/10/2027 | 14,945 | 14,751 | 13,936 | 2.0 | % | ||||||||||||||||||
| First lien senior secured delayed draw loan | 11.53% (S + 6.00%) | 8/10/2027 | 7,044 | 6,954 | 6,568 | 1.0 | % | |||||||||||||||||||
| First lien senior secured delayed draw loan | 11.53% (S + 6.00%) | 8/10/2027 | 6,202 | 6,112 | 5,783 | 0.9 | % | |||||||||||||||||||
| First lien senior secured revolving loan | 11.53% (S + 6.00%) | 8/10/2027 | 1,800 | 1,778 | 1,679 | 0.2 | % | |||||||||||||||||||
| First lien senior secured loan | 11.53% (S + 6.00%) | 8/10/2027 | 1,020 | 996 | 952 | 0.1 | % | |||||||||||||||||||
| 31,011 | 30,591 | 28,918 | 4.2 | % | ||||||||||||||||||||||
| Total Private Credit Debt Investments | 1,353,096 | 1,327,190 | 1,346,174 | 197.1 | % | |||||||||||||||||||||
See accompanying notes to consolidated financial statements.
F-10
Kayne Anderson BDC, Inc.
Consolidated Schedule of Investments
As of December 31, 2023
(amounts in 000’s, except number of shares, units)
| Footnotes | Number of Shares/Units | Cost | Fair Value | Percentage of Net Assets | ||||||||||||||
| Equity Investments(9) | ||||||||||||||||||
| Automobile components | ||||||||||||||||||
| Vehicle Accessories, Inc. - Class A common | (12) | 128,250 | - | 326 | 0.0 | % | ||||||||||||
| Vehicle Accessories, Inc. - preferred | (12) | 250,000 | 250 | 292 | 0.1 | % | ||||||||||||
| 378,250 | 250 | 618 | 0.1 | % | ||||||||||||||
| Commercial services & supplies | ||||||||||||||||||
| American Equipment Holdings LLC- Class A units | (13) | 426 | 284 | 508 | 0.1 | % | ||||||||||||
| BLP Buyer, Inc. (Bishop Lifting Products) - Class A common | (14) | 582,469 | 652 | 1,200 | 0.1 | % | ||||||||||||
| Arborworks Acquisition LLC – Class A preferred units | (10) | 21,716 | 9,179 | 9,287 | 1.4 | % | ||||||||||||
| Arborworks Acquisition LLC – Class B preferred units | (10) | 21,716 | - | - | 0.0 | % | ||||||||||||
| Arborworks Acquisition LLC – Class A common units | (10) | 2,604 | - | - | 0.0 | % | ||||||||||||
| 628,931 | 10,115 | 10,995 | 1.6 | % | ||||||||||||||
| Food products | ||||||||||||||||||
| BC CS 2, L.P. (Cuisine Solutions) | (6)(11) | 2,000,000 | 2,000 | 2,611 | 0.4 | % | ||||||||||||
| City Line Distributors, LLC - Class A units | (15) | 418,416 | 418 | 418 | 0.1 | % | ||||||||||||
| Gulf Pacific Holdings, LLC - Class A common | (13) | 250 | 250 | 189 | 0.0 | % | ||||||||||||
| Gulf Pacific Holdings, LLC - Class C common | (13) | 250 | - | - | 0.0 | % | ||||||||||||
| IF&P Foods, LLC (FreshEdge) - Class A preferred | (13) | 750 | 750 | 905 | 0.1 | % | ||||||||||||
| IF&P Foods, LLC (FreshEdge) - Class B common | (13) | 750 | - | - | 0.0 | % | ||||||||||||
| Siegel Parent, LLC | (16) | 250 | 250 | 72 | 0.0 | % | ||||||||||||
| 2,420,666 | 3,668 | 4,195 | 0.6 | % | ||||||||||||||
| Healthcare equipment & supplies | ||||||||||||||||||
| LSL Industries, LLC (LSL Healthcare) | (13) | 7,500 | 750 | 552 | 0.1 | % | ||||||||||||
| IT services | ||||||||||||||||||
| Domain Information Services Inc. (Integris) | 250,000 | 250 | 344 | 0.0 | % | |||||||||||||
| Specialty retail | ||||||||||||||||||
| Sundance Direct Holdings, Inc. - common | 21,479 | - | - | 0.0 | % | |||||||||||||
| Textiles, apparel & luxury goods | ||||||||||||||||||
| American Soccer Company, Incorporated (SCORE) | (16) | 1,000,000 | 1,000 | 620 | 0.1 | % | ||||||||||||
| Total Private Equity Investments | 16,033 | 17,324 | 2.5 | % | ||||||||||||||
| Total Private Investments | 1,343,223 | 1,363,498 | 199.6 | % | ||||||||||||||
| Number of | Fair | Percentage | ||||||||||||||||
| Footnotes | Shares | Cost | Value | of Net Assets | ||||||||||||||
| Short-Term Investments | ||||||||||||||||||
| First American Treasury Obligations Fund - Institutional Class Z, 5.21% | (17) | 12,802,362 | 12,802 | 12,802 | 1.9 | % | ||||||||||||
| Total Short-Term Investments | 12,802,362 | 12,802 | 12,802 | 1.9 | % | |||||||||||||
| Total Investments | $ | 1,356,025 | $ | 1,376,300 | 201.5 | % | ||||||||||||
| Liabilities in Excess of Other Assets | (693,244 | ) | (101.5 | )% | ||||||||||||||
| Net Assets | $ | 683,056 | 100.0 | % | ||||||||||||||
| (1) | As of December 31, 2023, all investments are non-controlled, non-affiliated investments. Non-controlled, non-affiliated investments are defined as investments in which the Company owns less than 5% of the portfolio company’s outstanding voting securities and does not have the power to exercise control over the management or policies of such portfolio company. |
| (2) | Debt investments are pledged to the Company’s credit facilities, and a single debt investment may be divided into parts that are individually pledged to separate credit facilities. |
| (3) | The amortized cost represents the original cost adjusted for the amortization of discounts and premiums, as applicable, on debt investments using the effective interest method. |
| (4) | As of December 31, 2023, the tax cost of the Company’s investments approximates their amortized cost. |
| (5) | Loan contains a variable rate structure, that may be subject to an interest rate floor. Variable rate loans bear interest at a rate that may be determined by reference to either the Secured Overnight Funding Rate (“SOFR” or “S”) (which can include one-, three- or six-month SOFR), or an alternate base rate (which can include the Federal Funds Effective Rate or the Prime Rate or “P”). |
See accompanying notes to consolidated financial statements.
F-11
Kayne Anderson BDC, Inc.
Consolidated Schedule of Investments
As of December 31, 2023
(amounts in 000’s, except number of shares, units)
| (6) | Non-qualifying investment as defined by Section 55(a) of the Investment Company Act of 1940. The Company may not acquire any non-qualifying asset unless, at the time of acquisition, qualifying assets represent at least 70% of the Company’s total assets. As of December 31, 2023, 4.8% of the Company’s total assets were in non-qualifying investments. |
| (7) | The Company may be entitled to receive additional interest as a result of an arrangement with other lenders in the syndication. In exchange for the higher interest rate, the “last-out” portion is at a greater risk of loss. Certain lenders represent a “first out” portion of the investment and have priority to the “last-out” portion with respect to payments of principal and interest. |
| (8) | Debt investment on non-accrual status as of December 31, 2023. |
| (9) | Non-income producing investment. |
| (10) | In November 2023, the Company completed a restructure of the investment in Arborworks Acquisition LLC whereby the existing term loan and revolver were restructured to a new term loan and preferred and common equity. KABDC Corp II, LLC, a wholly owned subsidiary of the Company, holds the preferred and common equity of Arborworks Acquisition LLC that the Company owns following this restructure. |
| (11) | The Company has a senior secured loan in an investment vehicle (BC CS 2, L.P.) that is collateralized by a preferred stock investment in Cuisine Solutions, Inc.. |
| (12) | The Company owns 0.19% of the common equity and 0.43% of the preferred equity of Vehicle Accessories, Inc. |
| (13) | The Company owns 27.15% of a pass-through, taxable limited liability company, KSCF IV Equity Aggregator Blocker, LLC (the “Aggregator Blocker”), which holds the Company’s equity investments in American Equipment Holdings LLC, Gulf Pacific Holdings, LLC, IF&P Foods, LLC (FreshEdge) and LSL Industries, LLC (LSL Healthcare). Through the Company’s ownership of the Aggregator Blocker, the Company owns the respective units of each company listed above in the Schedule of Investments. |
| (14) | The Company owns 0.53% of the common equity BLP Buyer, Inc. (Bishop Lifting Products). |
| (15) | KABDC Corp, LLC, a wholly owned subsidiary of the Company, owns 0.62% of the common equity of City Line Distributors, LLC. |
| (16) | The Company owns 33.95% of a pass-through limited liability company, KSCF IV Equity Aggregator, LLC (the “Aggregator”), which holds the Company’s equity investments in Siegel Parent, LLC and American Soccer Company, Incorporated (SCORE). The Aggregator’s ownership of Siegel Parent, LLC is 1.1442%. Through the Company’s ownership of the Aggregator, the Company owns the respective units of each company listed above in the Schedule of Investments. |
| (17) | The indicated rate is the yield as of December 31, 2023. |
See accompanying notes to consolidated financial statements.
F-12
Kayne Anderson BDC, Inc.
Consolidated Schedule of Investments
As of December 31, 2022
(amounts in 000’s)
| Maturity | Principal / | Amortized | Fair | Percentage | ||||||||||||||||||
| Portfolio Company(1) | Investment | Interest Rate | Date | Par | Cost(2)(3) | Value | of Net Assets | |||||||||||||||
| Debt and Equity Investments | ||||||||||||||||||||||
| Private Credit Investments(4) | ||||||||||||||||||||||
| Aerospace & defense | ||||||||||||||||||||||
| Basel U.S. Acquisition Co., Inc. (IAC) (5) | First lien senior secured revolving loan | 11.10% (S + 6.50%) | 12/5/2028 | $ | - | $ | - | $ | - | 0.0 | % | |||||||||||
| First lien senior secured loan | 11.10% (S + 6.50%) | 12/5/2028 | 18,681 | 18,180 | 18,681 | 3.1 | % | |||||||||||||||
| Fastener Distribution Holdings, LLC | First lien senior secured delayed draw loan | 11.73% (S + 7.00%) | 4/1/2024 | 2,362 | 2,293 | 2,362 | 0.4 | % | ||||||||||||||
| First lien senior secured loan | 11.73% (S + 7.00%) | 4/1/2024 | 20,701 | 20,347 | 20,701 | 3.5 | % | |||||||||||||||
| Precinmac (US) Holdings, Inc. | First lien senior secured delayed draw loan | 10.42% (S + 6.00%) | 8/31/2027 | 1,113 | 1,094 | 1,096 | 0.2 | % | ||||||||||||||
| First lien senior secured loan | 10.42% (S + 6.00%) | 8/31/2027 | 5,408 | 5,315 | 5,326 | 0.9 | % | |||||||||||||||
| 48,265 | 47,229 | 48,166 | 8.1 | % | ||||||||||||||||||
| Asset management & custody banks | ||||||||||||||||||||||
| Atria Wealth Solutions, Inc. | First lien senior secured delayed draw loan | 10.84% (S + 6.00%) | 2/29/2024 | 232 | 202 | 228 | 0.0 | % | ||||||||||||||
| First lien senior secured loan | 10.84% (S + 6.00%) | 2/29/2024 | 5,139 | 5,101 | 5,036 | 0.9 | % | |||||||||||||||
| 5,371 | 5,303 | 5,264 | 0.9 | % | ||||||||||||||||||
| Auto components | ||||||||||||||||||||||
| Speedstar Holding LLC | First lien senior secured loan | 11.73% (L + 7.00%) | 1/22/2027 | 4,908 | 4,828 | 4,908 | 0.8 | % | ||||||||||||||
| Vehicle Accessories, Inc. | First lien senior secured revolving loan | 12.00% (P + 4.50%) | 11/30/2026 | - | - | - | 0.0 | % | ||||||||||||||
| First lien senior secured loan | 10.34% (S + 5.50%) | 11/30/2026 | 21,225 | 20,898 | 21,066 | 3.6 | % | |||||||||||||||
| 26,133 | 25,726 | 25,974 | 4.4 | % | ||||||||||||||||||
| Biotechnology | ||||||||||||||||||||||
| Alcami Corporation (Alcami) | First lien senior secured delayed draw loan | 11.42% (S + 7.00%) | 6/30/2024 | - | - | - | 0.0 | % | ||||||||||||||
| First lien senior secured revolving loan | 11.42% (S + 7.00%) | 12/21/2028 | - | - | - | 0.0 | % | |||||||||||||||
| First lien senior secured loan | 11.42% (S + 7.00%) | 12/21/2028 | 11,735 | 11,237 | 11,618 | 2.0 | % | |||||||||||||||
| 11,735 | 11,237 | 11,618 | 2.0 | % | ||||||||||||||||||
| Building products | ||||||||||||||||||||||
| BCI Burke Holding Corp. | First lien senior secured delayed draw loan | 9.70% (L + 5.50%) | 12/14/2023 | 639 | 615 | 642 | 0.1 | % | ||||||||||||||
| First lien senior secured loan | 10.23% (L + 5.50%) | 12/14/2027 | 16,489 | 16,256 | 16,572 | 2.8 | % | |||||||||||||||
| First lien senior secured revolving loan | 10.23% (L + 5.50%) | 6/14/2027 | - | - | - | 0.0 | % | |||||||||||||||
| Eastern Wholesale Fence | First lien senior secured revolving loan | 11.73% (L + 7.00%) | 10/30/2025 | 1,275 | 1,252 | 1,275 | 0.2 | % | ||||||||||||||
| First lien senior secured loan | 11.73% (L + 7.00%) | 10/30/2025 | 21,239 | 20,778 | 21,239 | 3.6 | % | |||||||||||||||
| 39,642 | 38,901 | 39,728 | 6.7 | % | ||||||||||||||||||
| Chemicals | ||||||||||||||||||||||
| Cyalume Technologies Holdings, Inc. | First lien senior secured loan | 9.73% (L + 5.00%) | 8/30/2024 | 1,274 | 1,266 | 1,274 | 0.2 | % | ||||||||||||||
| Fralock Buyer LLC | First lien senior secured revolving loan | 10.23% (L + 5.50%) | 4/17/2024 | - | - | - | 0.0 | % | ||||||||||||||
| First lien senior secured loan | 10.23% (L + 5.50%) | 4/17/2024 | 11,679 | 11,560 | 11,621 | 2.0 | % | |||||||||||||||
| Schrieve Chemical Company, LLC | First lien senior secured loan | 10.33% (L + 6.00%) | 12/2/2024 | 609 | 597 | 609 | 0.1 | % | ||||||||||||||
| USALCO, LLC | First lien senior secured revolving loan | 10.38% (L + 6.00%) | 10/19/2026 | 1,081 | 1,042 | 1,070 | 0.2 | % | ||||||||||||||
| First lien senior secured loan | 10.73% (L + 6.00%) | 10/19/2027 | 19,181 | 18,792 | 18,989 | 3.2 | % | |||||||||||||||
| 33,824 | 33,257 | 33,563 | 5.7 | % | ||||||||||||||||||
| Commercial services & supplies | ||||||||||||||||||||||
| Advanced Environmental Monitoring (6) | First lien senior secured loan | 11.68% (S + 7.00%) | 1/29/2026 | 10,158 | 9,918 | 10,158 | 1.7 | % | ||||||||||||||
| Allentown, LLC | First lien senior secured delayed draw loan | 10.42% (S + 6.00%) | 10/22/2023 | - | - | - | 0.0 | % | ||||||||||||||
| First lien senior secured revolving loan | 12.50% (P + 5.00%) | 4/22/2027 | 357 | 348 | 347 | 0.1 | % | |||||||||||||||
| First lien senior secured loan | 10.42% (S + 6.00%) | 4/22/2027 | 7,663 | 7,588 | 7,452 | 1.3 | % | |||||||||||||||
| American Equipment Holdings LLC | First lien senior secured delayed draw loan | 10.88% (S + 6.00%) | 11/5/2026 | 6,303 | 6,202 | 6,303 | 1.1 | % | ||||||||||||||
| First lien senior secured revolving loan | 10.45% (S + 6.00%) | 11/5/2026 | 1,610 | 1,559 | 1,610 | 0.3 | % | |||||||||||||||
| First lien senior secured delayed draw loan | 9.33% (S + 6.00%) | 11/5/2026 | 3,670 | 3,594 | 3,670 | 0.6 | % | |||||||||||||||
| First lien senior secured loan | 10.51% (S + 6.00%) | 11/5/2026 | 2,107 | 2,072 | 2,107 | 0.3 | % | |||||||||||||||
| First lien senior secured loan | 10.88% (S + 6.00%) | 11/5/2026 | 18,142 | 17,853 | 18,142 | 3.1 | % | |||||||||||||||
| Arborworks Acquisition LLC | First lien senior secured revolving loan | 11.41% (L + 7.00%) | 11/9/2026 | 3,125 | 3,053 | 2,750 | 0.5 | % | ||||||||||||||
| First lien senior secured loan | 11.56% (L + 7.00%) | 11/9/2026 | 19,855 | 19,533 | 17,473 | 2.9 | % | |||||||||||||||
| BLP Buyer, Inc. (Bishop Lifting Products) | First lien senior secured revolving loan | 10.67% (S + 6.25%) | 2/1/2027 | 604 | 577 | 596 | 0.1 | % | ||||||||||||||
| First lien senior secured loan | 10.21% (S + 6.50%) | 2/1/2027 | 6,176 | 6,027 | 6,099 | 1.0 | % | |||||||||||||||
| First lien senior secured loan | 10.49% (S + 6.25%) | 2/1/2027 | 16,372 | 16,097 | 16,168 | 2.7 | % | |||||||||||||||
| Gusmer Enterprises, Inc. | First lien senior secured delayed draw loan | 11.44% (S + 7.00%) | 5/7/2027 | 8,032 | 7,891 | 8,032 | 1.4 | % | ||||||||||||||
| First lien senior secured revolving loan | 11.43% (S + 7.00%) | 5/7/2027 | - | - | - | 0.0 | % | |||||||||||||||
| First lien senior secured loan | 11.43% (S + 7.00%) | 5/7/2027 | 4,795 | 4,647 | 4,795 | 0.8 | % | |||||||||||||||
| PMFC Holding, LLC | First lien senior secured delayed draw loan | 10.88% (L + 6.50%) | 7/31/2023 | 2,818 | 2,811 | 2,818 | 0.5 | % | ||||||||||||||
| First lien senior secured loan | 10.88% (L + 6.50%) | 7/31/2023 | 5,619 | 5,604 | 5,619 | 0.9 | % | |||||||||||||||
| First lien senior secured revolving loan | 11.18% (L + 6.50%) | 7/31/2023 | 342 | 342 | 342 | 0.1 | % | |||||||||||||||
| Regiment Security Partners LLC | First lien senior secured delayed draw loan | 12.66% (S + 8.00%) | 9/15/2023 | 2,635 | 2,593 | 2,635 | 0.4 | % | ||||||||||||||
| First lien senior secured loan | 12.66% (S + 8.00%) | 9/15/2026 | 6,461 | 6,358 | 6,461 | 1.1 | % | |||||||||||||||
| First lien senior secured revolving loan | 12.66% (S + 8.00%) | 9/15/2026 | 1,345 | 1,320 | 1,345 | 0.2 | % | |||||||||||||||
| The Kleinfelder Group, Inc. | First lien senior secured loan | 9.98% (L + 5.25%) | 11/30/2024 | 12,760 | 12,678 | 12,697 | 2.1 | % | ||||||||||||||
| 140,949 | 138,665 | 137,619 | 23.2 | % | ||||||||||||||||||
See accompanying notes to consolidated financial statements.
