ROC
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___ to ___
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
(Address of principal executive offices) |
(Zip Code) |
Registrant’s telephone number, including area code: (
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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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 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of August 9, 2024, the registrant had
Table of Contents
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Page |
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PART I. |
1 |
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Item 1. |
1 |
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Consolidated Statements of Assets and Liabilities as of June 30, 2024 and December 31, 2023 (Unaudited) |
1 |
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Consolidated Statement of Operations for the three and six months ended June 30, 2024 (Unaudited) |
2 |
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3 |
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Consolidated Statement of Cash Flows for the six months ended June 30, 2024 (Unaudited) |
4 |
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Consolidated Schedule of Investments as of June 30, 2024 (Unaudited) |
5 |
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Consolidated Schedule of Investments as of December 31, 2023 (Unaudited) |
8 |
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10 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
23 |
Item 3. |
32 |
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Item 4. |
33 |
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PART II. |
34 |
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Item 1. |
34 |
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Item 1A. |
34 |
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Item 2. |
34 |
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Item 3. |
34 |
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Item 4. |
34 |
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Item 5. |
34 |
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Item 6. |
35 |
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36 |
i
PART I—FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
SENIOR CREDIT INVESTMENTS, LLC
Consolidated Statements of Assets and Liabilities (Unaudited)
(In thousands, except for unit and per unit data)
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June 30, 2024 |
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December 31, 2023 |
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Assets |
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Investments at fair value: |
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Non-controlled/non-affiliated investments (amortized cost of $ |
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$ |
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$ |
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Cash and cash equivalents |
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Restricted cash |
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Interest receivable |
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Deferred financing costs |
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Deferred offering costs |
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Prepaid expenses and other assets |
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Total assets |
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$ |
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$ |
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Liabilities |
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Debt |
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$ |
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$ |
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Interest payable |
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Due to Investment Adviser |
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Accrued expenses and other liabilities |
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Total liabilities |
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$ |
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$ |
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Member’s Capital |
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Common units ( |
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$ |
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$ |
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Accumulated distributable earnings |
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Total member’s capital |
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$ |
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$ |
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Total liabilities and member’s capital |
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$ |
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$ |
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Net Asset Value Per Unit |
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Net assets |
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$ |
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$ |
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Common units outstanding ( |
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Net asset value per unit |
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$ |
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$ |
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See accompanying notes to consolidated financial statements
1
SENIOR CREDIT INVESTMENTS, LLC
Consolidated Statement of Operations (Unaudited)
(In thousands, except for unit and per unit data)
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Three Months Ended June 30, 2024 |
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Six Months Ended June 30, 2024 |
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Investment Income |
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Non-controlled/non-affiliated investments |
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Interest income |
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$ |
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$ |
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Payment-in-kind interest income |
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Other income |
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Total investment income |
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Operating Expenses |
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Interest and other financing expenses |
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Management fees |
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Income-based incentive fees |
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Capital gains incentive fees |
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( |
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( |
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Other general and administrative expenses |
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Total expenses before Fee Waiver |
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Management fees waived |
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( |
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( |
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Incentive fees waived |
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( |
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( |
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Net expenses |
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Net investment income |
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Net Realized Gain (Loss) and Change in Unrealized Appreciation (Depreciation) |
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Net realized gain (loss): |
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Non-controlled/non-affiliated investments |
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Net realized gain |
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Net change in unrealized appreciation (depreciation): |
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Non-controlled/non-affiliated investments |
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( |
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( |
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Net change in unrealized depreciation |
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( |
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( |
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Net realized gain and change in unrealized depreciation |
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( |
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( |
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Net Increase in Member’s Capital Resulting from Operations |
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$ |
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$ |
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Net Increase in Net Assets Resulting from Operations - Basic and Diluted (Note 8) |
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$ |
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$ |
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Weighted Average Units Outstanding (Note 8) |
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See accompanying notes to consolidated financial statements
2
SENIOR CREDIT INVESTMENTS, LLC
Consolidated Statement of Changes in Member’s Capital (Unaudited)
(In thousands, except for unit and per unit data)
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Three Months Ended June 30, 2024 |
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Six Months Ended June 30, 2024 |
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Net Increase (Decrease) in Member’s Capital Resulting from Operations |
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Net investment income |
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$ |
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$ |
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Net realized gains in investments |
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Net change in unrealized depreciation |
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( |
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( |
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Net increase in member’s capital resulting from operations |
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Distributions to Unitholders |
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Distributions declared |
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( |
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( |
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Net decrease in member’s capital resulting from distributions to unitholders |
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( |
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( |
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Capital Transactions |
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Issuance of common units |
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Net increase in member’s capital from common unit transactions |
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Member’s Capital |
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Total increase in member’s capital during the period |
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Member’s capital, beginning of period |
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Member’s Capital at End of Period |
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$ |
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$ |
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See accompanying notes to consolidated financial statements
3
SENIOR CREDIT INVESTMENTS, LLC
Consolidated Statement of Cash Flows (Unaudited)
(In thousands, except for unit and per unit data)
