FAIR VALUE

3 Months Ended

Mar. 31, 2024

Loans Held for Investment

The Company’s loans are typically valued using a yield analysis, which is typically performed for non-credit impaired loans to borrowers where the Company does not own a controlling equity position. Alternative valuation methodologies may be used as appropriate, and can include a market analysis, income analysis, or recovery analysis. To determine fair value using a yield analysis, a current price is imputed for the loan based upon an assessment of the expected market yield for a similarly structured loan with a similar level of risk. In the yield analysis, the Company considers the current contractual interest rate, the maturity and other terms of the loan relative to risk of the company and the specific loan. A key determinant of risk, among other things, is the leverage through the loan relative to the enterprise value of the borrower. As loans held by the Company are substantially illiquid with no active loan market, the Company depends on primary market data, including newly funded loans, as well as secondary market data with respect to high-yield debt instruments and syndicated loans, as inputs in determining the appropriate market yield, as applicable.

The following tables present fair value measurements of loans held at fair value as of March 31, 2024 and December 31, 2023:


	Fair Value Measurement as of March 31, 2024
	Total		Level 1		Level 2		Level 3
Loans held at fair value	$	54,977,282	$	—	$	—	$	54,977,282
Total	$	54,977,282	$	—	$	—	$	54,977,282


	Fair Value Measurement as of December 31, 2023
	Total		Level 1		Level 2		Level 3
Loans held at fair value	$	61,720,705	$	—	$	—	$	61,720,705
Total	$	61,720,705	$	—	$	—	$	61,720,705

The following table presents changes in loans that use Level 3 inputs as of and for the three months ended March 31, 2024:


	Three months ended March 31, 2024
Total loans using Level 3 inputs at December 31, 2023	$	61,720,705

Change in unrealized gains (losses) on loans at fair value, net	(3,613,693)

Loan repayments	(4,003,945)
Accretion of original issue discount	128,384
PIK interest	745,831
Total loans using Level 3 inputs at March 31, 2024	$	54,977,282

The change in unrealized losses included in the unaudited interim consolidated statements of operations attributable to loans held at fair value, categorized as Level 3, held as of March 31, 2024 is $(3,613,693).

The following tables summarize the significant unobservable inputs the Company used to value the loans categorized within Level 3 as of March 31, 2024 and December 31, 2023. The tables are not intended to be all-inclusive, but instead capture the significant unobservable inputs relevant to the Company’s determination of fair values.

As of March 31, 2024

Unobservable Input

Fair Value

Primary Valuation Techniques

Input

Estimated Range

Weighted Average

Senior term loans

39,435,412

Recovery analysis

Recovery rate

75.50% - 83.10%

79.30%

Senior term loans

15,541,870

Market approach

Revenue multiple

0.75x - 1.00x

0.88x

Total investments

54,977,282

As of December 31, 2023

Unobservable Input

Fair Value

Primary Valuation Techniques

Input

Estimated Range

Weighted Average

Senior term loans

47,627,845

Recovery analysis

Recovery rate

86.10% - 92.40%

89.25%

Senior term loans

14,092,860

Market approach

Revenue multiple

0.50x - 0.70x

0.60x

Total investments

61,720,705

Changes in market yields, revenue multiples, and recovery rates may change the fair value of certain of the Company’s loans. Generally, an increase in market yields may result in a decrease in the fair value of certain of the Company’s loans, while a decrease in revenue multiples and recovery rates may result in a decrease in the fair value of certain of the Company’s loans.

Due to the inherent uncertainty of determining the fair value of loans that do not have a readily available market value, the fair value of the Company’s loans may fluctuate from period to period. Additionally, the fair value of the Company’s loans may differ significantly from the values that would have been used had a ready market existed for such loans and may differ materially from the values that the Company may ultimately realize. Further, such loans are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a loan in a forced or liquidation sale, it could realize significantly less than the value at which the Company has recorded it.

In addition, changes in the market environment and other events that may occur over the life of the loans may cause the gains or losses ultimately realized on these loans to be different than the unrealized gains or losses reflected in the valuations currently assigned.

Fair Value of Financial Instruments

GAAP requires disclosure of fair value information about financial instruments, whether or not recognized at fair value in the balance sheets, for which it is practicable to estimate that value.

The following table details the book value and fair value of the Company’s financial instruments not recognized at fair value in the unaudited interim consolidated balance sheets as of March 31, 2024:


	As of March 31, 2024
	Carrying Value		Fair Value
Financial assets:
Cash and cash equivalents	$	82,298,440	$	82,298,440
Loans held for investment at carrying value	$	357,852,467	$	329,881,425
Loan receivable held at carrying value	$	2,040,058	$	510,436
Financial liabilities:
Senior notes payable, net	$	88,163,140	$	79,031,250

Estimates of fair value for cash and cash equivalents are measured using observable, quoted market prices, or Level 1 inputs. The Company’s loans held for investment are measured using unobservable inputs, or Level 3 inputs. The fair value of the Company’s 2027 Senior Notes is estimated by discounting expected cash flows using readily available quoted prices for similar debt, or Level 2 inputs.

- Definition

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

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