F-13
Kayne Anderson BDC, Inc.
Consolidated Schedule of Investments
As of December 31, 2022
(amounts in 000’s)
| Maturity | Principal / | Amortized | Fair | Percentage | ||||||||||||||||||
| Portfolio Company(1) | Investment | Interest Rate | Date | Par | Cost(2)(3) | Value | of Net Assets | |||||||||||||||
| Containers & packaging | ||||||||||||||||||||||
| Drew Foam Companies, Inc. | First lien senior secured loan | 11.48% (S + 6.75%) | 11/5/2025 | 7,375 | 7,288 | 7,375 | 1.2 | % | ||||||||||||||
| First lien senior secured loan | 10.89% (S + 6.75%) | 11/5/2025 | 20,964 | 20,564 | 20,964 | 3.6 | % | |||||||||||||||
| FCA, LLC (FCA Packaging) | First lien senior secured revolving loan | 9.46% (S + 6.50%) | 7/18/2028 | - | - | - | 0.0 | % | ||||||||||||||
| First lien senior secured loan | 9.46% (S + 6.50%) | 7/18/2028 | 23,382 | 23,004 | 23,616 | 4.0 | % | |||||||||||||||
| 51,721 | 50,856 | 51,955 | 8.8 | % | ||||||||||||||||||
| Diversified telecommunication services | ||||||||||||||||||||||
| Network Connex (f/k/a NTI Connect, LLC) | First lien senior secured loan | 9.48% (S + 4.75%) | 11/30/2024 | 5,249 | 5,187 | 5,249 | 0.9 | % | ||||||||||||||
| Pavion Corp., f/k/a Corbett Technology Solutions, Inc. | First lien senior secured revolving loan | 9.14% (S + 5.00%) | 10/29/2027 | 572 | 442 | 563 | 0.1 | % | ||||||||||||||
| First lien senior secured delayed draw loan | 9.66% (S + 5.00%) | 10/29/2027 | 9,434 | 9,354 | 9,293 | 1.6 | % | |||||||||||||||
| First lien senior secured loan | 9.58% (S + 5.00%) | 10/29/2027 | 1,742 | 1,727 | 1,716 | 0.3 | % | |||||||||||||||
| First lien senior secured loan | 9.24% (S + 5.00%) | 10/29/2027 | 13,429 | 13,188 | 13,227 | 2.2 | % | |||||||||||||||
| 30,426 | 29,898 | 30,048 | 5.1 | % | ||||||||||||||||||
| Electronic equipment, instruments & components | ||||||||||||||||||||||
| Process Insights, Inc. | First lien senior secured loan | 10.49% (S + 6.00%) | 10/30/2025 | 3,044 | 2,993 | 3,021 | 0.5 | % | ||||||||||||||
| 3,044 | 2,993 | 3,021 | 0.5 | % | ||||||||||||||||||
| Food products | ||||||||||||||||||||||
| BC CS 2, L.P. (Cuisine Solutions) (5) | First lien senior secured loan | 12.18% (S + 8.00%) | 7/8/2028 | 25,000 | 24,283 | 25,000 | 4.2 | % | ||||||||||||||
| BR PJK Produce, LLC (Keany) | First lien senior secured loan | 10.47% (S + 6.25%) | 11/14/2027 | 29,863 | 29,095 | 29,863 | 5.0 | % | ||||||||||||||
| First lien senior secured delayed draw loan | 10.47% (S + 6.25%) | 5/14/2024 | - | - | - | 0.0 | % | |||||||||||||||
| Gulf Pacific Holdings, LLC | First lien senior secured delayed draw loan | 10.73% (S + 6.00%) | 9/30/2024 | - | - | - | 0.0 | % | ||||||||||||||
| First lien senior secured revolving loan | 10.42% (S + 6.00%) | 9/30/2028 | 1,498 | 1,384 | 1,498 | 0.3 | % | |||||||||||||||
| First lien senior secured loan | 10.73% (S + 6.00%) | 9/30/2028 | 20,384 | 19,905 | 20,384 | 3.5 | % | |||||||||||||||
| IF&P Foods, LLC (FreshEdge) (6) | First lien senior secured delayed draw loan | 8.91% (S + 5.25%) | 10/3/2024 | - | - | - | 0.0 | % | ||||||||||||||
| First lien senior secured revolving loan | 8.91% (S + 5.25%) | 10/3/2028 | 1,366 | 1,187 | 1,366 | 0.2 | % | |||||||||||||||
| First lien senior secured loan | 8.91% (S + 5.25%) | 10/3/2028 | 27,520 | 26,853 | 27,520 | 4.7 | % | |||||||||||||||
| Siegel Egg Co., LLC | First lien senior secured revolving loan | 9.25% (L + 5.50%) | 12/29/2026 | 1,923 | 1,873 | 1,913 | 0.3 | % | ||||||||||||||
| First lien senior secured loan | 9.25% (L + 5.50%) | 12/29/2026 | 15,624 | 15,383 | 15,546 | 2.6 | % | |||||||||||||||
| 123,178 | 119,963 | 123,090 | 20.8 | % | ||||||||||||||||||
| Health care providers & services | ||||||||||||||||||||||
| Brightview, LLC | First lien senior secured delayed draw loan | 10.14% (L + 5.75%) | 12/14/2026 | 1,736 | 1,714 | 1,719 | 0.3 | % | ||||||||||||||
| First lien senior secured revolving loan | 10.13% (L + 5.75%) | 12/14/2026 | - | - | - | 0.0 | % | |||||||||||||||
| First lien senior secured loan | 10.13% (L + 5.75%) | 12/14/2026 | 13,002 | 12,923 | 12,872 | 2.2 | % | |||||||||||||||
| Guardian Dentistry Partners | First lien senior secured delayed draw loan | 10.94% (S + 6.50%) | 8/20/2026 | 21,708 | 21,402 | 21,708 | 3.7 | % | ||||||||||||||
| First lien senior secured loan | 10.94% (S + 6.50%) | 8/20/2026 | 8,139 | 7,961 | 8,139 | 1.4 | % | |||||||||||||||
| Light Wave Dental Management LLC | First lien senior secured delayed draw loan | 11.32% (S + 6.50%) | 12/31/2023 | 9,559 | 9,437 | 9,559 | 1.6 | % | ||||||||||||||
| First lien senior secured loan (7) | 30.00% | 9/30/2023 | 6,254 | 6,254 | 6,254 | 1.0 | % | |||||||||||||||
| First lien senior secured revolving loan | 11.32% (S + 6.50%) | 12/31/2023 | 558 | 555 | 558 | 0.1 | % | |||||||||||||||
| First lien senior secured loan | 11.32% (S + 6.50%) | 12/31/2023 | 12,941 | 12,851 | 12,941 | 2.1 | % | |||||||||||||||
| OMH-HealthEdge Holdings, LLC | First lien senior secured loan | 10.03% (L + 5.25%) | 10/24/2025 | 17,572 | 17,271 | 17,572 | 3.0 | % | ||||||||||||||
| SGA Dental Partners Holdings, LLC | First lien senior secured delayed draw loan | 9.93% (S + 6.00%) | 12/30/2026 | 11,136 | 10,941 | 11,136 | 1.9 | % | ||||||||||||||
| First lien senior secured loan | 9.93% (S + 6.00%) | 12/30/2026 | 11,948 | 11,725 | 11,948 | 2.0 | % | |||||||||||||||
| First lien senior secured revolving loan | 9.93% (S + 6.00%) | 12/30/2026 | - | - | - | 0.0 | % | |||||||||||||||
| 114,553 | 113,034 | 114,406 | 19.3 | % | ||||||||||||||||||
See accompanying notes to consolidated financial statements.
F-14
Kayne Anderson BDC, Inc.
Consolidated Schedule of Investments
As of December 31, 2022
(amounts in 000’s)
| Maturity | Principal / | Amortized | Fair | Percentage | ||||||||||||||||||
| Portfolio Company(1) | Investment | Interest Rate | Date | Par | Cost(2)(3) | Value | of Net Assets | |||||||||||||||
| Healthcare equipment & supplies | ||||||||||||||||||||||
| LSL Industries, LLC (LSL Healthcare) | First lien senior secured delayed draw loan | 10.90% (S + 6.50%) | 11/3/2024 | - | - | - | 0.0 | % | ||||||||||||||
| First lien senior secured revolving loan | 10.90% (S + 6.50%) | 11/3/2027 | - | - | - | 0.0 | % | |||||||||||||||
| First lien senior secured loan | 10.90% (S + 6.50%) | 11/3/2027 | 19,727 | 19,001 | 19,727 | 3.3 | % | |||||||||||||||
| 19,727 | 19,001 | 19,727 | 3.3 | % | ||||||||||||||||||
| Household durables | ||||||||||||||||||||||
| Curio Brands, LLC | First lien senior secured delayed draw loan | 10.23% (L + 5.50%) | 12/21/2027 | 3,296 | 3,296 | 3,230 | 0.5 | % | ||||||||||||||
| First lien senior secured revolving loan | 10.23% (L + 5.50%) | 12/21/2027 | - | - | - | 0.0 | % | |||||||||||||||
| First lien senior secured loan | 10.23% (L + 5.50%) | 12/21/2027 | 18,009 | 17,596 | 17,648 | 3.0 | % | |||||||||||||||
| 21,305 | 20,892 | 20,878 | 3.5 | % | ||||||||||||||||||
| Household products | ||||||||||||||||||||||
| Home Brands Group Holdings, Inc. (ReBath) | First lien senior secured revolving loan | 9.16% (L + 4.75%) | 11/8/2026 | - | - | - | 0.0 | % | ||||||||||||||
| First lien senior secured loan | 9.16% (L + 4.75%) | 11/8/2026 | 19,046 | 18,706 | 18,951 | 3.2 | % | |||||||||||||||
| 19,046 | 18,706 | 18,951 | 3.2 | % | ||||||||||||||||||
| Insurance | ||||||||||||||||||||||
| Allcat Claims Service, LLC | First lien senior secured delayed draw loan | 10.24% (S + 6.00%) | 7/7/2027 | 5,396 | 5,127 | 5,396 | 0.9 | % | ||||||||||||||
| First lien senior secured revolving loan | 10.33% (S + 6.00%) | 7/7/2027 | 1,651 | 1,591 | 1,651 | 0.3 | % | |||||||||||||||
| First lien senior secured loan | 10.41% (S + 6.00%) | 7/7/2027 | 7,795 | 7,641 | 7,795 | 1.3 | % | |||||||||||||||
| 14,842 | 14,359 | 14,842 | 2.5 | % | ||||||||||||||||||
| IT services | ||||||||||||||||||||||
| Domain Information Services Inc. (Integris) | First lien senior secured loan | 10.63% (S + 6.25%) | 9/30/2025 | 20,632 | 20,133 | 20,632 | 3.5 | % | ||||||||||||||
| Improving Acquisition LLC | First lien senior secured revolving loan | 10.24% (S + 6.00%) | 7/26/2027 | - | - | - | 0.0 | % | ||||||||||||||
| First lien senior secured loan | 10.24% (S + 6.00%) | 7/26/2027 | 24,260 | 23,754 | 24,260 | 4.1 | % | |||||||||||||||
| 44,892 | 43,887 | 44,892 | 7.6 | % | ||||||||||||||||||
| Leisure products | ||||||||||||||||||||||
| MacNeill Pride Group | First lien senior secured delayed draw loan | 11.09% (S + 6.25%) | 4/22/2026 | 4,119 | 4,061 | 4,017 | 0.7 | % | ||||||||||||||
| First lien senior secured loan | 11.09% (S + 6.25%) | 4/22/2026 | 8,619 | 8,533 | 8,403 | 1.4 | % | |||||||||||||||
| First lien senior secured revolving loan | 11.09% (S + 6.25%) | 4/22/2026 | 899 | 874 | 877 | 0.1 | % | |||||||||||||||
| Trademark Global LLC | First lien senior secured revolving loan | 11.88% (L + 7.50%), 4.50% is PIK | 7/30/2024 | 2,760 | 2,744 | 2,574 | 0.4 | % | ||||||||||||||
| First lien senior secured revolving loan | 11.88% (L + 7.50%), 4.50% is PIK | 7/30/2024 | 29 | 21 | 27 | 0.1 | % | |||||||||||||||
| First lien senior secured loan | 11.88% (L + 7.50%), 4.50% is PIK | 7/30/2024 | 11,516 | 11,451 | 10,739 | 1.8 | % | |||||||||||||||
| 27,942 | 27,684 | 26,637 | 4.5 | % | ||||||||||||||||||
| Machinery | ||||||||||||||||||||||
| Pennsylvania Machine Works, LLC | First lien senior secured loan | 11.09% (S + 6.25%) | 3/6/2027 | 2,009 | 1,991 | 2,009 | 0.3 | % | ||||||||||||||
| PVI Holdings, Inc | First lien senior secured loan | 10.12% (S + 6.38%) | 7/18/2027 | 24,124 | 23,763 | 24,124 | 4.1 | % | ||||||||||||||
| 26,133 | 25,754 | 26,133 | 4.4 | % | ||||||||||||||||||
| Personal products | ||||||||||||||||||||||
| DRS Holdings III, Inc. (Dr. Scholl’s) | First lien senior secured revolving loan | 10.48% (L + 5.75%) | 11/1/2025 | - | - | - | 0.0 | % | ||||||||||||||
| First lien senior secured loan | 10.48% (L + 5.75%) | 11/1/2025 | 11,377 | 11,295 | 11,149 | 1.9 | % | |||||||||||||||
| PH Beauty Holdings III, Inc. | First lien senior secured loan | 9.73% (L + 5.00%) | 9/28/2025 | 9,542 | 9,277 | 9,113 | 1.5 | % | ||||||||||||||
| 20,919 | 20,572 | 20,262 | 3.4 | % | ||||||||||||||||||
| Pharmaceuticals | ||||||||||||||||||||||
| Foundation Consumer Brands | First lien senior secured revolving loan | 10.15% (L + 5.50%) | 2/12/2027 | - | - | - | 0.0 | % | ||||||||||||||
| First lien senior secured loan | 10.15% (L + 5.50%) | 2/12/2027 | 7,331 | 7,276 | 7,331 | 1.2 | % | |||||||||||||||
| 7,331 | 7,276 | 7,331 | 1.2 | % | ||||||||||||||||||
See accompanying notes to consolidated financial statements.