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Six Months Ended June 30, 2024 |
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Operating Activities |
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Net increase in member’s capital resulting from operations |
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$ |
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Adjustments to reconcile net increase in member’s capital resulting from operations to net cash used in operating activities: |
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Net realized gains on investments |
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Net change in unrealized depreciation on investments |
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Net accretion of discount and amortization of premium |
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( |
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Amortization of deferred financing costs |
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Amortization of offering costs |
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Payment-in-kind interest capitalized |
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( |
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Purchase of investments |
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( |
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Proceeds from sale of investments and principal repayments |
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Changes in assets and liabilities: |
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Interest receivable |
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( |
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Prepaid expenses and other assets |
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Interest payable |
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Due to Investment Adviser |
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( |
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Accrued expenses and other liabilities |
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( |
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Net Cash Used in Operating Activities |
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( |
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Financing Activities |
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Borrowings on debt |
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Repayments on debt |
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( |
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Financing costs paid and deferred |
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( |
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Distributions paid to unitholders |
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( |
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Net Cash Provided by Financing Activities |
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Cash and Cash Equivalents and Restricted Cash |
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Net decrease in cash and cash equivalents and restricted cash |
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( |
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Cash and cash equivalents and restricted cash, beginning of period |
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Cash and cash equivalents and restricted cash, end of period |
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$ |
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Supplemental Disclosure of Non-Cash Information |
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Cash paid for interest |
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$ |
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Cash paid for taxes |
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$ |
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The following table presents cash and cash equivalents and restricted cash by category within the Consolidated Statements of Assets and Liabilities (in thousands):
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June 30, 2024 |
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Cash and cash equivalents |
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$ |
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Restricted cash |
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Cash and cash equivalents and restricted cash |
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$ |
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See accompanying notes to consolidated financial statements
4
SENIOR CREDIT INVESTMENTS, LLC
Consolidated Schedule of Investments (Unaudited)
June 30, 2024
(In thousands, except for unit and per unit data)
Portfolio Company |
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Investment Type |
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Reference Rate |
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Maturity Date |
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Principal |
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Cost (2) |
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Fair Value (3) |
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% of Member’s Capital |
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Footnotes |
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Non-Controlled/Non-Affiliated Portfolio Company Investments (4) |
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First Lien Debt Investments |
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Aerospace & Defense |
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Qnnect, LLC |
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First Lien Term Loan |
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S + |
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$ |
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$ |
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$ |
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5 |
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Qnnect, LLC |
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First Lien Delayed Draw Term Loan |
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S + |
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5,9 |
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% |
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Banking, Finance, Insurance, and Real Estate |
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Galway Borrower, LLC |
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First Lien Delayed Draw Term Loan |
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S + |
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— |
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( |
) |
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( |
) |
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9 |
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Galway Borrower, LLC |
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First Lien Revolver |
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S + |
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7,9 |
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Higginbotham Insurance Agency, Inc. |
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First Lien Delayed Draw Term Loan |
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S + |
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6 |
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Higginbotham Insurance Agency, Inc. |
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First Lien Delayed Draw Term Loan |
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S + |
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6,9 |
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SG Acquisition, Inc. |
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First Lien Term Loan |
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S + |
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7 |
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SG Acquisition, Inc. |
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First Lien Revolver |
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S + |
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— |
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( |
) |
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— |
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9 |
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SitusAMC Holdings Corporation |
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First Lien Term Loan |
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S + |
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7 |
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% |
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Capital Equipment |
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Dwyer Instruments, LLC |
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First Lien Term Loan |
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S + |
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7 |
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Dwyer Instruments, LLC |
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First Lien Delayed Draw Term Loan |
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S + |
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7 |
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Dwyer Instruments, LLC |
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First Lien Term Loan |
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S + |
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7 |
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Dwyer Instruments, LLC |
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First Lien Delayed Draw Term Loan |
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S + |
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— |
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( |
) |
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( |
) |
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9 |
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% |
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Chemicals, Plastic, & Rubber |
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ASP Meteor Acquisition Co LLC |
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First Lien Term Loan |
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S + |
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6 |
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ASP Meteor Acquisition Co LLC |
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First Lien Delayed Draw Term Loan |
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S + |
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6,9 |
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Aurora Plastics, LLC |
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First Lien Term Loan |
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S + |
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6 |
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Aurora Plastics, LLC |
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First Lien Delayed Draw Term Loan |
|
S + |
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6 |
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% |
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Healthcare & Pharmaceuticals |
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The GI Alliance Management, LLC |
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First Lien Term Loan |
|
S + |
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7 |
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The GI Alliance Management, LLC |
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First Lien Term Loan |
|
S + |
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7 |
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The GI Alliance Management, LLC |
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First Lien Delayed Draw Term Loan |
|
S + |