F-15
Kayne Anderson BDC, Inc.
Consolidated Schedule of Investments
As of December 31, 2022
(amounts in 000’s)
| Maturity | Principal / | Amortized | Fair | Percentage | ||||||||||||||||||
| Portfolio Company(1) | Investment | Interest Rate | Date | Par | Cost(2)(3) | Value | of Net Assets | |||||||||||||||
| Professional services | ||||||||||||||||||||||
| 4 Over International, LLC | First lien senior secured loan | 10.73% (L + 6.00%) | 12/7/2023 | 24,326 | 24,013 | 24,205 | 4.1 | % | ||||||||||||||
| DISA Holdings Corp. (DISA) | First lien senior secured delayed draw loan | 9.73% (S + 5.50%) | 9/9/2028 | 2,443 | 2,283 | 2,430 | 0.4 | % | ||||||||||||||
| First lien senior secured revolving loan | 9.82% (S + 5.50%) | 9/9/2028 | 56 | 1 | 56 | 0.0 | % | |||||||||||||||
| First lien senior secured loan | 9.72% (S + 5.50%) | 9/9/2028 | 22,401 | 21,741 | 22,289 | 3.8 | % | |||||||||||||||
| Universal Marine Medical Supply International, LLC (Unimed) | First lien senior secured revolving loan | 12.14% (S + 7.50%) | 12/5/2027 | 509 | 446 | 509 | 0.1 | % | ||||||||||||||
| First lien senior secured loan | 12.10% (S + 7.50%) | 12/5/2027 | 14,756 | 14,395 | 14,756 | 2.5 | % | |||||||||||||||
| 64,491 | 62,879 | 64,245 | 10.9 | % | ||||||||||||||||||
| Software | ||||||||||||||||||||||
| AIDC Intermediate Co 2, LLC (Peak Technologies) | First lien senior secured loan | 10.44% (S + 6.25%) | 7/22/2027 | 35,000 | 33,835 | 35,000 | 5.9 | % | ||||||||||||||
| 35,000 | 33,835 | 35,000 | 5.9 | % | ||||||||||||||||||
| Specialty retail | ||||||||||||||||||||||
| Sundance Holdings Group, LLC (6) | First lien senior secured loan | 10.73% (L + 6.00%) | 5/1/2024 | 8,743 | 8,548 | 8,656 | 1.5 | % | ||||||||||||||
| 8,743 | 8,548 | 8,656 | 1.5 | % | ||||||||||||||||||
| Textiles, apparel & luxury goods | ||||||||||||||||||||||
| American Soccer Company, Incorporated (SCORE) | First lien senior secured revolving loan | 11.91% (S + 7.25%) | 7/20/2027 | 1,892 | 1,795 | 1,892 | 0.3 | % | ||||||||||||||
| First lien senior secured loan | 11.98% (S + 7.25%) | 7/20/2027 | 30,119 | 29,478 | 30,119 | 5.1 | % | |||||||||||||||
| BEL USA, LLC | First lien senior secured loan | 10.43% (S + 6.00%) | 2/2/2025 | 7,006 | 6,937 | 6,936 | 1.2 | % | ||||||||||||||
| YS Garments, LLC | First lien senior secured loan | 9.51% (L + 5.50%) | 8/9/2024 | 7,706 | 7,608 | 7,706 | 1.3 | % | ||||||||||||||
| 46,723 | 45,818 | 46,653 | 7.9 | % | ||||||||||||||||||
| Trading companies & distributors | ||||||||||||||||||||||
| BCDI Meteor Acquisition, LLC (Meteor) | First lien senior secured loan | 11.66% (S + 7.00%) | 6/29/2028 | 16,420 | 16,010 | 16,420 | 2.8 | % | ||||||||||||||
| Broder Bros., Co. | First lien senior secured loan | 10.73% (L + 6.00%) | 12/4/2025 | 4,763 | 4,456 | 4,763 | 0.8 | % | ||||||||||||||
| CGI Automated Manufacturing, LLC | First lien senior secured delayed draw loan | 11.34% (S + 6.50%) | 12/17/2026 | 3,710 | 3,566 | 3,710 | 0.6 | % | ||||||||||||||
| First lien senior secured loan | 11.34% (S + 6.50%) | 12/17/2026 | 27,896 | 26,809 | 27,896 | 4.7 | % | |||||||||||||||
| First lien senior secured revolving loan | 11.34% (S + 6.50%) | 12/17/2026 | - | - | - | 0.0 | % | |||||||||||||||
| EIS Legacy, LLC | First lien senior secured delayed draw loan | 9.73% (L + 5.00%) | 5/1/2023 | - | - | - | 0.0 | % | ||||||||||||||
| First lien senior secured revolving loan | 9.73% (L + 5.00%) | 11/1/2027 | - | - | - | 0.0 | % | |||||||||||||||
| First lien senior secured loan | 9.73% (L + 5.00%) | 11/1/2027 | 18,277 | 17,885 | 18,140 | 3.1 | % | |||||||||||||||
| Genuine Cable Group, LLC | First lien senior secured loan | 10.17% (S + 5.75%) | 11/1/2026 | 34,912 | 33,732 | 34,476 | 5.8 | % | ||||||||||||||
| I.D. Images Acquisition, LLC | First lien senior secured loan | 10.98% (S + 6.25%) | 7/30/2026 | 15,415 | 15,236 | 15,415 | 2.6 | % | ||||||||||||||
| First lien senior secured loan | 10.67% (S + 6.25%) | 7/30/2026 | 4,743 | 4,651 | 4,743 | 0.8 | % | |||||||||||||||
| First lien senior secured delayed draw loan | 10.98% (S + 6.25%) | 7/30/2026 | 2,608 | 2,587 | 2,608 | 0.4 | % | |||||||||||||||
| First lien senior secured revolving loan | 10.67% (S + 6.25%) | 7/30/2026 | 596 | 567 | 596 | 0.1 | % | |||||||||||||||
| Refrigeration Sales Corp. | First lien senior secured loan | 11.26% (L + 6.50%) | 6/22/2026 | 6,876 | 6,789 | 6,876 | 1.2 | % | ||||||||||||||
| United Safety & Survivability Corporation (USSC) | First lien senior secured delayed draw loan | 11.41% (S + 6.75%) | 9/30/2027 | 670 | 628 | 670 | 0.1 | % | ||||||||||||||
| First lien senior secured revolving loan | 10.88% (S + 6.25%) | 9/30/2027 | 1,075 | 1,051 | 1,075 | 0.2 | % | |||||||||||||||
| First lien senior secured loan | 11.48% (S + 6.75%) | 9/30/2027 | 12,563 | 12,332 | 12,563 | 2.1 | % | |||||||||||||||
| 150,524 | 146,299 | 149,951 | 25.3 | % | ||||||||||||||||||
| Wireless telecommunication services | ||||||||||||||||||||||
| Centerline Communications, LLC | First lien senior secured loan | 9.93% (S + 5.50%) | 8/10/2027 | 1,031 | 1,000 | 1,026 | 0.2 | % | ||||||||||||||
| First lien senior secured delayed draw loan | 10.06% (S + 5.50%) | 8/10/2027 | 7,116 | 6,999 | 7,080 | 1.2 | % | |||||||||||||||
| First lien senior secured delayed draw loan | 9.93% (S + 5.50%) | 8/10/2027 | 6,265 | 6,148 | 6,233 | 1.1 | % | |||||||||||||||
| First lien senior secured revolving loan | 10.06% (S + 5.50%) | 8/10/2027 | - | - | - | 0.0 | % | |||||||||||||||
| First lien senior secured loan | 10.06% (S + 5.50%) | 8/10/2027 | 15,098 | 14,819 | 15,022 | 2.5 | % | |||||||||||||||
| 29,510 | 28,966 | 29,361 | 5.0 | % | ||||||||||||||||||
| Total Private Credit Debt Investments | 1,165,969 | 1,141,538 | 1,157,971 | 195.6 | % | |||||||||||||||||
See accompanying notes to consolidated financial statements.
F-16
Kayne Anderson BDC, Inc.
Consolidated Schedule of Investments
As of December 31, 2022
(amounts in 000’s)
| Number of Units |
Cost | Fair Value |
Percentage of Net Assets |
|||||||||||||
| Equity Investments | ||||||||||||||||
| Auto components | ||||||||||||||||
| Vehicle Accessories, Inc. - Class A common (8) | 128.250 | - | 80 | 0.0 | % | |||||||||||
| Vehicle Accessories, Inc. - preferred (8) | 250.000 | 250 | 268 | 0.1 | % | |||||||||||
| 378.250 | 250 | 348 | 0.1 | % | ||||||||||||
| Commercial services & supplies | ||||||||||||||||
| American Equipment Holdings LLC (9) | 250.000 | 250 | 248 | 0.0 | % | |||||||||||
| BLP Buyer, Inc. (Bishop Lifting Products) - Class A common (10) | 500.000 | 500 | 560 | 0.1 | % | |||||||||||
| 750.000 | 750 | 808 | 0.1 | % | ||||||||||||
| Food products | ||||||||||||||||
| BC CS 2, L.P. (Cuisine Solutions) (5) | 2,000.000 | 2,000 | 2,220 | 0.4 | % | |||||||||||
| IF&P Foods, LLC (FreshEdge) – Class A common (9) | 0.750 | 750 | 745 | 0.1 | % | |||||||||||
| IF&P Foods, LLC (FreshEdge) – Class B common (9) | 0.750 | - | - | 0.0 | % | |||||||||||
| Gulf Pacific Holdings, LLC - Class A common (9) | 0.250 | 250 | 278 | 0.0 | % | |||||||||||
| Gulf Pacific Holdings, LLC - Class C common (9) | 0.250 | - | - | 0.0 | % | |||||||||||
| Siegel Parent, LLC (11) | 0.250 | 250 | 496 | 0.1 | % | |||||||||||
| 2,002.250 | 3,250 | 3,739 | 0.6 | % | ||||||||||||
| Healthcare equipment & supplies | ||||||||||||||||
| LSL Industries, LLC (LSL Healthcare) (9) | 7.500 | 750 | 745 | 0.1 | % | |||||||||||
| 7.500 | 750 | 745 | 0.1 | % | ||||||||||||
| IT services | ||||||||||||||||
| Domain Information Services Inc. (Integris) | 250.000 | 250 | 250 | 0.0 | % | |||||||||||
| 250.000 | 250 | 250 | 0.0 | % | ||||||||||||
| Textiles, apparel & luxury goods | ||||||||||||||||
| American Soccer Company, Incorporated (SCORE) (11) | 1,000.000 | 1,000 | 1,258 | 0.2 | % | |||||||||||
| 1,000.000 | 1,000 | 1,258 | 0.2 | % | ||||||||||||
| Total Private Equity Investments | 4,388.000 | 6,250 | 7,148 | 1.1 | % | |||||||||||
| Total Private Investments | 1,147,788 | 1,165,119 | 196.7 | % | ||||||||||||
| Number of | Fair | Percentage | ||||||||||||||
| Shares | Cost | Value | of Net Assets | |||||||||||||
| Short-Term Investments | ||||||||||||||||
| First American Treasury Obligations Fund - Institutional Class Z, 4.16% (12) | 9,847 | 9,847 | 9,847 | 1.7 | % | |||||||||||
| Total Short-Term Investments | 9,847 | 9,847 | 9,847 | 1.7 | % | |||||||||||
| Total Investments | $ | 1,157,635 | $ | 1,174,966 | 198.4 | % | ||||||||||
| Liabilities in Excess of Other Assets | (582,925 | ) | (98.4 | )% | ||||||||||||
| Net Assets | $ | 592,041 | 100.0 | % | ||||||||||||
| (1) | As of December 31, 2022, all investments are non-controlled, non-affiliated investments. Non-controlled, non-affiliated investments are defined as investments in which the Company owns less than 5% of the portfolio company’s outstanding voting securities and does not have the power to exercise control over the management or policies of such portfolio company. |
| (2) | The amortized cost represents the original cost adjusted for the amortization of discounts and premiums, as applicable, on debt investments using the effective interest method. |
| (3) | As of December 31, 2022, the tax cost of the Company’s investments approximates their amortized cost. |
See accompanying notes to consolidated financial statements.
F-17
Kayne Anderson BDC, Inc.
Consolidated Schedule of Investments
As of December 31, 2022
(amounts in 000’s)
| (4) | Loan contains a variable rate structure, that may be subject to an interest rate floor. Variable rate loans bear interest at a rate that may be determined by reference to either the London Interbank Offered Rate (“LIBOR” or “L”) (which can include one-, two-, three- or six-month LIBOR), the Secured Overnight Funding Rate (“SOFR” or “S”) (which can include one-, three- or six-month SOFR), or an alternate base rate (which can include the Federal Funds Effective Rate or the Prime Rate or “P”). |
| (5) | Non-qualifying investment as defined by Section 55(a) of the Investment Company Act of 1940. The Company may not acquire any non-qualifying asset unless, at the time of acquisition, qualifying assets represent at least 70% of the Company’s total assets. As of December 31, 2022, 3.8% of the Company’s total assets were in non-qualifying investments. |
| (6) | The Company may be entitled to receive additional interest as a result of an arrangement with other lenders in the syndication. In exchange for the higher interest rate, the “last-out” portion is at a greater risk of loss. Certain lenders represent a “first out” portion of the investment and have priority to the “last-out” portion with respect to payments of principal and interest. |
| (7) | On December 5, 2022, the Company funded a $6,254 first lien senior secured loan in Light Wave Dental Management LLC. The loan has an annual interest rate of 30% with a minimum of 1.3x MOIC (multiple on invested capital) if the loan is repaid prior to June 6, 2023 with further increases above 1.3x thereafter. The interest and the prepayment premium are payable to the Company upon a triggering event or maturity in September 2023. |
| (8) | The Company owns 0.19% of the common equity and 0.43% of the preferred equity of Vehicle Accessories, Inc. |
| (9) | The Company owns 71% of a pass-through, taxable limited liability company, KSCF IV Equity Aggregator Blocker, LLC (the “Aggregator Blocker”), which holds the Company’s equity investments in American Equipment Holdings LLC, Gulf Pacific Holdings, LLC, IF&P Foods, LLC (FreshEdge) and LSL Industries, LLC (LSL Healthcare). Through the Company’s ownership of the Aggregator Blocker, the Company owns the respective units of each company listed above in the Schedule of Investments. |
| (10) | The Company owns 0.53% of the common equity BLP Buyer, Inc. (Bishop Lifting Products). |
| (11) | The Company owns 40% of a pass-through limited liability company, KSCF IV Equity Aggregator, LLC (the “Aggregator”), which holds the Company’s equity investments in Siegel Parent, LLC and American Soccer Company, Incorporated (SCORE). The Aggregator’s ownership of Siegel Parent, LLC is 1.1442%. Through the Company’s ownership of the Aggregator, the Company owns the respective units of each company listed above in the Schedule of Investments. |
| (12) | The indicated rate is the yield as of December 31, 2022. |
See accompanying notes to consolidated financial statements.
F-18
Kayne Anderson BDC, Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
Note 1. Organization
Organization
Kayne Anderson BDC, Inc. (the “Company”) is an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for U.S. federal income tax purposes, the Company intends to qualify as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”).
The Company was formed as a Delaware corporation to make investments in middle-market companies and commenced operations on February 5, 2021.
The Company is managed by KA Credit Advisors, LLC (the “Advisor”), an indirect controlled subsidiary of Kayne Anderson Capital Advisors, L.P. (“Kayne Anderson”), a prominent alternative investment management firm. The Advisor is registered with the United States Securities and Exchange Commission (the “SEC”) under the Investment Advisory Act of 1940, as amended. Subject to the overall supervision of the Company’s board of directors (the “Board”), the Advisor is responsible for originating prospective investments, conducting research and due diligence investigations on potential investments, analyzing investment opportunities, negotiating and structuring investments, determining the value of the investments and monitoring its investments and portfolio companies on an ongoing basis. The Board consists of seven directors, four of whom are independent.
The Company’s investment objective is to generate current income and, to a lesser extent, capital appreciation primarily through debt investments in middle-market companies.
As of December 31, 2023, the Company has entered into subscription agreements with investors for an aggregate capital commitment of $1,046,928 to purchase shares of the Company’s common stock. On December 5, 2023, the Company completed its final close of subscription agreements with investors.
The Company conducts private offerings of its Common Stock to investors in reliance on exemptions from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). At the closing of any private offering, each investor will make a capital commitment (a “Capital Commitment”) to purchase shares of its common stock pursuant to a subscription agreement entered into with the Company. Investors will be required to fund drawdowns to purchase shares of common stock up to the amount of their respective Capital Commitments each time the Company delivers a notice to the investors. Following the initial closing of the private offering (the “Initial Closing”) on February 5, 2021 and prior to any Liquidity Event (as defined below), the Advisor may, in its sole discretion, permit additional closings of the private offering. A “Liquidity Event” is defined as (a) an initial public offering of shares of common stock (the “Initial Public Offering”) or the listing of shares of common stock on an exchange (together with the Initial Public Offering, an “Exchange Listing”), (b) the sale of the Company or (c) a disposition of the Company’s investments and distribution of the net proceeds (after repayment of borrowings under credit facilities and issuances of senior unsecured notes) to the Company’s investors.
F-19
Kayne Anderson BDC,
Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
Note 2. Significant Accounting Policies
A. Basis of Presentation—the accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). The Company is an investment company and follows accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 946 — “Financial Services — Investment Companies.” In the opinion of management, all adjustments, which are of a normal recurring nature, considered necessary for the fair statement of the consolidated financial statements for the periods presented, have been included.
B. Consolidation—As provided under Regulation S-X and ASC Topic 946 – “Financial Services – Investment Companies”, the Company will generally not consolidate its investment in a company other than a wholly-owned investment company or controlled operating company whose business consists of providing services to the Company.
Accordingly, the Company consolidated the accounts of the Company’s wholly-owned subsidiaries, Kayne Anderson BDC Financing, LLC, (“KABDCF”); Kayne Anderson BDC Financing II, LLC (“KABDCF II”); KABDC Corp, LLC and KABDC Corp II, LLC in its consolidated financial statements. All significant intercompany balances and transactions have been eliminated in consolidation. KABDC Corp, LLC and KABDC Corp II, LLC are Delaware LLCs that have elected to be treated as corporations for U.S. tax purposes and were formed to facilitate compliance with the requirements to be treated as a RIC under the Code by holding (directly or indirectly through a subsidiary) equity or equity related investments in portfolio companies organized as limited liability companies or limited partnerships.
C. Use of Estimates—the preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the period. Actual results could differ materially from those estimates.
D. Cash and Cash Equivalents—cash and cash equivalents include short-term, liquid investments with an original maturity of three months or less and include money market fund accounts. Cash equivalents, which are the Company’s investments in money market fund accounts, are presented on the Company’s consolidated schedule of investments, and within investments on the Company’s consolidated statement of assets and liabilities.
E. Investment Valuation, Fair Value—the Company conducts the valuation of its investments consistent with GAAP and the 1940 Act. The Company’s investments will be valued no less frequently than quarterly, in accordance with the terms of Topic 820 of the Financial Accounting Standards Board’s Accounting Standards Codification, Fair Value Measurement and Disclosures (“ASC 820”).
Pursuant to Rule 2a-5 under the 1940 Act, the Board of Directors has designated the Advisor as the “valuation designee” to perform fair value determinations of the Company’s portfolio holdings, subject to oversight by and periodic reporting to the Board. The valuation designee performs fair valuation of the Company’s portfolio holdings in accordance with the Advisor’s Valuation Program, as approved by the Board.
Traded Investments (Level 1 or Level 2)
Investments for which market quotations are readily available will typically be valued at those market quotations. Traded investments such as corporate bonds, preferred stock, bank notes, broadly syndicated loans or loan participations are valued by using the bid price provided by an independent pricing service, by an independent broker, the agent bank, syndicate bank or principal market maker. When price quotes for investments are not available, or such prices are stale or do not represent fair value in the judgment of the Company’s Advisor, fair market value will be determined using the Advisor’s valuation process for investments that are privately issued or otherwise restricted as to resale.
F-20
Kayne Anderson BDC,
Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
The Company may also invest, to a lesser extent, in equity securities purchased in conjunction with debt investments. While the Company anticipates these equity securities to be issued by privately held companies, the Company may hold equity securities that are publicly traded. Equity securities listed on any exchange other than the NASDAQ Stock Market, Inc. (“NASDAQ”) are valued, except as indicated below, at the last sale price on the business day as of which such value is being determined. If there has been no sale on such day, the securities are valued at the mean of the most recent bid and ask prices on such day. Securities admitted to trade on the NASDAQ are valued at the NASDAQ official closing price. Equity securities traded on more than one securities exchange are valued at the last sale price on the business day as of which such value is being determined at the close of the exchange representing the principal market for such securities. Equity securities traded in the over-the-counter market, but excluding securities admitted to trading on the NASDAQ, are valued at the closing bid prices.
Non-Traded Investments (Level 3)
Investments that are privately issued or otherwise restricted as to resale, as well as any security for which (a) reliable market quotations are not available in the judgment of the Company’s Advisor, or (b) the independent pricing service or independent broker does not provide prices or provides a price that in the judgment of the Company’s Advisor is stale or does not represent fair value, shall each be valued in a manner that most fairly reflects fair value of the security on the valuation date. The Company expects that a significant majority of its investments will be Level 3 investments. Unless otherwise determined by the Advisor, the following valuation process is used for the Company’s Level 3 investments:
| ● | Valuation Designee. The applicable investments will be valued no less frequently than quarterly by the Advisor, with new investments valued at the time such investment was made. The value of each Level 3 investment will be initially reviewed by the persons responsible for such portfolio company or investment. The Advisor will use a standardized template designed to approximate fair market value based on observable market inputs, updated credit statistics and unobservable inputs to determine a preliminary value. The Advisor will specify the titles of the persons responsible for determining the fair value of Company investments, including by specifying the particular functions for which they are responsible, and will reasonably segregate fair value determinations from the portfolio management of the Company such that the portfolio manager(s) may not determine, or effectively determine by exerting substantial influence on, the fair values ascribed to portfolio investments. |
| ● | Valuation Firm. Quarterly, a third-party valuation firm engaged by the Advisor reviews the valuation methodologies and calculations employed for each of the Company’s investments that the Advisor has placed on the “watch list” and approximately 25% of the Company’s remaining investments. The third-party valuation firm will review and independently value all of the Level 3 investments at least once per year, on a rolling twelve-month basis. The quarterly report issued by the third-party valuation firm will provide positive assurance on the fair values of the investments reviewed. |
| ● | Oversight. The Board has appointed the Advisor as the valuation designee for the Company for purposes of making determinations of fair value as permitted by Rule 2a-5 under the 1940 Act. The Audit Committee shall aid the Board in overseeing the Advisor’s fair valuation of securities that are not publicly traded or for which current market values are not readily available. The Audit Committee shall meet quarterly to review the fair value determinations, processes and written reports of the Advisor as part of the Board’s oversight responsibilities. |
Determination of fair value involves subjective judgments and estimates. Accordingly, the notes to the Company’s financial statements will express the uncertainty with respect to the possible effect of such valuations, and any change in such valuations, on the Company’s financial statements.
F. Interest Income Recognition— Interest income is recorded on an accrual basis and includes the accretion of discounts, amortization of premiums and payment-in-kind (“PIK”) interest. Discounts from and premiums to par value on investments purchased are accreted/amortized into interest income over the life of the respective security using the effective yield method. To the extent loans contain PIK provisions, PIK interest, computed at the contractual rate specified in each applicable agreement, is accrued and recorded as interest income and added to the principal balance of the loan. PIK interest income added to the principal balance is generally collected upon repayment of the outstanding principal. The Company does not accrue PIK interest if, in the opinion of the Advisor, the portfolio company valuation indicates that the PIK interest is not likely to be collectible. If the Company believes PIK is not expected to be realized, the investment generating PIK will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest is generally reversed through PIK interest income. Previously capitalized PIK interest is not reversed when an investment is placed on non-accrual status. To maintain the Company’s status as a RIC, this non-cash source of income must be paid out to stockholders in the form of dividends for the year the income was earned, even though the Company has not yet collected the cash. The amortized cost of investments represents the original cost adjusted for any accretion of discounts, amortization of premiums and PIK interest. For years ended December 31, 2023, 2022 and 2021, the Company had $1,652, $151 and $173, respectively, of PIK interest included in interest income, which represents 1.0%, 0.2% and 0.9%, respectively, of aggregate interest income.
F-21
Kayne Anderson BDC,
Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
Loans are generally placed on non-accrual status when it has been determined that a significant impairment in the financial condition and ability of the borrower to repay principal and interest has occurred and is expected to continue such that it is probable the collectability of full amount of the loan (principal and interest) is doubtful. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. If cash payments are received subsequent to a loan being placed on non-accrual status, these payments will first be applied to previously accrued but uncollected interest, then to recover the principal. Additionally, any original issue discount and market discount are no longer accreted to interest income as of the date the loan is placed on non-accrual status. Non-accrual loans are restored to accrual status when past due principal and interest are paid or there is no longer a reasonable doubt that such principal or interest will be collected in full and, in the Company’s judgment, principal and interest are likely to remain current. The Company may make exceptions to this policy if the loan has sufficient collateral value (i.e., typically measured as enterprise value of the portfolio company) or is in the process of collection. As of December 31, 2023, the Company had one debt investment on non-accrual status, which represented 0.4% and 0.4% of total debt investments at cost and fair value, respectively. As of December 31, 2022, the Company did not have any debt investments in portfolio companies on non-accrual status.
G. Debt Issuance Costs—Costs incurred by the Company related to the issuance of its debt (credit facilities) are capitalized and amortized over the period the debt is outstanding. The Company has classified the costs incurred to issue its credit facilities as a deduction from the carrying value of the credit facilities on the Statement of Assets and Liabilities. For the purpose of calculating the Company’s asset coverage ratios pursuant to the 1940 Act, deferred issuance costs are not deducted from the carrying value of debt or preferred stock.
H. Dividends to Common Stockholders—Distributions to common stockholders are recorded on the record date. The amount to be paid out as a dividend is determined by the Company’s board of directors each quarter and is generally based upon the earnings estimated by management and considers the level of undistributed taxable income carried forward from the prior year for distribution in the current year. Net realized capital gains, if any, are generally distributed, although the Company may decide to retain such capital gains for investment.
I. Organizational Costs—organizational expenses include costs and expenses relating to the formation and organization of the Company. The Company has reimbursed the Advisor for these costs which are expensed as incurred.
J. Offering Costs—offering costs include costs and expenses incurred in connection with the offering of the Company’s common stock. These initial costs were capitalized as deferred offering expenses and included in prepaid expenses and other assets on the Statement of Assets and Liabilities. These costs were amortized over a twelve-month period beginning with the commencement of operations. These expenses consist primarily of legal fees and other costs incurred in connection with the Company’s share offerings, the preparation of the Company’s registration statement and registration fees. The Company reimbursed the Advisor for these costs.
K. Income Taxes—it is the Company’s intention to continue to be treated as and to qualify each year for special tax treatment afforded a RIC under the Code. As long as the Company meets certain requirements that govern its sources of income, diversification of assets and timely distribution of earnings to stockholders, the Company will not be subject to U.S. federal income tax.
The Company must pay distributions equal to 90% of its investment company taxable income (ordinary income and short-term capital gains) to qualify as a RIC and it must distribute all of its taxable income (ordinary income, short-term capital gains and long-term capital gains) to avoid federal income taxes. The Company will be subject to federal income tax on any undistributed portion of income. For purposes of the distribution test, the Company may elect to treat as paid on the last day of its taxable year all or part of any distributions that are declared after the end of its taxable year if such distributions are declared before the due date of its tax return, including any extensions.
F-22
Kayne Anderson BDC,
Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
All RICs are subject to a non-deductible 4% excise tax on income that is not distributed on a timely basis in accordance with the calendar year distribution requirements. To avoid the tax, the Company must distribute during each calendar year an amount at least equal to the sum of (i) 98% of its ordinary income for the calendar year, (ii) 98.2% of its net capital gains for the one-year period ending on December 31, the last day of our taxable year, and (iii) undistributed amounts from previous years on which the Company paid no U.S. federal income tax. A distribution will be treated as paid during the calendar year if it is paid during the calendar year or declared by the Company in October, November or December of such year, payable to stockholders of record on a date during such months and paid by the Company no later than January of the following year. Any such distributions paid during January of the following year will be deemed to be received by stockholders on December 31 of the year the distributions are declared, rather than when the distributions are actually received.
The Company evaluates tax positions taken or expected to be taken in the course of preparing its financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are reserved and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes are included in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof.
L. Commitments and Contingencies—in the normal course of business, the Company may enter into contracts that provide a variety of general indemnifications. Any exposure to the Company under these arrangements could involve future claims that may be made against the Company. Currently, no such claims exist or are expected to arise and, accordingly, the Company has not accrued any liability in connection with such indemnifications.
Note 3. Agreements and Related Party Transactions
A. Administration Agreement—on February 5, 2021, the Company entered into an Administration Agreement with its Advisor, which serves as its Administrator and will provide or oversee the performance of its required administrative services and professional services rendered by others, which will include (but are not limited to), accounting, payment of our expenses, legal, compliance, operations, technology and investor relations, preparation and filing of its tax returns, and preparation of financial reports provided to its stockholders and filed with the SEC. On March 7, 2023, the Board approved a one-year renewal of the Administration Agreement through March 15, 2024.