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|
|
— |
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|
( |
) |
|
|
( |
) |
|
|
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|
9 |
||
Perkinelmer U.S. LLC |
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First Lien Term Loan |
|
S + |
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|
6 |
|||||
Perkinelmer U.S. LLC |
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First Lien Delayed Draw Term Loan |
|
S + |
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|
— |
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|
( |
) |
|
|
( |
) |
|
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|
9 |
||
Petvet Care Centers, LLC |
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First Lien Term Loan |
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S + |
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6 |
|||||
Petvet Care Centers, LLC |
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First Lien Delayed Draw Term Loan |
|
S + |
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|
— |
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|
( |
) |
|
|
( |
) |
|
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|
9 |
||
Petvet Care Centers, LLC |
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First Lien Revolver |
|
S + |
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— |
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( |
) |
|
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( |
) |
|
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|
9 |
||
|
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% |
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||||
High Tech Industries |
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||||
Aptean, Inc |
|
First Lien Term Loan |
|
S + |
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|
6 |
|||||
Aptean, Inc |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
|
|
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|
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|
|
|
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|
6,9 |
|||||
Aptean, Inc |
|
First Lien Revolver |
|
S + |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
9 |
|||
Brave Parent Holdings, Inc. |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|||||
Brave Parent Holdings, Inc. |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
|
|
|
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|
|
|
|
|
|
|
7,9 |
|||||
Brave Parent Holdings, Inc. |
|
First Lien Revolver |
|
S + |
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
|
|
9 |
|||
Enverus Holdings, Inc. |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|||||
Enverus Holdings, Inc. |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
9 |
||
Enverus Holdings, Inc. |
|
First Lien Revolver |
|
S + |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
9 |
||
GS AcquisitionCo, Inc. |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,9 |
|||||
GS AcquisitionCo, Inc. |
|
First Lien Revolver |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,9 |
|||||
Netwrix Corporation |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|||||
Rally Buyer, Inc. |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|||||
Rally Buyer, Inc. |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|||||
Redwood Services Group, LLC |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|||||
Redwood Services Group, LLC |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|||||
Redwood Services Group, LLC |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,9 |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
||||
See accompanying notes to consolidated financial statements
5
SENIOR CREDIT INVESTMENTS, LLC
Consolidated Schedule of Investments (Unaudited) - Continued
June 30, 2024
(In thousands, except for unit and per unit data)
Portfolio Company |
|
Investment Type |
|
Reference Rate |
|
Maturity Date |
|
Principal |
|
|
Cost (2) |
|
|
Fair Value (3) |
|
|
% of Member’s Capital |
|
|
Footnotes |
||||
Non-Controlled/Non-Affiliated Portfolio Company Investments (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
First Lien Debt Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Services: Business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Chartwell Cumming Holding Corporation |
|
First Lien Term Loan |
|
S + |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
6 |
|||||
Chartwell Cumming Holding Corporation |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|||||
Foreside Financial Group, LLC |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|||||
Foreside Financial Group, LLC |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
9 |
||
Foreside Financial Group, LLC |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
9 |
||
IG Investments Holdings, LLC |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|||||
IG Investments Holdings, LLC |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|||||
IRI Group Holdings, Inc (f/k/a The NPD Group L.P.) |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
||||
Services: Consumer |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Any Hour LLC |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|||||
Any Hour LLC |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
9 |
||
Any Hour LLC |
|
First Lien Revolver |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,9 |
|||||
KL Stockton Intermediate II, LLC |
|
First Lien Term Loan |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
||||
Transportation: Cargo |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Capstone Acquisition Holdings, Inc. |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|||||
Capstone Acquisition Holdings, Inc. |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|||||
Seko Global Logistics Network, LLC |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|||||
Seko Global Logistics Network, LLC |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
||||
Wholesale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Blackbird Purchaser, Inc. |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|||||
Blackbird Purchaser, Inc. |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,9 |
|||||
Blackbird Purchaser, Inc. |
|
First Lien Revolver |
|
S + |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
9 |
|||
Harvey Tool Company, LLC |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|||||
Harvey Tool Company, LLC |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
9 |
||
Harvey Tool Company, LLC |
|
First Lien Revolver |
|
S + |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
9 |
||
The Hiller Companies, LLC |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|||||
The Hiller Companies, LLC |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
9 |
||
The Hiller Companies, LLC |
|
First Lien Revolver |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,9 |
|||||
PT Intermediate Holdings III, LLC |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|||||
PT Intermediate Holdings III, LLC |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,9 |
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
||||
Total non-controlled-non-affiliated Portfolio Company debt investments (8) |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|
|
||||||
See accompanying notes to consolidated financial statements
6
SENIOR CREDIT INVESTMENTS, LLC
Consolidated Schedule of Investments (Unaudited) - Continued
June 30, 2024
(In thousands, except for unit and per unit data)
The following table is a listing of the Company’s unfunded commitments as of June 30, 2024 (in thousands):
Portfolio Company |
|
Investment Type |
|
Commitment |
|
Unfunded |
|
|
Fair |
|
||
Any Hour LLC |
|
First Lien Delayed Draw Term Loan |
|
|
$ |
|
|
$ |
( |
) |
||
Any Hour LLC |
|
First Lien Revolver |
|
|
|
|
|
|
( |
) |
||
Aptean, Inc |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
|
|||
Aptean, Inc |
|
First Lien Revolver |
|
|
|
|
|
|
|
|||
ASP Meteor Acquisition Co LLC |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
Blackbird Purchaser, Inc. |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
Blackbird Purchaser, Inc. |
|
First Lien Revolver |
|
|
|
|
|
|
( |
) |
||
Brave Parent Holdings, Inc. |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
|
|||
Brave Parent Holdings, Inc. |
|
First Lien Revolver |
|
|
|
|
|
|
|
|||
Dwyer Instruments, LLC |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
Enverus Holdings, Inc. |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
Enverus Holdings, Inc. |
|
First Lien Revolver |
|
|
|
|
|
|
( |
) |
||
Foreside Financial Group, LLC |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
Foreside Financial Group, LLC |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
Galway Borrower, LLC |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
Galway Borrower, LLC |
|
First Lien Revolver |
|
|
|
|
|
|
( |
) |
||
The GI Alliance Management, LLC |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
GS AcquisitionCo, Inc. |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
GS AcquisitionCo, Inc. |
|
First Lien Revolver |
|
|
|
|
|
|
( |
) |
||
Harvey Tool Company, LLC |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
Harvey Tool Company, LLC |
|
First Lien Revolver |
|
4/15/2030 |
|
|
148 |
|
|
|
(1 |
) |
Higginbotham Insurance Agency, Inc. |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
The Hiller Companies, LLC |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
The Hiller Companies, LLC |
|
First Lien Revolver |
|
|
|
|
|
|
( |
) |
||
Perkinelmer U.S. LLC |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
Petvet Care Centers, LLC |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
Petvet Care Centers, LLC |
|
First Lien Revolver |
|
|
|
|
|
|
( |
) |
||
PT Intermediate Holdings III, LLC |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
Qnnect, LLC |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
— |
|
||
Redwood Services Group, LLC |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
SG Acquisition, Inc. |
|
First Lien Revolver |
|
|
|
|
|
|
— |
|
||
Total Unfunded Portfolio Company Commitments |
|
|
|
$ |
|
|
$ |
( |
) |
|||
See accompanying notes to consolidated financial statements
7
SENIOR CREDIT INVESTMENTS, LLC
Consolidated Schedule of Investments (Unaudited)
December 31, 2023
(In thousands, except for unit and per unit data)
Portfolio Company |
|
Investment Type |
|
Reference Rate |
|
Maturity Date |
|
Principal |
|
|
Cost (2) |
|
|
Fair Value (3) |
|
|
% of Member’s Capital |
|
|
Footnotes |
|
|||||
Non-Controlled/Non-Affiliated Portfolio Company Investments (4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
First Lien Debt Investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Aerospace & Defense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Qnnect, LLC |
|
First Lien Term Loan |
|
S + |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
|
|
7 |
|
|||||
Qnnect, LLC |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,9 |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|||||
Banking, Finance, Insurance, and Real Estate |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Higginbotham Insurance Agency, Inc. |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|||||
SG Acquisition, Inc. |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|||||
SitusAMC Holdings Corporation |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|||||
Capital Equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Dwyer Instruments, LLC |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|||||
Dwyer Instruments, LLC |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|||||
Dwyer Instruments, LLC |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|||||
Dwyer Instruments, LLC |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
9 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|||||
Chemicals, Plastic, & Rubber |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
ASP Meteor Acquisition Co LLC |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|||||
ASP Meteor Acquisition Co LLC |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,9 |