The Company will reimburse the Administrator for its costs and expenses incurred in performing its obligations under the Administration Agreement, which may include, after completion of our Exchange Listing, its allocable portion of office facilities, overhead, and compensation paid to or compensatory distributions received by its officers (including our Chief Compliance Officer and Chief Financial Officer) and its respective staff who provide services to the Company. As the Company reimburses the Administrator for its expenses, the Company will indirectly bear such cost. The Administration Agreement may be terminated by either party with 60 days’ written notice.
B. Investment Advisory Agreement—on February 5, 2021, the Company entered into an Investment Advisory Agreement with its Advisor. Pursuant to the Investment Advisory Agreement with its Advisor, the Company will pay its Advisor a fee for investment advisory and management services consisting of two components—a base management fee and an incentive fee. The Advisor may, from time-to-time, grant waivers on the Company’s obligations, including waivers of the base management fee and/or incentive fee, under the Investment Advisory Agreement. The Investment Advisory Agreement may be terminated by either party with 60 days’ written notice. On March 7, 2023, the Board approved a one-year renewal of the Investment Advisory Agreement through March 15, 2024.
F-23
Kayne Anderson BDC,
Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
Base Management Fee
Prior to an Exchange Listing, the base management fee will be calculated at an annual rate of 0.90% of the fair market value of the Company’s investments including, in each case, assets purchased with borrowings under credit facilities and issuances of senior unsecured notes, but excluding cash, U.S. government securities and commercial paper instruments maturing within one year of purchase.
The base management fee is payable quarterly in arrears and calculated based on the average of the Company’s fair market value of investments, at the end of the two most recently completed calendar quarters, including, in each case, assets purchased with borrowings under credit facilities and issuances of senior unsecured notes, but excluding cash, U.S. government securities and commercial paper instruments maturing within one year of purchase. Base management fees for any partial quarter will be appropriately pro-rated.
For the years ended December 31, 2023, 2022 and 2021, the Company incurred base management fees of $11,433, $7,147 and $2,095, respectively.
Incentive Fee
The Company will also pay the Advisor an incentive fee. The incentive fee will consist of two parts—an incentive fee on income and an incentive fee on capital gains. Described in more detail below, these components of the incentive fee will be largely independent of each other with the result that one component may be payable even if the other is not.
Incentive Fee on Income
The incentive fee based on income (the “income incentive fee”) is determined and paid quarterly in arrears in cash (subject to the limitations described in “Payment of Incentive Fees” below). The Company’s quarterly pre-incentive fee net investment income must exceed a preferred return of 1.50% of the Company’s net asset value (“NAV”) at the end of the immediately preceding calendar quarter (6.0% annualized but not compounded) (the “Hurdle Amount”) in order for the Company to receive an income incentive fee. Prior to an Exchange Listing, the income incentive fee is calculated as 100% of our pre-incentive fee net investment income for the immediately preceding calendar quarter in excess of 1.50% of the Company’s NAV at the end of the immediately preceding calendar quarter until the Advisor has received 10% of the total pre-incentive fee net income for that calendar quarter and, for pre-incentive fee net investment income in excess of 1.6667%, 10% of all remaining pre-incentive fee net investment income for that quarter.
F-24
Kayne Anderson BDC,
Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
Incentive Fee on Capital Gains
Prior to an Exchange Listing, the incentive fee on capital gains (the “capital gains incentive fee”) will be calculated and payable in arrears in cash as 10% of the Company’s realized capital gains, if any, on a cumulative basis from formation through (a) the day before an Exchange Listing, (b) upon consummation of a Liquidity Event or (c) upon the termination of the Investment Advisory Agreement, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis. For the purpose of computing the capital gain incentive fee, the calculation methodology will look through derivative financial instruments or swaps as if the Company owned the reference assets directly.
Payment of Incentive Fees
Prior to an Exchange Listing, any incentive fees earned by the Advisor shall accrue as earned but only become payable in cash to the Advisor upon consummation of an Exchange Listing. To the extent the Company does not complete an Exchange Listing, the incentive fees will be payable to the Advisor (a) upon consummation of a sale of the Company or (b) once substantially all the proceeds from a Company Liquidation payable to the Company’s stockholders have been distributed to such stockholders.
For the year ended December 31, 2023, the Company incurred incentive fees on income of $9,433 and no incentive fees on capital gains. For the year ended December 31, 2022, the Company incurred incentive fees on income of $4,698 and no incentive fees on capital gains. For the year ended December 31, 2021, the Company incurred incentive fees on income of $31 and on realized gains $34 (total of $65).
Note 4. Investments
The following table presents the composition of the Company’s investment portfolio at amortized cost and fair value as of December 31, 2023 and 2022:
| December 31, 2023 | December 31, 2022 | |||||||||||||||
| Amortized | Fair | Amortized | Fair | |||||||||||||
| Cost | Value | Cost | Value | |||||||||||||
| First-lien senior secured debt investments | $ | 1,327,190 | $ | 1,346,174 | $ | 1,141,538 | $ | 1,157,971 | ||||||||
| Equity investments | 16,033 | 17,324 | 6,250 | 7,148 | ||||||||||||
| Short-term investments | 12,802 | 12,802 | 9,847 | 9,847 | ||||||||||||
| Total Investments | $ | 1,356,025 | $ | 1,376,300 | $ | 1,157,635 | $ | 1,174,966 | ||||||||
F-25
Kayne Anderson BDC, Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
As of December 31, 2023 and December 31, 2022, $68,578 and $45,901, respectively, of the Company’s total assets were non-qualifying assets, as defined by Section 55(a) of the 1940 Act.
The Company uses Global Industry Classification Standards (GICS), Level 3 – Industry, for classifying the industry groupings of its portfolio companies.
The industry composition of long-term investments based on fair value as of December 31, 2023 and 2022 was as follows:
| December 31, 2023 | December 31, 2022 | |||||||
| Trading companies & distributors | 15.3 | % | 12.9 | % | ||||
| Food products | 11.5 | % | 10.9 | % | ||||
| Commercial services & supplies | 9.4 | % | 11.9 | % | ||||
| Health care providers & services | 7.4 | % | 9.8 | % | ||||
| Containers & packaging | 7.2 | % | 4.5 | % | ||||
| Aerospace & defense | 6.3 | % | 4.1 | % | ||||
| Professional services | 4.5 | % | 5.5 | % | ||||
| IT services | 3.8 | % | 3.9 | % | ||||
| Machinery | 3.8 | % | 2.2 | % | ||||
| Leisure products | 3.3 | % | 2.3 | % | ||||
| Textiles, apparel & luxury goods | 3.3 | % | 4.1 | % | ||||
| Chemicals | 3.1 | % | 2.9 | % | ||||
| Personal care products | 3.0 | % | 1.7 | % | ||||
| Software | 2.5 | % | 3.0 | % | ||||
| Insurance | 2.2 | % | 1.3 | % | ||||
| Wireless telecommunication services | 2.1 | % | 2.5 | % | ||||
| Automobile components | 2.0 | % | 2.3 | % | ||||
| Building products | 2.0 | % | 3.4 | % | ||||
| Household durables | 1.5 | % | 1.8 | % | ||||
| Health care equipment & supplies | 1.5 | % | 1.8 | % | ||||
| Household products | 1.2 | % | 1.6 | % | ||||
| Biotechnology | 0.9 | % | 1.0 | % | ||||
| Specialty retail | 0.7 | % | 0.7 | % | ||||
| Capital markets | 0.6 | % | - | % | ||||
| Pharmaceuticals | 0.5 | % | 0.6 | % | ||||
| Diversified telecommunication services | 0.4 | % | 2.6 | % | ||||
| Electronic equipment, instruments & components | - | % | 0.3 | % | ||||
| Asset management & custody banks | - | % | 0.4 | % | ||||
| Total | 100.0 | % | 100.0 | % | ||||
F-26
Kayne Anderson BDC, Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
Note 5. Fair Value
The Fair Value Measurement Topic of the FASB Accounting Standards Codification (ASC 820) defines fair value as the price at which an orderly transaction to sell an asset or to transfer a liability would take place between market participants under current market conditions at the measurement date. As required by ASC 820, the Company has performed an analysis of all investments measured at fair value to determine the significance and character of all inputs to their fair value determination. Inputs are the assumptions, along with considerations of risk, that a market participant would use to value an asset or a liability. In general, observable inputs are based on market data that is readily available, regularly distributed and verifiable that the Company obtains from independent, third-party sources. Unobservable inputs are developed by the Company based on its own assumptions of how market participants would value an asset or a liability.
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value into the following three broad categories.
| Level 1 — Valuations based on quoted unadjusted prices for identical instruments in active markets traded on a national exchange to which the Company has access at the date of measurement. |
| Level 2 — Valuations based on quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Level 2 inputs are those in 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. |
| Level 3 — Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. Unobservable inputs are those inputs that reflect the Company’s own assumptions that market participants would use to price the asset or liability based on the best available information. |
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the determination of which category within the fair value hierarchy is appropriate for any given financial instrument is based on the lowest level of input that is significant to the fair value measurement. Assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the financial instrument.
F-27
Kayne Anderson BDC,
Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
The following tables present the fair value hierarchy of investments as of December 31, 2023 and December 31, 2022. Note that the valuation levels below are not necessarily an indication of the risk or liquidity associated with the underlying investment.
| Fair Value Hierarchy as of December 31, 2023 | ||||||||||||||||
| Investments: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| First-lien senior secured debt investments | $ | - | $ | - | $ | 1,346,174 | $ | 1,346,174 | ||||||||
| Equity investments | - | - | 17,324 | 17,324 | ||||||||||||
| Short-term investments | 12,802 | - | - | 12,802 | ||||||||||||
| Total Investments | $ | 12,802 | $ | - | $ | 1,363,498 | $ | 1,376,300 | ||||||||
| Fair Value Hierarchy as of December 31, 2022 | ||||||||||||||||
| Investments: | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
| First-lien senior secured debt investments | $ | - | $ | - | $ | 1,157,971 | $ | 1,157,971 | ||||||||
| Equity investments | - | - | 7,148 | 7,148 | ||||||||||||
| Short-term investments | 9,847 | - | - | 9,847 | ||||||||||||
| Total Investments | $ | 9,847 | $ | - | $ | 1,165,119 | $ | 1,174,966 | ||||||||
The following tables present changes in the fair value of investments for which Level 3 inputs were used to determine the fair value as of and for the years ended December 31, 2023 and 2022.
| For the year ended December 31, 2023 | First-lien senior secured debt investments | Private equity investments | Total | |||||||||
| Fair value, beginning of period | $ | 1,157,971 | $ | 7,148 | $ | 1,165,119 | ||||||
| Purchases of investments, including PIK, if any | 392,388 | 605 | 392,993 | |||||||||
| Proceeds from sales of investments and principal repayments | (196,649 | ) | - | (196,649 | ) | |||||||
| Net change in unrealized gain (loss) | 2,552 | 392 | 2,944 | |||||||||
| Net realized gain (loss) | (10,686 | ) | - | (10,686 | ) | |||||||
| Net accretion of discount on investments | 9,777 | - | 9,777 | |||||||||
| Other(1) | (9,179 | ) | 9,179 | - | ||||||||
| Transfers into (out of) Level 3 | - | - | - | |||||||||
| Fair value, end of period | $ | 1,346,174 | $ | 17,324 | $ | 1,363,498 | ||||||
| (1) | Reflects non-cash conversions. These transactions represent non-cash investing activities. |
| First-lien | Private | |||||||||||
| senior secured | equity | |||||||||||
| For the year ended December 31, 2022 | debt investments | investments | Total | |||||||||
| Fair value, beginning of period | $ | 578,195 | $ | 250 | $ | 578,445 | ||||||
| Purchases of investments | 712,387 | 6,000 | 718,387 | |||||||||
| Proceeds from sales of investments and principal repayments | (142,118 | ) | - | (142,118 | ) | |||||||
| Net change in unrealized gain (loss) | 4,604 | 898 | 5,502 | |||||||||
| Net realized gain (loss) | 84 | - | 84 | |||||||||
| Net accretion of discount on investments | 4,819 | - | 4,819 | |||||||||
| Transfers into (out of) Level 3 | - | - | - | |||||||||
| Fair value, end of period | $ | 1,157,971 | $ | 7,148 | $ | 1,165,119 | ||||||
F-28
Kayne Anderson BDC, Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
For the years ended December 31, 2023 and 2022, the Company did not recognize any transfers to or from Level 3. The increase in unrealized gain (loss) relates to investments that were held during the period. The Company includes these unrealized gains and losses on the Statement of Operations – Net Change in Unrealized Gains (Losses).
Valuation Techniques and Unobservable Inputs
Non-traded debt investments are typically valued using either a market yield analysis or an enterprise value analysis. For debt investments that are not considered to be credit impaired, the Advisor uses a market yield analysis to determine fair value. If the debt investment is considered to be credit impaired (which is determined by performing an enterprise value analysis), the Advisor will use the enterprise value analysis or a liquidation basis analysis to determine fair value.
To determine fair value using a market yield analysis, the Advisor discounts the contractual cash flows of each investment at an appropriate discount rate (the market yield). To determine the estimated market yield for its debt investments, the Advisor analyzes changes in the risk/reward (measured by yields and leverage) of middle market indices as compared to changes in risk/reward for the underlying investment and estimates the appropriate discount rate for such debt investment. In this context, the discount rate and the fair market value of the investment is impacted by the structure and pricing of the security relative to current market yields for similar investments in similar businesses as well as the financial performance of such business. In performing this analysis, the Advisor considers data sources including, but not limited to: (i) industry publications, such as S&P Global’s High-End Middle Market Lending Review; Thomson Reuter’s Refinitiv Middle Market Monthly Stats; CapitalIQ; Pitchbook News; The Lead Left, and other data sources; (ii) comparable investments reviewed or completed by affiliates of the Advisor, and (iii) information obtained and provided by the Advisor’s independent valuation managers.
To determine if a debt investment is credit impaired, the Advisor estimates the enterprise value of the business and compares such estimate to the outstanding indebtedness of such business. The Advisor utilizes the following valuation methodologies to determine the estimated enterprise value of the company: (i) analysis of valuations of publicly traded companies in a similar line of business (“public company comparable analysis”), (ii) analysis of valuations of M&A transaction valuations for companies in a similar line of business (“precedent transaction analysis”), (iii) discounted cash flows (“DCF analysis”) and (iv) other valuation methodologies.
F-29
Kayne Anderson BDC, Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
In determining the non-traded debt investment valuations, the following factors are considered, where relevant: the nature and realizable value of any collateral; the company’s ability to make interest payments, amortization payments (if any) and other fixed charges; call features, put features and other relevant terms of the debt security; the company’s historical and projected financial results; the markets in which the company does business; changes in the interest rate environment and the credit markets generally that may affect the price at which similar investments may be valued; and other relevant factors.
Equity investments in private companies are typically valued using one of or a combination of the following valuation techniques: (i) public company comparable analysis, (ii) precedent transaction analysis and (iii) DCF analysis.
Under all of these valuation techniques, the Advisor estimates operating results of the companies in which it invests, including earnings before interest expense, income tax expense, depreciation and amortization (“EBITDA”) and free cash flow. These estimates utilize unobservable inputs such as historical operating results, which may be unaudited, and projected operating results, which will be based on operating assumptions for such company. Investment performance data utilized will be the most recently available as of the measurement date which in many cases may reflect up to a one quarter lag in information. These estimates will be sensitive to changes in assumptions specific to such company as well as general assumptions for the industry. Other unobservable inputs utilized in the valuation techniques outlined above include: discounts for lack of marketability, selection of publicly traded companies, selection of similar precedent transactions, selected ranges for valuation multiples and expected required rates of return (discount rates).