|
||||||
Aurora Plastics, LLC |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|||||
Aurora Plastics, LLC |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|||||
Healthcare & Pharmaceuticals |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
The GI Alliance Management, LLC |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|||||
PerkinElmer U.S. LLC |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|||||
Petvet Care Centers, LLC |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|||||
Petvet Care Centers, LLC |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
9 |
|
||
Petvet Care Centers, LLC |
|
First Lien Revolver |
|
S + |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
9 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|||||
High Tech Industries |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Brave Parent Holdings, Inc. |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|||||
Brave Parent Holdings, Inc. |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
9 |
|
||
Brave Parent Holdings, Inc. |
|
First Lien Revolver |
|
S + |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
9 |
|
||
Enverus Holdings, Inc. |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|||||
Enverus Holdings, Inc. |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
9 |
|
||
Enverus Holdings, Inc. |
|
First Lien Revolver |
|
S + |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
9 |
|
||
Netwrix Corporation |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|||||
Netwrix Corporation |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
9 |
|
||
Rally Buyer, Inc. |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|||||
Rally Buyer, Inc. |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,9 |
|
||||||
Redwood Services Group, LLC |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|||||
Redwood Services Group, LLC |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|||||
Services: Business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Chartwell Cumming Holding Corporation |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|||||
Chartwell Cumming Holding Corporation |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|||||
Foreside Financial Group, LLC |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|||||
Foreside Financial Group, LLC |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
— |
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
9 |
|
||
IG Investments Holdings, LLC |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|||||
IG Investments Holdings, LLC |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|||||
The NPD Group L.P. |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|||||
Transportation: Cargo |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Capstone Acquisition Holdings, Inc. |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|||||
Capstone Acquisition Holdings, Inc. |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|||||
Seko Global Logistics Network, LLC |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|||||
Seko Global Logistics Network, LLC |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|||||
Wholesale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Blackbird Purchaser, Inc. |
|
First Lien Term Loan |
|
S + |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 |
|
|||||
Blackbird Purchaser, Inc. |
|
First Lien Delayed Draw Term Loan |
|
S + |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
9 |
|
||
Blackbird Purchaser, Inc. |
|
First Lien Revolver |
|
S + |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
9 |
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
|||||
Total non-controlled-non-affiliated Portfolio Company debt investments (8) |
|
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
|
|
|
|||||||
See accompanying notes to consolidated financial statements
8
SENIOR CREDIT INVESTMENTS, LLC
Consolidated Schedule of Investments (Unaudited) - Continued
December 31, 2023
(In thousands, except for unit and per unit data)
The following table is a listing of the Company’s unfunded commitments as of December 31, 2023 (in thousands):
Portfolio Company |
|
Investment Type |
|
Commitment |
|
Unfunded |
|
|
Fair |
|
||
ASP Meteor Acquisition Co LLC |
|
First Lien Delayed Draw Term Loan |
|
|
$ |
|
|
$ |
( |
) |
||
Blackbird Purchaser, Inc. |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
Blackbird Purchaser, Inc. |
|
First Lien Revolver |
|
|
|
|
|
|
( |
) |
||
Brave Parent Holdings, Inc. |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
Brave Parent Holdings, Inc. |
|
First Lien Revolver |
|
|
|
|
|
|
( |
) |
||
Dwyer Instruments, LLC |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
Enverus Holdings, Inc. |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
Enverus Holdings, Inc. |
|
First Lien Revolver |
|
|
|
|
|
|
( |
) |
||
Foreside Financial Group, LLC |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
|
|||
Netwrix Corporation |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
Petvet Care Centers, LLC |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
Petvet Care Centers, LLC |
|
First Lien Revolver |
|
|
|
|
|
|
( |
) |
||
Qnnect, LLC |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
Rally Buyer, Inc. |
|
First Lien Delayed Draw Term Loan |
|
|
|
|
|
|
( |
) |
||
Total Unfunded Portfolio Company Commitments |
|
|
|
$ |
|
|
$ |
( |
) |
|||
See accompanying notes to consolidated financial statements
9
SENIOR CREDIT INVESTMENTS, LLC
Notes to Consolidated Financial Statements (Unaudited)
Note 1. Organization
Organization
Senior Credit Investments, LLC (the “Company,” “we,” “our” or “us”) was formed as a Delaware limited liability company on December 8, 2022. The Company is a private, perpetually offered, externally managed, non-diversified, closed-end 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 “Investment Company Act”). The Company also intends to elect to be treated, and expects to qualify annually, as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). Our fiscal year ends on December 31.
Our investment objective is to generate both current income and capital appreciation by investing primarily in senior secured loans to U.S. companies in the upper middle market. We generally use the term “upper middle market” to refer to large companies with annual earnings before interest expense, income tax expense, depreciation and amortization, or “EBITDA,” greater than $
Jefferies Credit Management LLC (the “Investment Adviser”), an investment adviser that is registered with the Securities and Exchange Commission (“SEC”) under the Investment Advisers Act of 1940, as amended (the “Advisers Act”), is our investment adviser. The Investment Adviser, subject to the overall supervision of our board of directors (the “Board of Directors” or the “Board”), will manage our day-to-day operations and provide investment advisory and management services to the Company.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The interim consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 6 of Regulation S-X. In the opinion of management, all adjustments considered necessary for the fair statement of the consolidated financial statements for the interim period presented, have been included. These financial statements should be read in conjunction with the audited financial statements and accompanying notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023.
The Company follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services — Investment Companies (“ASC 946”).
Use of Estimates
The preparation of consolidated financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities at the date of the consolidated financial statements and the reported amounts of income, expenses, gains and losses during the reported periods. Changes in the economic environment, financial markets, credit worthiness of our Portfolio Companies and any other parameters used in determining these estimates could cause actual results to differ materially.
Consolidation
As provided under ASC 946, the Company will not consolidate its investment in a company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company.
As of June 30, 2024 and December 31, 2023, the Company’s consolidated subsidiaries were SCI BDC SPV I LLC and SCI BDC SPV II LLC, which were both wholly-owned. The consolidated financial statements include the accounts of the Company as well as these subsidiaries. All intercompany balances and transactions have been eliminated.
Cash and Cash Equivalents and Restricted Cash
Cash equivalents include highly liquid investments, including money market funds, not held for resale with original maturities of three months or less. The Company deems that certain money market funds, U.S. Treasury bills, repurchase agreements, and other high-quality, short-term debt securities would qualify as cash equivalents.
Restricted cash represents the amount of principal and interest collections received as well as amounts in reserve to fund draws on our credit facility that are all held at SCI BDC SPV I LLC.
Cash and cash equivalents and restricted cash are carried at cost, which approximates fair value. Cash and cash equivalents held as of June 30, 2024 and December 31, 2023 was $
10
Investments Transactions
Investments are recognized when we assume an obligation to acquire a financial instrument and assume the risks for gains and losses related to that instrument. Investments are derecognized when we assume an obligation to sell a financial instrument and forego the risks for gains or losses related to that instrument. Specifically, we record all security transactions on a trade date basis. Amounts for investments recognized or derecognized but not yet settled are reported as a receivable for investments sold and a payable for investments purchased, respectively, in the Consolidated Statements of Assets and Liabilities.
Fair Value Measurements
The Company applies ASC Topic 820, Fair Value Measurements (“ASC 820”), as amended, which establishes a framework for measuring fair value in accordance with U.S. GAAP and required disclosures of fair value measurements. ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is a market-based measurement, not an entity specific measurement. For some assets and liabilities, observable market transactions or market information might be available data. For other assets and liabilities, observable market transactions and market information might not be available. However, the objective of a fair value measurement in both cases is the same—to estimate the price when an orderly transaction to sell the asset or transfer the liability would take place between market participants at the measurement date under current market conditions (that is, an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability).
ASC 820 establishes a hierarchal disclosure framework which ranks the observability of inputs used in measuring financial instruments at fair value. The observability of inputs is impacted by a number of factors, including the type of financial instruments and their specific characteristics. Financial instruments with readily available quoted prices, or for which fair value can be measured from quoted prices in active markets, generally will have a higher degree of market price observability and a lesser degree of judgment applied in determining fair value. The levels used for classifying investments are not necessarily an indication of the risk associated with investing in these securities.
The three-level hierarchy for fair value measurement is defined as follows:
Level 1: inputs to the valuation methodology are quoted prices available in active markets for identical instruments as of the reporting date. The types of financial instruments included in Level 1 include unrestricted securities, including equities and derivatives, listed in active markets.
Level 2: inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date. The type of financial instruments in this category includes less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities, and certain over-the-counter derivatives where the fair value is based on observable inputs.