Quantitative Table for Valuation Techniques
The following tables present quantitative information about the significant unobservable inputs of the Company’s Level 3 investments as of December 31, 2023 and December 31, 2022. The tables are not intended to be all-inclusive but instead capture the significant unobservable inputs relevant to the Advisor’s determination of fair value. The Company calculates weighted average, based on the value of the unobservable input of each investment relative to the fair value of the investment compared to the total fair value of all investments.
| As of December 31, 2023 | ||||||||||||||||
| Valuation | Unobservable | Weighted | ||||||||||||||
| Fair Value | Technique | Input | Range | Average | ||||||||||||
| First-lien senior secured debt investments | $ | 1,346,174 | Discounted cash flow analysis | Discount rate | 8.3% – 15.0 | % | 10.2 | % | ||||||||
| Preferred equity investment | 9,287 | Discounted cash flow analysis | Discount rate | 15.0 | % | 15.0 | % | |||||||||
| Other equity investments | 8,037 | Comparable Multiples | EV / EBITDA | 7.1 – 17.2 | 11.5 |
|||||||||||
| $ | 1,363,498 | |||||||||||||||
| As of December 31, 2022 | ||||||||||||||||
| Valuation | Unobservable | Weighted | ||||||||||||||
| Fair Value | Technique | Input | Range | Average | ||||||||||||
| First-lien senior secured debt investments | $ | 1,157,971 | Discounted cash flow analysis | Discount rate | 8.4% – 15.0 | % | 10.1 | % | ||||||||
| Equity investments | 1,988 | Precedent Transaction Analysis | Original Cost | 1.0 | 1.0 | |||||||||||
| 5,160 | Comparable Multiples | EV / EBITDA | 6.6 – 17.2 | 12.7 | ||||||||||||
| $ | 1,165,119 | |||||||||||||||
F-30
Kayne Anderson BDC, Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
Note 6. Debt
Subscription Credit Agreement
As of December 31, 2023, the Company had a $50,000 credit agreement (the “Subscription Credit Agreement”) with certain lenders party thereto. The Subscription Credit Agreement permits the Company to elect the commitment amount each quarter to borrow up to $50,000, subject to availability under the borrowing base which is calculated based on the unused capital commitments of the investors meeting various eligibility requirements. The interest rate under the Subscription Credit Agreement is equal to the Secured Overnight Funding Rate (“SOFR”) plus 2.25% (subject to a 0.275% SOFR floor). The Company is also required to pay a commitment fee of 0.25% per annum on any unused portion of the Subscription Credit Agreement. The Company also pays an extension fee of 0.075% per quarter on the elected commitment amount on the first day of each calendar quarter. The Subscription Credit Agreement will expire on December 31, 2024.
For the years ended December 31, 2023 and 2022, the average amount of borrowings outstanding under the Subscription Credit Agreement were $41,782 and $65,751, respectively, with a weighted average interest rate of 7.03% and 3.70%, respectively. As of December 31, 2023, the Company had $10,750 outstanding under the Subscription Credit Agreement at a weighted average interest rate of 7.35%.
Corporate Credit Facility
As of December 31, 2023, the Company had a senior secured revolving credit facility (the “Corporate Credit Facility”), that has a total commitment of $400,000. The Company entered into the Corporate Credit Facility on February 18, 2022. The Corporate Credit Facility’s commitment termination date and the final maturity date are February 18, 2026 and February 18, 2027, respectively. The Corporate Credit Facility also provides for a feature that allows the Company, under certain circumstances, to increase the overall size of the Corporate Credit Facility to a maximum of $550,000. The interest rate on the Corporate Credit Facility is equal to Term SOFR (a forward-looking rate based on SOFR futures) plus an applicable spread of 2.35% per annum or an “alternate base rate” (as defined in the agreements governing the Corporate Credit Facility) plus an applicable spread of 1.25%. The Company is also required to pay a commitment fee of 0.375% per annum on any unused portion of the Corporate Credit Facility.
Under the Corporate Credit Facility, the Company is required to comply with various covenants, reporting requirements and other customary requirements for similar revolving credit facilities, including, without limitation, covenants related to: (a) limitations on the incurrence of additional indebtedness and liens, (b) limitations on certain investments, (c) limitations on certain restricted payments, (d) maintaining a certain minimum stockholders’ equity, and (e) maintaining a ratio of total assets (less total liabilities not representing indebtedness) to total indebtedness of the Company and its consolidated subsidiaries of not less than 1.5:1.0. These covenants are subject to important limitations and exceptions that are described in the agreements governing the Corporate Credit Facility. Amounts available to borrow under the Corporate Credit Facility are subject to compliance with a borrowing base that applies different advance rates to different types of assets (based on their value as determined pursuant to the Corporate Credit Facility) that are pledged as collateral. The Corporate Credit Facility is secured by certain assets in the Company’s portfolio and excludes investments held by Kayne Anderson BDC Financing LLC (“KABDCF”) under the Revolving Funding Facility (as defined below).
For the years ended December 31, 2023 and 2022, the average amount of borrowings outstanding under the Corporate Credit Facility was $251,655 and $134,239, respectively, with a weighted average interest rate of 7.35% and 4.26%, respectively. As of December 31, 2023, the Company had $234,000 outstanding under the Corporate Credit Facility at a weighted average interest rate of 7.71%.
Revolving Funding Facility
As of December 31, 2023, the Company had a senior secured revolving funding facility (the “Revolving Funding Facility”), that has a total commitment of $455,000. The Company and KABDCF entered into the Revolving Funding Facility on February 18, 2022, and on June 29, 2023, amended the facility and increased the commitment amount from $350,000 to $455,000. The interest rate and all other terms remained unchanged. The Revolving Funding Facility is secured by all of the assets held by KABDCF and the Company has agreed that it will not grant or allow a lien on the membership interest of KABDCF. The end of the reinvestment period and the stated maturity date for the Revolving Funding Facility are February 18, 2025 and February 18, 2027, respectively. The interest rate on the Revolving Funding Facility is equal to daily SOFR plus 2.75% per annum. KABDCF is also required to pay a commitment fee of between 0.50% and 1.50% per annum depending on the size of the unused portion of the Revolving Funding Facility. Amounts available to borrow under the Revolving Funding Facility are subject to a borrowing base that applies different advance rates to different types of assets held by KABDCF and is subject to limitations with respect to the loans securing the Revolving Funding Facility, including restrictions on, loan size, industry concentration, payment frequency and status, as well as restrictions on portfolio company leverage, all of which may also affect the borrowing base and therefore amounts available to borrow. The Company and KABDCF are also required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. These covenants are subject to important limitations and exceptions that are described in the agreements governing the Revolving Funding Facility.
F-31
Kayne Anderson BDC, Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
For the years ended December 31, 2023 and 2022, the average amount of borrowings outstanding under the Revolving Funding Facility was $290,890 and $147,808, respectively, with a weighted average interest rate of 7.74% and 4.20%, respectively. As of December 31, 2023, the Company had $306,000 outstanding under the Revolving Funding Facility at a weighted average interest rate of 8.06 %.
Revolving Funding Facility II
On December 22, 2023, the Company and Kayne Anderson BDC Financing II, LLC (“KABDCF II”), a wholly-owned, special purpose financing subsidiary, entered into a new senior secured revolving credit facility (the “Revolving Funding Facility II”). The Revolving Funding Facility II has an initial commitment of $150,000 which, under certain circumstances, can be increased up to $500,000. The Revolving Funding Facility II is secured by all of the assets held by KABDCF II and the Company has agreed that it will not grant or allow a lien on the membership interest of KABDCF II. The end of the reinvestment period and the stated maturity date for the Revolving Funding Facility II are December 22, 2026, and December 22, 2028, respectively. The interest rate on the Revolving Funding Facility II is equal to 3-month term SOFR plus 2.70% per annum. KABDCF II is also required to pay a commitment fee of 0.50% between December 22, 2023 and September 22, 2024 and 0.75% thereafter on the unused portion of the Revolving Funding Facility II.
Amounts available to borrow under the Revolving Funding Facility II are subject to a borrowing base that has limitations with respect to the loans securing the Revolving Funding Facility II, including limitations on, loan size, payment frequency and status, sector concentrations, as well as restrictions on portfolio company leverage, all of which may also affect the borrowing base and therefore amounts available to borrow. The Company and KABDCF II are also required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. These covenants are subject to important limitations and exceptions that are described in the agreements governing the Revolving Funding Facility II.
For the period ended December 22, 2023 through December 31, 2023, the average amount of borrowings outstanding under the Revolving Funding Facility II was $70,000, with a weighted average interest rate of 8.07%. As of December 31, 2023, the Company had $70,000 outstanding under the Revolving Funding Facility II at a weighted average interest rate of 8.07 %.
Loan and Security Agreement
On February 18, 2022, the Company and KABDCF established two new credit facilities (described above) and fully repaid the $150,000 outstanding balance on the Loan and Security Agreement (the “LSA”), which was entered into by KABDCF on February 5, 2021. Advances under the LSA had an interest rate of LIBOR plus 4.25% (subject to a 1.00% LIBOR floor).
For the year ended December 31, 2022, the average amount of borrowings outstanding under the LSA were $20,384 with a weighted average interest rate of 5.25%.
Senior Unsecured Notes
On June 29, 2023, the Company completed a private placement of $75,000 of senior unsecured notes (the “Notes”). Net proceeds from the offering was used to refinance existing debt and for general corporate purposes.
F-32
Kayne Anderson BDC, Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
The table below sets forth a summary of the key terms of each series of Notes outstanding at December 31, 2023.
| Series | Principal Outstanding December 31, 2023 | Unamortized Issuance Costs | Estimated Fair Value December 31,
2023 | Fixed Interest Rate | ||||||||||||
| A | $ | 25,000 | $ | 276 | $ | 26,906 | 8.65 | % | ||||||||
| B | 50,000 | 575 | 54,173 | 8.74 | % | |||||||||||
| $ | 75,000 | $ | 851 | $ | 81,079 | |||||||||||
Holders of the Notes are entitled to receive cash interest payments semi-annually (on January 30 and July 30) at the fixed rate. As of December 31, 2023, the weighted average interest rate on the outstanding Notes was 8.71%.
As of December 31, 2023, the Notes were rated “BBB” by Kroll Bond Rating Agency (“KBRA”). The Company is required to maintain a current rating from one rating agency with respect to the Notes. In the event the Company does not maintain a current rating from a rating agency for a specified period of time or the credit rating on the Notes falls below “BBB-” (a “Below Investment Grade Event”), the interest rate per annum on the Notes will increase by 1.0% during the period the Notes are rated below “BBB-”. In the event the Company’s Secured Debt Ratio exceeds 60% (until June 29, 2024) or 55% (on or after June 29, 2024) (a “Secured Debt Ratio Event”), the interest rate per annum on the Notes will increase by 1.5% during the period the ratio is above stated percentage. If a Below Investment Grade Event and a Secured Debt Ratio Event is continuing at the same time the aggregate increase in interest rate per annum will not exceed 2.0%.
The Notes were issued in private placement offerings to institutional investors and are not listed on any exchange or automated quotation system. The Notes contain various covenants related to other indebtedness, liens and limits on the Company’s overall leverage. The Company must maintain a minimum amount of shareholder equity and the Company’s asset coverage ratio must be greater than 150% as of the last business day of each fiscal quarter. The Notes are redeemable in certain circumstances at the option of the Company and may be redeemed under certain circumstances to cure the asset coverage ratio covenant.
The Notes are unsecured obligations of the Company and, upon liquidation, dissolution or winding up of the Company, will rank: (1) senior to all of the Company’s outstanding common shares; (2) on parity with any unsecured creditors of the Company and any unsecured senior securities representing indebtedness of the Company; and (3) junior to any secured creditors of the Company.
At December 31, 2023, the Company was in compliance with all covenants under the Notes agreements.
Debt obligations consisted of the following as of December 31, 2023 and 2022.
| December 31, 2023 | ||||||||||||||||
| Aggregate Principal Committed | Outstanding Principal | Amount Available(1) | Net Carrying Value(2) | |||||||||||||
| Notes | $ | 75,000 | $ | 75,000 | $ | - | $ | 74,149 | ||||||||
| Corporate Credit Facility | 400,000 | 234,000 | 166,000 | 232,285 | ||||||||||||
| Revolving Funding Facility | 455,000 | 306,000 | 18,536 | 303,981 | ||||||||||||
| Revolving Funding Facility II | 150,000 | 70,000 | 9,716 | 68,195 | ||||||||||||
| Subscription Credit Agreement | 50,000 | 10,750 | 39,250 | 10,709 | ||||||||||||
| Total debt | $ | 1,130,000 | $ | 695,750 | $ | 233,502 | $ | 689,319 | ||||||||
| (1) | The amount available under the Company’s credit facilities reflects the assets held at KABDCF and KABDCF II and any limitations related to each borrowing base as of December 31, 2023. |
| (2) | The carrying value of the Notes, Corporate Credit Facility, Revolving Funding Facility, Revolving Funding Facility II and Subscription Credit Agreement are presented net of deferred financing costs totaling $6,431. |
F-33
Kayne Anderson BDC, Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
| December 31, 2022 | ||||||||||||||||
| Aggregate Principal Committed | Outstanding Principal | Amount Available(1) | Net Carrying Value(2) | |||||||||||||
| Corporate Credit Facility | $ | 400,000 | $ | 269,000 | $ | 131,000 | $ | 266,483 | ||||||||
| Revolving Funding Facility | 350,000 | 200,000 | 21,793 | 197,173 | ||||||||||||
| Subscription Credit Agreement | 125,000 | 108,000 | 17,000 | 107,935 | ||||||||||||
| Total debt | $ | 875,000 | $ | 577,000 | $ | 169,793 | $ | 571,591 | ||||||||
| (1) | The amount available under the Company’s credit facilities reflects the assets held at KABDCF and any limitations related to the borrowing base as of December 31, 2022. |
| (2) | The carrying value of the Corporate Credit Facility, Revolving Funding Facility, and Subscription Credit Agreement are presented net of deferred financing costs totaling $5,409. |
For the years ended December 31, 2023, 2022 and 2021, the components of interest expense were as follows:
| For the years ended | ||||||||||||
| December 31, 2023 | December 31, 2022 | December 31, 2021 | ||||||||||
| Interest expense | $ | 49,620 | $ | 18,170 | $ | 4,195 | ||||||
| Amortization of debt issuance costs | 2,694 | 2,122 | 260 | |||||||||
| Total interest expense | $ | 52,314 | $ | 20,292 | $ | 4,455 | ||||||
| Average interest rate | 8.4 | % | 5.5 | % | 5.4 | % | ||||||
| Average borrowings | $ | 624,464 | $ | 368,182 | $ | 91,355 | ||||||
F-34
Kayne Anderson BDC, Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
Note 7. Share Transactions
Common Stock Issuances
The following tables summarize the number of common stock shares issued and aggregate proceeds received from such issuances related to the Company’s capital call notices pursuant to subscription agreements with investors for the years ended December 31, 2023, 2022 and 2021. See Note 12 – Subsequent Events.
| For the year ended December 31, 2023 | ||||||||||||
| Offering | Aggregate | |||||||||||
| price per | Common stock | offering | ||||||||||
| Common stock issue date | share | shares issued | amount | |||||||||
| April 4, 2023 | $ | 16.61 | 3,010,942 | $ | 50,000 | |||||||
| August 8, 2023 | $ | 16.82 | 2,411,582 | 40,575 | ||||||||
| Total common stock issued | 5,422,524 | $ | 90,575 | |||||||||
| For the year ended December 31, 2022 | ||||||||||||
| Offering | Aggregate | |||||||||||
| price per | Common stock | offering | ||||||||||
| Common stock issue date | share | shares issued | amount | |||||||||
| January 24, 2022 | $ | 16.36 | 4,191,292 | $ | 68,582 | |||||||
| July 22, 2022 | $ | 16.30 | 7,666,830 | 125,000 | ||||||||
| October 31, 2022 | $ | 16.58 | 1,485,844 | 24,636 | ||||||||
| December 9, 2022 | $ | 16.89 | 2,961,068 | 50,000 | ||||||||
| Total common stock issued | 16,305,034 | $ | 268,218 | |||||||||
| For the year ended December 31, 2021 | ||||||||||||
| Offering | Aggregate | |||||||||||
| price per | Common stock | offering | ||||||||||
| Common stock issue date | share | shares issued | amount | |||||||||
| February 5, 2021 | $ | 15.00 | 5,666,667 | $ | 85,000 | |||||||
| April 23, 2021 | $ | 15.57 | 3,532,434 | 55,000 | ||||||||
| July 23, 2021 | $ | 15.72 | 2,862,595 | 45,000 | ||||||||
| October 28, 2021 | $ | 15.98 | 2,502,612 | 40,000 | ||||||||
| December 2, 2021 | $ | 16.31 | 4,568,314 | 74,501 | ||||||||
| Total common stock issued | $ | 19,132,622 | $ | 299,501 | ||||||||
F-35
Kayne Anderson BDC, Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
On December 5, 2023, the Company completed its final close of subscription agreements with investors. As of December 31, 2023, the Company had subscription agreements with investors for an aggregate capital commitment of $1,046,928 to purchase shares of common stock. Of this amount, the Company had $388,634 of undrawn commitments at December 31, 2023. See Note 12 – Subsequent Events.