Level 3: inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category include investments in privately held entities and certain over-the-counter derivatives where the fair value is based on unobservable inputs.
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. Our assessment of the significance of a particular input to the fair value measurement requires judgment and considers factors specific to the financial instrument.
Investment Valuation Process
The Board of Directors has designated the Investment Adviser as its “Valuation Designee” pursuant to Rule 2a-5 under the Investment Company Act, and in that role, the Investment Adviser is responsible for performing fair value determinations relating to all of the Company’s investments, including periodically assessing and managing any material valuation risks and establishing and applying fair value methodologies, in accordance with valuation policies and procedures that have been approved by the Company’s Board of Directors. Even though the Company’s Board of Directors designated the Company’s Investment Adviser as “Valuation Designee,” the Company’s Board of Directors continues to be responsible for overseeing the processes for determining fair valuation.
The majority of our investments fall within Level 3 of the fair value hierarchy, and as such, there is not readily available market values for most of the investments in our portfolio, and we value such investments at fair value as determined in good faith by the Valuation Designee under the direction of the Board of Directors using a documented valuation policy, described below, and a consistently applied valuation process. The factors that may be taken into account in pricing the investments at fair value include, as relevant, the nature and realizable value of any collateral, the Portfolio Company’s ability to make payments and its earnings and discounted cash flow, and the markets in which the Portfolio Company does business, comparison to publicly traded securities and other relevant factors. Available current market data are considered such as applicable market yields and multiples of publicly traded securities, comparison of financial ratios of peer companies, and changes in the interest rate environment and the credit markets that may affect the price at which similar investments would trade in their principal market, and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Valuation Designee will consider the pricing indicated by the external event to corroborate or revise its valuation.
With respect to investments for which market quotations are not readily available, or for which market quotations are deemed not reflective of the fair value, the valuation procedures adopted by our Board of Directors contemplates a multi-step valuation process each quarter, as described below:
11
Valuation of Other Financial Assets and Financial Liabilities
ASC 825, Financial Instruments, permits an entity to choose, at specified election dates, to measure certain assets and liabilities at fair value (the “Fair Value Option”). We have not elected the Fair Value Option to report selected financial assets and financial liabilities. Debt issued by the Company is reported at amortized cost (see Note 6 to the consolidated financial statements). The carrying value of all other financial assets and liabilities approximates fair value due to their short maturities or their close proximity of the originations to the measurement date.
Realized Gains or Losses
Security transactions are accounted for on a trade date basis. Realized gains or losses on investments are calculated by using the specific identification method. Securities that have been called by the issuer are recorded at the call price on the call effective date.
Investment Income Recognition
Interest Income
Interest income is recorded on an accrual basis and includes the accretion of discounts and amortization of premiums. Discounts from and premiums to par value on debt investments purchased are accreted/amortized into interest income over the life of the respective security using the effective interest method. The amortized cost of debt investments represents the original cost, including loan origination fees and upfront fees received that are deemed to be an adjustment to yield, adjusted for the accretion of discounts and amortization of premiums, if any.
PIK Income
The Company may have loans in its portfolio that contain payment-in-kind (“PIK”) provisions. PIK represents interest that is accrued and recorded as interest income at the contractual rates, increases the loan principal on the respective capitalization dates, and is generally due at maturity. Such income is included in interest income in the Company’s statement of operations. If at any point 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 interest income. To maintain the Company’s status as a RIC, this non-cash source of income must be paid out to unitholders in the form of dividends, even though the Company has not yet collected cash. During both the three and six months ended June 30, 2024, PIK income earned was $
Fee Income
The Company may receive various fees in the ordinary course of business such as structuring, consent, waiver, amendment, syndication and commitment fees as well as fees for managerial assistance rendered by the Company to the Portfolio Companies. Such fees are recognized as income when earned or the services are rendered.
12
Non-Accrual Income
Loans are generally placed on non-accrual status when there is reasonable doubt that principal or interest will be collected in full. Accrued interest is generally reversed when a loan is placed on non-accrual status. 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. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment regarding collectability. Non-accrual loans are restored to accrual status when past due principal and interest is paid current and, in management’s judgment, are likely to remain current. Management may make exceptions to this treatment and determine to not place a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection. As of June 30, 2024 and December 31, 2023, there were no loans placed on non-accrual status.
Expenses
Expenses include management fees, performance-based incentive fees, interest expense, insurance expenses, administrative service fees, legal fees, Board of Directors’ fees, audit and tax service expenses, third-party valuation fees and other general and administrative expenses. Expenses are recognized on an accrual basis.
Organization Costs
Costs associated with the organization of the Company were expensed as incurred. These expenses consisted primarily of legal fees and other costs of organizing the Company.
Offering Costs
Costs associated with the offering of the Company’s units are capitalized as “deferred offering costs” on the Consolidated Statements of Assets and Liabilities and amortized on a straight-line basis over a twelve-month period from incurrence. These expenses consist primarily of legal fees and other costs incurred in connection with the Company’s continuous offering.
Deferred Financing Costs
Deferred financing costs represent fees and other direct incremental costs incurred in connection with the Company’s borrowings. These expenses are deferred and amortized into interest expense over the life of the related debt instrument using the straight-line method. Deferred financing costs related to revolving credit facilities are presented separately as an asset on the Company’s Consolidated Statements of Assets and Liabilities.
Administration Agreement
On October 27, 2023, the Company entered into an administration agreement (the “Administration Agreement”), under which Alter Domus (US) LLC (the “Administrator”) is responsible for providing various accounting and administrative services to us. In particular, pursuant to the Administration Agreement, the Administrator is responsible for providing or overseeing the performance of required administrative services and professional services rendered by others, which includes (but is not limited to), accounting, payment of the Company’s expenses, legal, compliance, operations, technology and investor relations, preparation and filing of the Company’s tax returns, and preparation of financial reports provided to the Company’s unitholders and filed with the SEC.
Distributions
Distributions to common unitholders are recorded on the record date. The amount to be paid out as a distribution is determined by the Board of Directors and will depend on the Company’s earnings, financial condition, maintenance of our tax treatment as a RIC, compliance with applicable BDC regulations and such factors as the Board may deem relevant from time to time.
Unit Repurchases
In connection with the Company’s unit repurchase programs, the cost of units repurchased is charged to member’s capital on the trade date. There were no unit repurchases during the three and six months ended June 30, 2024.
Federal and State Income Taxes
We intend to be treated as a RIC under the Code and operate in a manner so as to qualify for the tax treatment applicable to RICs. To qualify as a RIC, the Company must (among other requirements) meet certain source-of-income and asset diversification requirements and timely distribute to its unitholders at least
If we do not distribute (or are not deemed to have distributed) at least
13
To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year dividend distributions from such taxable income, we accrue excise taxes, if any, on estimated undistributed taxable income.
If we fail to satisfy the annual distribution requirement or otherwise fail to qualify as a RIC in any taxable year, we would be subject to tax on all of our taxable income at regular corporate rates. Distribution would generally be taxable to our individual and other non-corporate taxable unitholders as ordinary dividend income eligible for the reduced maximum rate applicable to qualified dividend income to the extent of our current and accumulated earnings and profits provided certain holding period and other requirements are met. Subject to certain limitation under the Code, corporate distributions would be eligible for the dividend-received deduction. To qualify again to be taxed as a RIC in a subsequent year, we would be required to distribute to our unitholders our accumulated earnings and profits attributable to non-RIC years. In addition, if we failed to qualify as a RIC for a period greater than two taxable years, then, in order to qualify as a RIC in a subsequent year, we would be required to elect to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregate loss that would have been realized if we had been liquidated) or, alternatively, be subject to taxation on such built-in gain recognized for a period of five years.
We follow ASC 740, Income Taxes (“ASC 740”). ASC 740 provides guidance for how unrecognized tax benefits 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 our tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet the more-likely-than-not threshold are recorded as a tax benefit or expense in the current year. Penalties or interest, if applicable, that may be assessed relating to income taxes would be classified as other operating expenses in the consolidated financial statements. 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 on-going analysis of tax laws, regulations and interpretations thereof. The Company’s federal tax returns are subject to examination by the Internal Revenue Service for a period of three fiscal years after they are filed.
Note 3. Agreements and Related Party Transactions
Investment Advisory Agreement
On September 25, 2023, the Company entered into an investment advisory agreement (the “Investment Advisory Agreement”) between the Company and the Investment Adviser. The Investment Adviser, subject to the overall supervision of the Board of Directors, manages our day-to-day operations and provides investment advisory and management services to the Company. The Investment Adviser is an indirect subsidiary of Jefferies Finance LLC (“JFIN”), a Delaware limited liability company, and a registered investment adviser under the Advisers Act. JFIN is wholly-owned by JFIN Parent LLC, which is a joint venture between (i) Jefferies Financial Group Inc. (a publicly traded company and the parent company for Jefferies LLC (“Jefferies”), a global securities and investment banking firm), and (ii) Massachusetts Mutual Life Insurance Company. The Investment Adviser, together with JFIN and its subsidiaries are referred to herein collectively as “Jefferies Finance.”
The Investment Advisory Agreement is effective for an initial
The Company will pay the Investment Adviser a fee for its services under the Investment Advisory Agreement consisting of two components: a management fee and an incentive fee. The cost of both the management fee and the incentive fee is subject to the Fee Waiver (defined below).
Management Fee
The management fee will be payable quarterly in arrears at an annual rate of
Incentive Fee
The incentive fee will consist of two components that are independent of each other, with the result that one component may be payable even if the other is not. A portion of the incentive fee is based on a percentage of our income and a portion is based on a percentage of our capital gains, each as described below.
(1) Incentive Fee Based on Income
The portion of the incentive fee that is based on a percentage of our income is based on Pre-Incentive Fee Net Investment Income Returns. “Pre-Incentive Fee Net Investment Income Returns” means, as the context requires, either the dollar value of, or percentage rate of return on the value of our net assets at the end of the immediate preceding 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 we receive from Portfolio Companies) accrued during the calendar quarter, minus our operating expenses accrued for the quarter (including the management fee, expenses payable under our Administration Agreement with our Administrator, and any interest expense or fees on any credit facilities, but excluding the incentive fee and any unitholder servicing and/or distribution fees).
Pre-Incentive Fee Net Investment Income Returns include, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with PIK interest and zero coupon securities), accrued income that we have not yet received in cash. Pre-Incentive Fee Net Investment Income Returns do not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. The impact of expense support payments and recoupments are also excluded from Pre-Incentive Fee Net Investment Income Returns.
14
Pre-Incentive Fee Net Investment Income Returns, expressed as a rate of return on the value of our net assets at the end of the immediate preceding quarter, is compared to a “hurdle rate” of return of
We will pay the Investment Adviser an incentive fee quarterly in arrears with respect to our Pre-Incentive Fee Net Investment Income Returns in each calendar quarter as follows:
These calculations are prorated for any period of less than three months and adjusted for any units issued or repurchased during the relevant quarter.
(2) Incentive Fee Based on Capital Gains
The second component of the incentive fee, the capital gains incentive fee, is payable at the end of each calendar quarter in arrears. The amount payable equals:
Each year, the fee paid for the capital gains incentive fee is net of the aggregate amount of any previously paid capital gains incentive fee for all prior periods. We will accrue, but will not pay, a capital gains incentive fee with respect to unrealized appreciation because a capital gains incentive fee would be owed to the Investment Adviser if we were to sell the relevant investment and realize a capital gain. In no event will the capital gains incentive fee payable pursuant to the Investment Advisory Agreement be in excess of the amount permitted by the Advisers Act, including Section 205 thereof.
The fees that are payable under the Investment Advisory Agreement for any partial period will be appropriately prorated. For the avoidance of doubt, the incentive fee will be calculated net of our expenses.
Fee Waiver Agreement
The Investment Adviser has contractually agreed to waive the management fee and the incentive fee for the one-year period following the initial closing (the “Fee Waiver”), unless sooner terminated by (a) the vote of a majority of our Independent Directors and (b) by a vote of a majority of our Board of Directors, or of a majority of our outstanding voting securities, as defined in the Investment Company Act. Notwithstanding the foregoing, the Investment Adviser has contractually agreed that the waiver of the management fee and the incentive fee may not be modified or terminated unless approved by a vote of a majority of our voting securities, as defined in the Investment Company Act. Amounts waived pursuant to the Fee Waiver will not be subject to any right of future recoupment in favor of the Investment Adviser.
For the three and six months ended June 30, 2024, the Company recognized $
Co-Investment Exemptive Relief
Together with the Investment Adviser, we received an exemptive order from the SEC that permits us to participate in co-investment transactions with certain affiliates of the Investment Adviser and certain funds managed and controlled by the Investment Adviser and its affiliates in transactions that involve the negotiation of certain terms of the securities or loans to be purchased (in addition to price-related terms), subject to certain terms and conditions. Co-investment transactions involving the negotiation of only price-related terms will be entered into in reliance on SEC staff no-action letters. We intend to co-invest, from time to time, with other Accounts (as defined below) (including co-investment or other vehicles in which the Investment Adviser or its personnel invest and that co-invest with such other Accounts) in portfolio investments that are suitable for both the Company and such other Accounts. “Accounts” means Jefferies Finance’s own accounts, accounts of Jefferies Finance’s clients, including separately managed accounts (or separate accounts), pooled investment vehicles and collateralized loan obligations that are sponsored, managed or advised by Jefferies Finance or other Affiliate Investment Advisers (as defined below). “Affiliate Investment Advisers” means Accounts advised by our Investment Adviser or investment advisers that are affiliated with us. Even if the Company and such other Accounts invest in the same securities, conflicts of interest may still arise. For example, it is possible that as a result of legal, tax, political, regulatory, accounting or other considerations, the terms of such investment (including with respect to price and timing) for the Company and/or such other Accounts may not be the same. Additionally, the Company and/or such other Accounts may have different expected termination dates and/or investment objectives (including target return profiles) and the Investment Adviser, as a result, may have conflicting goals with respect to the price and timing of disposition opportunities.