Dividends and Dividend Reinvestment
The following tables summarize the dividends declared and payable by the Company for the years ended December 31, 2023, 2022 and 2021. See Note 12 – Subsequent Events.
| For the year ended December 31, 2023 | ||||||||
| Dividend | ||||||||
| Dividend declaration date | Dividend record date | Dividend payment date | per share | |||||
| March 7, 2023 | March 31, 2023 | April 14, 2023 | $ | 0.47 | ||||
| May 10, 2023 | June 30, 2023 | July 14, 2023 | 0.53 | |||||
| August 10, 2023 | September 29, 2023 | October 13, 2023 | 0.53 | |||||
| November 9, 2023 | December 29, 2023 | January 16, 2024 | 0.53 | |||||
| Total dividends declared | $ | 2.06 | ||||||
| For the year ended December 31, 2022 | ||||||||
| Dividend | ||||||||
| Dividend declaration date | Dividend record date | Dividend payment date | per share | |||||
| April 19, 2022 | April 20, 2022 | April 26, 2022 | $ | 0.26 | ||||
| July 19, 2022 | July 20, 2022 | July 27, 2022 | 0.30 | |||||
| October 18, 2022 | October 13, 2022 | October 25, 2022 | 0.35 | |||||
| December 16, 2022 | December 29, 2022 | January 13, 2023 | 0.43 | |||||
| Total dividends declared | $ | 1.34 | ||||||
| For the year ended December 31, 2021 | ||||||||
| Dividend declaration date | Dividend record date | Dividend payment date | Dividend per share | |||||
| April 23, 2021 | April 20, 2021 | May 14, 2021 | $ | 0.15 | ||||
| July 19, 2021 | July 20, 2021 | July 27, 2021 | 0.22 | |||||
| October 18, 2021 | October 22, 2021 | November 2, 2021 | 0.25 | |||||
| December 2, 2021 | December 29, 2021 | January 18, 2022 | 0.24 | |||||
| Total dividends declared | $ | 0.86 | ||||||
F-36
Kayne Anderson BDC, Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
The following tables summarize the amounts received and shares of common stock issued to shareholders pursuant to the Company’s dividend reinvestment plan (“DRIP”) for the years ended December 31, 2023, 2022 and 2021. See Note 12 - Subsequent Events.
| For the year ended December 31, 2023 | ||||||||||
| DRIP | ||||||||||
| shares | DRIP | |||||||||
| Dividend record date | Dividend payment date | issued | value | |||||||
| December 29, 2022 | January 13, 2023 | 57,860 | $ | 955 | ||||||
| March 31, 2023 | April 14, 2023 | 65,733 | 1,089 | |||||||
| June 30, 2023 | July 14, 2023 | 81,527 | 1,352 | |||||||
| September 29, 2023 | October 13, 2023 | 96,731 | 1,586 | |||||||
| 301,851 | $ | 4,982 | ||||||||
For the dividend declared on November 9, 2023 and paid on January 16, 2024, there were 95,791 shares issued with a DRIP value of $1,573. These shares are excluded from the table above, as the DRIP shares were issued after December 31, 2023.
| For the year ended December 31, 2022 | ||||||||||
| DRIP | ||||||||||
| shares | DRIP | |||||||||
| Dividend record date | Dividend payment date | issued | value | |||||||
| December 29, 2021 | January 18, 2022 | 55,590 | $ | 902 | ||||||
| April 20, 2022 | April 26, 2022 | 75,270 | 1,222 | |||||||
| July 20, 2022 | July 27, 2022 | 88,081 | 1,431 | |||||||
| October 13, 2022 | October 25, 2022 | 127,414 | 2,087 | |||||||
| 346,355 | $ | 5,642 | ||||||||
For the dividend declared on December 16, 2022 and paid on January 13, 2023, there were 57,860 shares issued with a DRIP value of $955. These shares are excluded from the table above, as the DRIP shares were issued after December 31, 2022.
| For the year ended December 31, 2021 | ||||||||||
| Dividend record date | Dividend payment date | DRIP shares issued | DRIP value | |||||||
| April 20, 2021 | May 14, 2021 | 1,361 | $ | 21 | ||||||
| July 20, 2021 | July 27, 2021 | 37,460 | 585 | |||||||
| October 22, 2021 | November 2, 2021 | 55,792 | 886 | |||||||
| 94,613 | $ | 1,492 | ||||||||
For the dividend declared on December 2, 2021 and paid on January 18, 2022, there were 55,590 shares issued with a DRIP value of $902. These shares are excluded from the table above, as the DRIP shares were issued after December 31, 2021.
Note 8. Commitments and Contingencies
The Company had an aggregate of $147,928 and $149,338, respectively, of unfunded commitments to provide debt financing to its portfolio companies as of December 31, 2023 and December 31, 2022. Such commitments are generally subject to the satisfaction of certain financial and nonfinancial covenants and certain operational metrics. The commitment period for these amounts may be shorter than the maturity date if drawn or funded. These commitments are not reflected in the Company’s consolidated statement of assets and liabilities. Consequently, such commitments result in an element of credit risk in excess of the amount recognized in the Company’s consolidated statement of assets and liabilities.
F-37
Kayne Anderson BDC, Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
A summary of the composition of the unfunded commitments as of December 31, 2023 and 2022 is shown in the table below.
| As of | As of | |||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Alcami Corporation (Alcami) | $ | 2,543 | $ | 2,543 | ||||
| Allcat Claims Service, LLC | 5,370 | 20,106 | ||||||
| Allentown, LLC | 785 | 2,040 | ||||||
| American Equipment Holdings LLC | 483 | 2,956 | ||||||
| American Soccer Company, Incorporated (SCORE) | 2,601 | 2,838 | ||||||
| Arborworks Acquisition LLC | 1,872 | 1,563 | ||||||
| Atria Wealth Solutions, Inc. | - | 2,996 | ||||||
| Basel U.S. Acquisition Co., Inc. (IAC) | 1,622 | 1,622 | ||||||
| BCI Burke Holding Corp. | 4,659 | 4,659 | ||||||
OAO Acquisitions, Inc. (BearCom) | 6,982 | - | ||||||
| BLP Buyer, Inc. (Bishop Lifting Products) | 6,548 | 1,047 | ||||||
| BR PJK Produce, LLC (Keany) | 2,870 | 1,429 | ||||||
| Brightview, LLC | - | 2,904 | ||||||
| Carton Packaging Buyer, Inc. | 2,848 | - | ||||||
| Centerline Communications, LLC | - | 1,800 | ||||||
| CGI Automated Manufacturing, LLC | 2,390 | 2,717 | ||||||
| City Line Distributors, LLC | 5,322 | - | ||||||
| Curio Brands, LLC | 1,719 | 2,722 | ||||||
| DISA Holdings Corp. (DISA) | 6,142 | 7,769 | ||||||
| DRS Holdings III, Inc. (Dr. Scholl’s) | 310 | 310 | ||||||
| Eastern Wholesale Fence | 1,332 | 425 | ||||||
| EIS Legacy, LLC | 6,922 | 6,539 | ||||||
| Fastener Distribution Holdings, LLC | - | 6,810 | ||||||
| FCA, LLC (FCA Packaging) | 2,670 | 2,670 | ||||||
| Foundation Consumer Brands | 577 | 577 | ||||||
| Fralock Buyer LLC | 300 | 749 | ||||||
| Guided Practice Solutions: Dental, LLC (GPS) | 10,299 | - | ||||||
| Gulf Pacific Holdings, LLC | 10,153 | 13,066 | ||||||
| Gusmer Enterprises, Inc. | 3,676 | 3,676 | ||||||
| Home Brands Group Holdings, Inc. (ReBath) | 2,099 | 2,099 | ||||||
| I.D. Images Acquisition, LLC | 2,020 | 1,424 | ||||||
| IF&P Foods, LLC (FreshEdge) | 1,656 | 6,114 | ||||||
| Improving Acquisition LLC | 1,672 | 2,028 | ||||||
| Krayden Holdings, Inc. | 5,438 | - | ||||||
| Light Wave Dental Management LLC | 827 | 6,774 | ||||||
| LSL Industries, LLC (LSL Healthcare) | 15,224 | 15,224 | ||||||
| MacNeill Pride Group | 3,877 | 2,978 | ||||||
| Pavion Corp., f/k/a Corbett Technology Solutions, Inc. | - | 1,334 | ||||||
| PMFC Holding, LLC | 137 | 342 | ||||||
| Regiment Security Partners LLC | 104 | 3,207 | ||||||
| Ruff Roofers Buyer, LLC | 10,966 | - | ||||||
| SGA Dental Partners Holdings, LLC | 5,087 | 1,724 | ||||||
| Siegel Egg Co., LLC | 537 | 1,207 | ||||||
| Sundance Holdings Group, LLC | 439 | - | ||||||
| Techniks Holdings, LLC / Eppinger Holdings Germany GMBH | 1,450 | - | ||||||
| Trademark Global LLC | 480 | 240 | ||||||
| United Safety & Survivability Corporation (USSC) | 469 | 2,942 | ||||||
| Universal Marine Medical Supply International, LLC (Unimed) | - | 2,035 | ||||||
| USALCO, LLC | 1,494 | 1,462 | ||||||
| Vehicle Accessories, Inc. | 1,671 | 1,671 | ||||||
| Worldwide Produce Acquisition, LLC | 1,286 | - | ||||||
| Total unfunded commitments | $ | 147,928 | $ | 149,338 | ||||
From time to time, the Company may become a party to certain legal proceedings incidental to the normal course of its business. As of December 31, 2023 and 2022, management was not aware of any material pending or threatened litigation that would require accounting recognition or financial statement disclosure.
F-38
Kayne Anderson BDC, Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
Note 9. Earnings Per Share
In accordance with the provisions of ASC Topic 260, Earnings per Share (“ASC 260”), basic earnings per share is computed by dividing earnings available to common stockholders by the weighted average number of shares outstanding during the period. Other potentially dilutive common shares, and the related impact to earnings, are considered when calculating earnings per share on a diluted basis. As of December 31, 2023, 2022 and 2021, there were no dilutive shares.
The following table sets forth the computation of basic and diluted earnings per share of common stock for the years ended December 31, 2023, 2022 and 2021.
| For the years ended | ||||||||||||
| December 31, 2023 | December 31, 2022 | December 31, 2021 | ||||||||||
| Net increase (decrease) in net assets resulting from operations | $ | 77,075 | $ | 45,765 | $ | 22,288 | ||||||
| Weighted average shares of common stock outstanding – basic and diluted | 39,250,232 | 27,184,302 | 10,718,083 | |||||||||
| Earnings (loss) per share of common stock – basic and diluted | $ | 1.96 | $ | 1.68 | $ | 2.08 | ||||||
Note 10. Income Taxes
The Company has elected to be treated as a RIC under the Code beginning with the taxable year end December 31, 2021. As a RIC, the Company is not subject to a federal excise tax based on distributive requirements of its taxable income on a calendar year basis. Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% excise tax on such income, to the extent required.
The Company makes certain adjustments to the classification of net assets as a result of permanent book-to-tax differences, which include differences in the book and tax basis of certain assets and liabilities, and nondeductible federal taxes or losses among other items. To the extent these differences are permanent, they are charged or credited to additional paid in capital, or total distributable earnings (losses), as appropriate.
The permanent differences for tax purposes from distributable earnings to additional paid in capital were reclassified for tax purposes for the tax years ended December 31, 2023, 2022 and 2021.
F-39
Kayne Anderson BDC, Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
These reclassifications have no impact on net assets.
| For the years ended | ||||||||||||
| December 31, 2023 | December 31, 2022 | December 31, 2021 | ||||||||||
| Increase (decrease) in distributable earnings | $ | 101 | $ | 29 | $ | 257 | ||||||
| Increase (decrease) in additional paid-in capital | $ | (101 | ) | $ | (29 | ) | $ | (257 | ) | |||
Taxable income generally differs from the net increase in net assets resulting from operations for financial reporting purposes due to (1) unrealized appreciation (depreciation) on investments, as gains and losses are generally not included in taxable income until these are realized; (2) income or loss recognition on exited investments; (3) non-deductible U.S. federal excise taxes; and (4) other non-deductible expense.
The following reconciles net increase in net assets resulting from operations to taxable income for the years ended December 31, 2023, 2022 and 2021:
| For the years ended | ||||||||||||
| December 31, 2023 | December 31, 2022 | December 31, 2021 | ||||||||||
| Net increase (decrease) in net assets resulting from operations | $ | 77,075 | $ | 45,765 | $ | 22,288 | ||||||
| Net change in unrealized losses (gains) from investments | (2,944 | ) | (5,502 | ) | (11,829 | ) | ||||||
| Non-deductible expenses, including excise taxes, offering costs disallowed | 101 | 29 | 257 | |||||||||
| Capital loss carryforward | 10,686 | - | - | |||||||||
| Other book tax differences | (65 | ) | (67 | ) | 117 | |||||||
| Taxable income before deductions for distributions | $ | 84,853 | $ | 40,225 | $ | 10,833 | ||||||
For income tax purposes, distributions made to stockholders are reported as ordinary income, capital gains, non-taxable return of capital, or a combination thereof.
For the year ended December 31, 2023, the Company incurred $101 of U.S. federal excise tax. There was no U.S. federal excise tax incurred for the years ended December 31, 2022 or 2021, respectively.
The final determination of tax character will not be made until the Company files its tax return for each tax year and the tax characteristics of all distributions will be reported to stockholders on Form 1099 after the end of each calendar year. The tax character of distributions paid to stockholders during the tax years ended December 31, 2023, 2022 and 2021 were as follows.
| For the years ended | ||||||||||||
| December 31, 2023 | December 31, 2022 | December 31, 2021 | ||||||||||
| Ordinary income | $ | 81,617 | $ | 39,553 | $ | 10,514 | ||||||
| Capital gains | - | - | - | |||||||||
| Return of capital | - | - | - | |||||||||
| Total | $ | 81,617 | $ | 39,553 | $ | 10,514 | ||||||
F-40
Kayne Anderson BDC, Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
For the years ended December 31, 2023, 2022 and 2021, the components of accumulated earnings on a tax basis were as follows.
| For the years ended | ||||||||||||
| December
31, 2023 |
December
31, 2022 |
December
31, 2021 |
||||||||||
| Undistributed net investment income (loss) | $ | 4,227 | $ | 991 | $ | 319 | ||||||
| Undistributed capital gains | - | - | - | |||||||||
| Capital loss carryforward | (10,686 | ) | - | - | ||||||||
| Other accumulated gain (loss) | - | - | - | |||||||||
| Other temporary book / tax differences | (792 | ) | (857 | ) | (924 | ) | ||||||
| Net unrealized appreciation (depreciation) | 20,275 | 17,331 | 11,829 | |||||||||
| Total | $ | 13,024 | $ | 17,465 | $ | 11,224 | ||||||
Capital losses can be carried forward indefinitely to offset future capital gains. As of December 31, 2023, the Company had a capital loss carryforward of $263, which was characterized as short-term, and $10,423, which was characterized as long-term. As of December 31, 2022 and 2021, the Company had no capital loss carryforwards.