We, together with the other entities relying on the entities relying on the exemptive relief, have applied for an amendment to such order to amend the term, “Follow-On Investment,” consistent with the temporary relief granted by the SEC on April 8, 2020.
15
Due to Investment Adviser
Prior to the commencement of operations on December 7, 2023, the Investment Adviser bore all organization and offering expenses in connection with the formation of the Company and the initial closing of the private offering. Following the commencement of operations, the Company will reimburse the Investment Adviser for these organization and offering costs up to a maximum aggregate amount of $
Note 4. Investments
The composition of the Company’s investment portfolio as of June 30, 2024 at cost and fair value was as follows (in thousands):
|
|
Amortized Cost |
|
|
% of Total |
|
|
Fair Value |
|
|
% of Total |
|
||||
First Lien Debt (1) |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Total |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
The composition of the Company’s investment portfolio as of December 31, 2023 at cost and fair value was as follows (in thousands):
|
|
Amortized Cost |
|
|
% of Total |
|
|
Fair Value |
|
|
% of Total |
|
||||
First Lien Debt (1) |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Total |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
The industry composition of investments as of June 30, 2024 at amortized cost and fair value was as follows (in thousands):
|
|
June 30, 2024 |
|
|||||||||||||
|
|
Investments at |
|
|
% of Investments at |
|
|
Investments at |
|
|
% of Investments at |
|
||||
High Tech Industries |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Wholesale |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Healthcare & Pharmaceuticals |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Banking, Finance, Insurance and Real Estate |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Services: Business |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Transportation: Cargo |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Services: Consumer |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Chemicals, Plastics, and Rubber |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Capital Equipment |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Aerospace & Defense |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Total |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
The industry composition of investments as of December 31, 2023 at amortized cost and fair value was as follows (in thousands):
|
|
December 31, 2023 |
|
|||||||||||||
|
|
Investments at |
|
|
% of Investments at |
|
|
Investments at |
|
|
% of Investments at |
|
||||
High Tech Industries |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
Healthcare & Pharmaceuticals |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Services: Business |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Wholesale |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Transportation: Cargo |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Chemicals, Plastics, and Rubber |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Capital Equipment |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Banking, Finance, Insurance and Real Estate |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Aerospace & Defense |
|
|
|
|
|
% |
|
|
|
|
|
% |
||||
Total |
|
$ |
|
|
|
% |
|
$ |
|
|
|
% |
||||
16
The geographic composition of investments as of June 30, 2024 at cost and fair value was as follows (in thousands):
|
|
June 30, 2024 |
|
|||||||||||||
|
|
Amortized Cost |
|
|
Fair Value |
|
|
% of Total |
|
|
Fair Value |
|
||||
United States |
|
$ |
|
|
$ |
|
|
|
% |
|
|
% |
||||
Total |
|
$ |
|
|
$ |
|
|
|
% |
|
|
% |
||||
The geographic composition of investments as of December 31, 2023 at cost and fair value was as follows (in thousands):
|
|
December 31, 2023 |
|
|||||||||||||
|
|
Amortized Cost |
|
|
Fair Value |
|
|
% of Total |
|
|
Fair Value |
|
||||
United States |
|
$ |
|
|
$ |
|
|
|
% |
|
|
% |
||||
Total |
|
$ |
|
|
$ |
|
|
|
% |
|
|
% |
||||
As of June 30, 2024 and December 31, 2023, there were no investments in the portfolio on non-accrual status.
As of June 30, 2024 and December 31, 2023, on a fair value basis,
Note 5. Fair Value Measurements
The following table presents the fair value of investments as of June 30, 2024, disaggregated into the three levels of the fair value hierarchy in accordance with ASC 820 (in thousands):
|
|
Fair Value Measurements |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
First Lien Debt (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following table presents the fair value of investments as of December 31, 2023, disaggregated into the three levels of the fair value hierarchy in accordance with ASC 820 (in thousands):
|
|
Fair Value Measurements |
|
|||||||||||||
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
First Lien Debt (1) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The following tables present change for the three and six months ended June 30, 2024 in the fair value of investments for which Level 3 inputs were used to determine fair value (in thousands):
|
Three Months Ended June 30, 2024 |
|
||||||
|
|
First Lien Debt |
|
|
Total |
|
||
Fair value, beginning of period |
|
$ |
|
|
$ |
|
||
Purchases of investments |
|
|
|
|
|
|
||
Proceeds from principal repayments and sales of investments |
|
|
( |
) |
|
|
( |
) |
Accretion of discount/amortization of premium |
|
|
|
|
|
|
||
Payment-in-kind interest |
|
|
|
|
|
|
||
Net realized gain |
|
|
|
|
|
|
||
|
|
( |
) |
|
|
( |
) |
|
Fair value, end of period |
|
$ |
|
|
$ |
|
||
|
$ |
( |
) |
|
$ |
( |
) |
|
17
|
Six Months Ended June 30, 2024 |
|
||||||
|
|
First Lien Debt |
|
|
Total |
|
||
Fair value, beginning of period |
|
$ |
|
|
$ |
|
||
Purchases of investments |
|
|
|
|
|
|
||
Proceeds from principal repayments and sales of investments |
|
|
( |
) |
|
|
( |
) |
Accretion of discount/amortization of premium |
|
|
|
|
|
|
||
Payment-in-kind interest |
|
|
|
|
|
|
||
Net realized gain |
|
|
|
|
|
|
||
|
|
( |
) |
|
|
( |
) |
|
Fair value, end of period |
|
$ |
|
|
$ |
|
||
|
$ |
( |
) |
|
$ |
( |
) |
|
Transfers between levels, if any, are recognized at the beginning of the period in which the transfers occur. For the three and six months ended June 30, 2024, there were no transfers into or out of Level 3.