As of December 31, 2023, 2022 and 2021, the Company’s aggregate unrealized appreciation and depreciation on investments based on cost for U.S. federal income tax purposes was as follows:
| For the years ended | ||||||||||||
| December 31, 2023 | December 31, 2022 | December 31, 2021 | ||||||||||
| Tax cost | $ | 1,356,025 | $ | 1,157,635 | $ | 570,290 | ||||||
| Gross unrealized appreciation | $ | 25,718 | $ | 21,476 | $ | 11,829 | ||||||
| Gross unrealized depreciation | (5,443 | ) | (4,145 | ) | - | |||||||
| Net unrealized appreciation/(depreciation) on investments | $ | 20,275 | $ | 17,331 | $ | 11,829 | ||||||
KABDC Corp, LLC and KABDC Corp II, LLC are wholly owned subsidiaries that were formed in December 2021 and October 2023, respectively. Each of these wholly owned subsidiaries are Delaware LLCs that have elected to be treated as a corporation for U.S. tax purposes. As such, KABDC Corp, LLC and KABDC Corp II, LLC are subject to U.S. Federal, state and local taxes. For the Company’s tax years ended December 31, 2023, 2022 and 2021, KABDC Corp, LLC and KABDC Corp II, LLC did not have a material provision for income taxes.
FASB ASC Topic 740, Accounting for Uncertainty in Income Taxes (“ASC 740”) provides guidance for how uncertain tax positions should be recognized, measured, presented, and disclosed in the consolidated financial statements. ASC 740 requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. The Company recognizes the tax benefits of uncertain tax positions only where the position is “more likely than not” to be sustained assuming examination by tax authorities. As of December 31, 2023, 2022 and 2021, management has analyzed the Company’s tax positions, and has concluded that no liability for unrecognized tax benefits should be recorded related to uncertain tax positions taken in the Company’s current year tax return. The Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months. Management’s determinations regarding ASC 740 may be subject to review and adjustment at a later date based upon factors including, but not limited to, an ongoing analysis of tax laws, regulations and interpretations thereof.
F-41
Kayne Anderson BDC, Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
Note 11. Financial Highlights
The following per share of common stock data has been derived from information provided in the audited financial statements. The following is a schedule of financial highlights for the years ended December 31, 2023, 2022 and 2021.
| For
the years ended December 31, (amounts in thousands, except share and per share amounts) | ||||||||||||
| Per Common Share Operating Performance (1) | 2023 | 2022 | 2021 | |||||||||
| Net Asset Value, Beginning of Period (2) | $ | 16.50 | $ | 16.22 | $ | 14.86 | ||||||
| Results of Operations: | ||||||||||||
| Net Investment Income | 2.16 | 1.48 | 0.94 | |||||||||
| Net Realized and Unrealized Gain (Loss) on Investments(3) | (0.18 | ) | 0.14 | 1.28 | ||||||||
| Net Increase (Decrease) in Net Assets Resulting from Operations | 1.98 | 1.62 | 2.22 | |||||||||
| Distributions to Common Stockholders | ||||||||||||
| Distributions | (2.06 | ) | (1.34 | ) | (0.86 | ) | ||||||
| Net Decrease in Net Assets Resulting from Distributions | (2.06 | ) | (1.34 | ) | (0.86 | ) | ||||||
| Net Asset Value, End of Period | $ | 16.42 | $ | 16.50 | $ | 16.22 | ||||||
| Shares Outstanding, End of Period | 41,603,666 | 35,879,291 | 19,227,902 | |||||||||
| Ratio/Supplemental Data | ||||||||||||
| Net assets, end of period | $ | 683,056 | $ | 592,041 | $ | 311,969 | ||||||
| Weighted-average shares outstanding | 39,250,232 | 27,184,302 | 10,718,083 | |||||||||
| Total Return(4) | 12.5 | % | 10.3 | % | 14.2 | % | ||||||
| Portfolio turnover | 15.5 | % | 17.6 | % | 31.3 | % | ||||||
| Ratio of operating expenses to average net assets (5) | 11.9 | % | 7.9 | % | 5.8 | % | ||||||
| Ratio of net investment income (loss) to average net assets (5) | 13.3 | % | 9.1 | % | 6.8 | % | ||||||
| (1) | The per common share data was derived by using weighted average shares outstanding. |
| (2) | On February 5, 2021, the initial offering price of $15.00 per share less $0.14 per share of organizational costs. |
| (3) | Realized and unrealized gains and losses per share in this caption are balancing amounts necessary to reconcile the change in net asset value per share for the period and may not reconcile with the aggregate gains and losses in the Consolidated Statement of Operations due to share transactions during the period. |
For the years ended December 31, 2023, 2022 and 2021, such share transactions include the effect of share issuances of $0.00, $0.04 and $0.19 per share, respectively. During the period, shares were issued at prices that reflect the aggregate amount of the Company’s initial organizational and offering expenses. As a result, investors subscribing after the initial capital call are allocated organizational expenses consistently with all stockholders.
| (4) | Total return is calculated as the change in net asset value (“NAV”) per share during the period, plus distributions per share (if any), divided by the beginning NAV per share. The calculation also assumes reinvestment of dividends at actual prices pursuant to the Company’s dividend reinvestment plan. Total return is not annualized. |
| (5) | The ratios reflect an annualized amount, except in the case of non-recurring expenses (e.g. initial organizational expense of $175 for the period February 5, 2021 (commencement of operations) through December 31, 2021). |
F-42
Kayne Anderson BDC, Inc.
Notes to Consolidated Financial Statements
(amounts in 000’s, except share and per share amounts)
Note 12. Subsequent Events
The Company’s management has evaluated subsequent events through the date of issuance of the financial statements included herein. There have been no subsequent events that require recognition or disclosure in these financial statements except as described below.
On January 16, 2024, the Company paid a distribution of $0.53 per share to each common stockholder of record as of December 29, 2023. The total distribution was $22,050 and $1,573 was reinvested into the Company through the issuance of 95,791 shares of common stock.
On February 14, 2024, the Company sold 7,089,771 shares of its common stock for a total aggregate offering price of $118,689. As of February 22, 2024, the Company has subscription agreements with investors for an aggregate capital commitment of $1,046,928 to purchase shares of common stock ($269,945 is undrawn).
F-43
Shares
Kayne Anderson BDC, Inc.
Common Stock
Preliminary Prospectus
Joint Lead Book Running Managers
| Morgan Stanley | BofA Securities | Wells Fargo Securities | RBC Capital Markets |
Joint Book Running Managers
| UBS Investment Bank | Keefe, Bruyette & Woods |
| A Stifel Company |
Co-Managers
| SMBC Nikko | Regions Securities LLC | Academy Securities | Ramirez & Co., Inc. |
, 2024
PART C—OTHER INFORMATION
Item 25. Financial Statements and Exhibits
| 1. | Financial Statements: |
The following financial statements of Kayne Anderson BDC, Inc. are provided in Part A of this Registration Statement:
AUDITED FINANCIAL STATEMENTS
1
| 2. | Exhibits: |
| (1) | Incorporated by reference from the Company’s Form 10-K, as filed with the Securities and Exchange Commission on March 13, 2023. |
| (2) | Incorporated by reference from the Company’s Amendment No. 2 to Form 10, as filed with the Securities and Exchange Commission on November 9, 2020. |
| (3) | Incorporated by reference from the Company’s Form 8-K, as filed with the Securities and Exchange Commission on February 9, 2021. |
| (4) | Incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, as filed with the Securities and Exchange Commission on August 15, 2022. |
| (5) | Incorporated by reference from the Company’s Form 8-K, as filed with the Securities and Exchange Commission on January 6, 2023. |
| (6) | Incorporated by reference from the Company’s Form 8-K, as filed with the Securities and Exchange Commission on January 5, 2024. |
| (7) | Incorporated by reference from the Company’s Form 8-K, as filed with the Securities and Exchange Commission on February 25, 2022. |
| (8) | Incorporated by reference from the Company’s Form 8-K, as filed with the Securities and Exchange Commission on November 22, 2022. |
| (9) | Incorporated by reference from the Company’s Form 8-K, as filed with the Securities and Exchange Commission on July 5, 2023. |
| (10) | Incorporated by reference from the Company’s Form 8-K, as filed with the Securities and Exchange Commission on December 29, 2023. |
| * | Filed herewith. |
| ** | To be filed by amendment. |
2
Item 26. Marketing Arrangements
The information contained under the heading “Underwriters” in this Registration Statement is incorporated herein by reference.
Item 27. Other Expenses of Issuance and Distribution
The following table sets forth the estimated expenses to be incurred in connection with the offering described in this registration statement:
| Securities and Exchange Commission fees | $ | * | ||
| New York Stock Exchange listing fee | $ | * | ||
| FINRA filing fee | $ | * | ||
| Accounting fees and expenses (1) | $ | * | ||
| Legal fees and expenses (1) | $ | * | ||
| Printing expenses (1) | $ | * | ||
| Miscellaneous (1) | $ | * | ||
| Total | $ | * |
| * | To be filed by amendment. |
| (1) | These amounts are estimates.
All of the expenses set forth shall be borne by the Registrant. Because these are expenses of the Company, our common stockholders will bear indirectly the sales load of this offering, which as a result will immediately reduce the net asset value of each common share purchased in this offering. |
Item 28. Persons Controlled by or Under Common Control
The information contained under the headings “The Company,” “Management” and “Control Persons and Principal Stockholders” in this registration statement is incorporated herein by reference.
The following table sets forth the Company’s consolidated subsidiaries.
| Name | Jurisdiction | |
| KABDC Corp, LLC | Delaware | |
| KABDC Corp II, LLC | Delaware | |
| Kayne Anderson BDC Financing, LLC | Delaware | |
| Kayne Anderson BDC Financing II, LLC | Delaware |
3
Item 29. Number of Holders of Securities
As of March 29, 2024, the number of record holders of each class of securities of the Registrant was:
Title of Class | Number of Record Holders | |||
| Common stock, $0.001 par value per share | 502 | |||
Item 30. Indemnification
The information contained under the heading “Description of Our Capital Stock—Provisions of the DGCL and Our Certificate of Incorporation and Bylaws—Limitation on Liability of Directors and Officers; Indemnification and Advance of Expenses” in this Registration Statement is incorporated herein by reference.
Section 145 of the Delaware General Corporation Law empowers a Delaware corporation to indemnify its officers and directors and specific other persons to the extent and under the circumstances set forth therein.
Section 102(b)(7) of the Delaware General Corporation Law allows a Delaware corporation to eliminate the personal liability of a director to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liabilities arising (a) from any breach of the director’s duty of loyalty to the corporation or its stockholders; (b) from acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (c) under Section 174 of the Delaware General Corporation Law; or (d) from any transaction from which the director derived an improper personal benefit.
The above discussion of Section 145 of the Delaware General Corporation Law is not intended to be exhaustive and is respectively qualified in its entirety by such statute.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The Company has obtained primary and excess insurance policies insuring our directors and officers against some liabilities they may incur in their capacity as directors and officers. Under such policies, the insurer, on the Company’s behalf, may also pay amounts for which the Company has granted indemnification to the directors or officers.
The Company has agreed to indemnify the underwriters against certain liabilities, including liabilities under the Securities Act.
Under the Investment Advisory Agreement, the Company has agreed to indemnify the Advisor and each of its officers, directors, members, managers and employees from and against any claims or liabilities, including reasonable legal fees and other expenses reasonably incurred, arising out of or in connection with our business and operations or any action taken or omitted on our behalf pursuant to authority granted by the Investment Advisory Agreement, except where attributable to willful misfeasance, bad faith, gross negligence or reckless disregard of such person’s duties under the Investment Advisory Agreement.
Under the Administration Agreement, the Company has agreed to indemnify the Administrator and each of its officers, managers, partners, agents, employees, controlling persons, members and any other person or entity affiliated with the Administrator from and against any damages, liabilities, costs and expenses (including reasonable attorneys’ fees and amounts reasonably paid in settlement) arising out of or otherwise based upon the performance in good faith of any of the Administrator’s duties or obligations under the Administration Agreement or otherwise as Administrator for the Company, except where attributable to willful misfeasance, bad faith, gross negligence or reckless disregard of such person’s duties under the Administration Agreement.
Item 31. Business and Other Connections of Investment Advisor
The information in the prospectus under the caption “The Company—Investment Advisor” is hereby incorporated by reference.
4
Item 32. Location of Accounts and Records
The Registrant’s accounts, books, and other documents are maintained at the offices of the Registrant, the Registrant’s investment Advisor, KA Credit Advisors, LLC, 717 Texas Avenue, Suite 2200, Houston, Texas 77002, at the offices of the custodian, Wilmington Trust, N.A., 1100 North Market Street, Wilmington, Delaware, 19890, at the offices of the transfer agent, Equiniti Trust Company, LLC, 225, Pictoria Drive, Suite 450, Cincinnati, Ohio, 45246, or at the offices of the Administrator, KA Credit Advisors, LLC, 717 Texas Avenue, Suite 2200, Houston, TX 77002.
Item 33. Management Services
Not applicable.
Item 34. Undertakings
| 1. | The Registrant undertakes to suspend the offering of the common stock until the prospectus is amended if (1) subsequent to the effective date of its registration statement, the net asset value declines more than ten percent from its net asset value as of the effective date of the registration statement or (2) the net asset value increases to an amount greater than its net proceeds as stated in the prospectus. |
| 2. | Not applicable. |
| 3. | Not applicable. |
| 4. | The Registrant is filing this registration statement pursuant to Rule 430A under the Securities Act of 1933, as amended (the “Securities Act”), and undertakes that: |
| a. | for the purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant under Rule 424(b)(1) under the Securities Act shall be deemed to be part of the registration statement as of the time it was declared effective; and |
| b. | for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering thereof. |
| 5. | The Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the Registrant’s annual report pursuant to Section 13(a) or 15(d) of the Exchange Act that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
| 6. | Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant, the Registrant has been advised that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. |
| 7. | The Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, any statement of additional information. |
5
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston and State of Texas, on the 1st day of April 2024.
| Kayne Anderson BDC, Inc. | ||
| By: | /s/ Douglas L. Goodwillie | |
| Douglas L. Goodwillie | ||
| Co-Chief Executive Officer | ||
| By: | /s/ Kenneth B. Leonard | |
| Kenneth B. Leonard | ||
| Co-Chief Executive Officer | ||
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
| Signature | Capacity | Date | ||
| /s/ Douglas L. Goodwillie | Co-Chief Executive Officer; | April 1, 2024 | ||
| Douglas L. Goodwillie | Principal Executive Officer | |||
| /s/ Kenneth B. Leonard | Co-Chief Executive Officer; | April 1, 2024 | ||
| Kenneth B. Leonard | Principal Executive Officer | |||
| /s/ Terry A. Hart | Chief Financial Officer; | April 1, 2024 | ||
| Terry A. Hart | Principal Accounting and Financial Officer | |||
| /s/ Mariel A. Joliet | Director | April 1, 2024 | ||
| Mariel A. Joliet | ||||
| /s/ George E. Marucci, Jr. | Director | April 1, 2024 | ||
| George E. Marucci, Jr. | ||||
| /s/ Susan C. Schnabel | Director | April 1, 2024 | ||
| Susan C. Schnabel | ||||
| /s/ Rhonda S. Smith | Director | April 1, 2024 | ||
| Rhonda S. Smith | ||||
| /s/ Albert (Al) Rabil III | Director | April 1, 2024 | ||
| Albert (Al) Rabil III | ||||
| /s/ James (Jim) Robo | Director | April 1, 2024 | ||
| James (Jim) Robo | ||||
| /s/ Terrence J. Quinn | Director | April 1, 2024 | ||
| Terrence J. Quinn |
6