The following tables present quantitative information about the significant unobservable inputs of the Company’s Level 3 financial instruments as of June 30, 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 value.
|
|
June 30, 2024 |
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
Range |
|
|
|
|
|||||||
|
|
Fair Value |
|
|
Valuation |
|
Unobservable |
|
Low |
|
|
High |
|
|
Weighted |
|
||||
Investments in first lien debt |
|
$ |
|
|
Yield analysis |
|
Discount rate |
|
|
% |
|
|
% |
|
|
% |
||||
|
|
December 31, 2023 |
|
|||||||||||||||||
|
|
|
|
|
|
|
|
|
Range |
|
|
|
|
|||||||
|
|
Fair Value |
|
|
Valuation |
|
Unobservable |
|
Low |
|
|
High |
|
|
Weighted |
|
||||
Investments in first lien debt |
|
$ |
|
|
Yield analysis |
|
Discount rate |
|
|
% |
|
|
% |
|
|
% |
||||
The significant unobservable input used in the yield analysis is the discount rate based on comparable market yields. Significant increases or decreases in discount rates would result in a significantly lower or higher fair value measurement.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments may fluctuate from period to period. Additionally, the fair value of the Company’s investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize. Further, such investments 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 portfolio investment 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 investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized appreciation or depreciation reflected in the valuations currently assigned.
Note 6. Debt
In accordance with the Investment Company Act, with certain limitations, the Company is allowed to borrow amounts such that its asset coverage, as defined in the Investment Company Act, is at least
18
The Company’s outstanding debt obligations as of June 30, 2024 were as follows (in thousands):
|
|
June 30, 2024 |
|
|||||||||||||||||||||
|
|
Aggregate |
|
|
Outstanding |
|
|
Carrying |
|
|
Fair |
|
|
Unused |
|
|
Amount |
|
||||||
Senior Secured Credit Facility |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Total Debt Obligations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
The Company’s outstanding debt obligations as of December 31, 2023 were as follows (in thousands):
|
|
December 31, 2023 |
|
|||||||||||||||||||||
|
|
Aggregate |
|
|
Outstanding |
|
|
Carrying |
|
|
Fair |
|
|
Unused |
|
|
Amount |
|
||||||
Senior Secured Credit Facility |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Total Debt Obligations |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
The following table summarizes the average and maximum debt outstanding, and the interest and debt issuance cost for the three and six months ended June 30, 2024 (in thousands):
|
|
Three Months Ended June 30, 2024 |
|
|
Six Months Ended June 30, 2024 |
|
||
Average debt outstanding |
|
$ |
|
|
$ |
|
||
Maximum amount of debt outstanding |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Weighted average annualized interest cost (1) |
|
|
% |
|
|
% |
||
|
|
|
|
|
|
|
||
Average 1-month SOFR rate |
|
|
% |
|
|
% |
||
The components of interest expense for the three and six months ended June 30, 2024 were as follows (in thousands):
|
|
Three Months Ended June 30, 2024 |
|
|
Six Months Ended June 30, 2024 |
|
||
Borrowing interest expense |
|
$ |
|
|
$ |
|
||
Facility undrawn and unused fees |
|
|
|
|
|
|
||
Amortization of financing costs and debt issuance costs |
|
|
|
|
|
|
||
Total interest expense |
|
$ |
|
|
$ |
|
||
Senior Secured Credit Facility
On December 7, 2023, the Company’s wholly owned, consolidated subsidiary, SCI BDC SPV I LLC (the “SPV”), entered into a loan and security agreement (the “Senior Secured Credit Facility”), with the SPV as borrower, JPMorgan Chase Bank, National Association, as the administrative agent, the lenders from time to time parties thereto (the “Lenders”), the Company as the portfolio manager, and The Bank of New York Mellon Trust Company, National Association, as the collateral administrator, the collateral agent and securities intermediary.
The aggregate lender commitments under the Senior Secured Credit Facility are $
Borrowings under the Senior Secured Credit Facility will bear interest at Term SOFR or a Base Rate, in each case plus an applicable margin equal to
19
The Senior Secured Credit Facility is secured by all of the SPV’s assets. The SPV assets and credit are not available to satisfy debts and obligations of Senior Credit Investments, LLC. Assets and liabilities of the SPV as of June 30, 2024 and December 31, 2023 are as follows (in thousands):
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
Assets |
|
|
|
|
|
|
||
Investments at fair value (1) |
|
$ |
|
|
$ |
|
||
Restricted cash |
|
|
|
|
|
|
||
Interest receivable |
|
|
|
|
|
|
||
Deferred financing costs |
|
|
|
|
|
|
||
Prepaid expenses and other assets |
|
|
|
|
|
|
||
Total assets |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Liabilities |
|
|
|
|
|
|
||
Debt |
|
$ |
|
|
$ |
|
||
Interest payable |
|
|
|
|
|
|
||
Accrued expenses and other liabilities |
|
|
|
|
|
|
||
Total liabilities |
|
$ |
|
|
$ |
|
||
Both the SPV and the Company have made customary representations and warranties and are required to comply with various covenants, reporting requirements and other customary requirements for similar credit facilities. As of June 30, 2024 and December 31, 2023, the Company was in compliance with all covenants and other requirements of the Senior Secured Credit Facility.
Note 7. Member’s Capital
Under the terms of our limited liability agreement, the Company is authorized to issue up to
On March 3, 2023, Jefferies Credit Partners LLC, an affiliate of the Investment Adviser, purchased
Net Asset Value per Unit and Offering Price
The Company determines NAV for its units as of the last day of each calendar month. Units are issued at an offering price equivalent to the most recent NAV per unit available, which will be the prior calendar day NAV per unit.
For the Month Ended |
|
NAV Per Unit |
|
|
January 31, 2024 |
|
$ |
|
|
February 29, 2024 |
|
$ |
|
|
March 31, 2024 |
|
$ |
|
|
April 30, 2024 |
|
$ |
|
|
May 31, 2024 |
|
$ |
|
|
June 30, 2024 |
|
$ |
|
|
Distributions
The Board authorizes and declares distribution amounts per unit.
Declaration Date |
|
Record Date |
|
Payment Date |
|
Per Unit |
|
|
Amount |
|
||
|
|
|
$ |
|
|
$ |
|
|||||
|
|
|
|
|
|
|
|
|||||
|
|
|
|
|
|
$ |
|
|
$ |
|
||
Dividend Reinvestment Plan
We have adopted a dividend reinvestment plan, pursuant to which we will reinvest all cash dividends or other distributions authorized by the Board of Directors and declared by the Company on behalf of unitholders who affirmatively elect to reinvest their dividends or other distributions. As a result, if the Board of Directors authorizes, and we declare, a cash dividend or other distribution, then unitholders who have elected to participate in our dividend reinvestment plan will have their cash distributions automatically reinvested in additional units of common unit, rather than receiving the cash dividend or other distribution. Distributions on fractional units will be credited to each participating unitholder’s account to three decimal places.
20
Note 8. Net Increase in Net Assets Per Unit
The following sets forth the computation of basic and diluted earnings per unit for the three and six months ended June 30, 2024 (in thousands, except unit and per unit data):
|
|
Three Months Ended June 30, 2024 |
|
|
Six Months Ended June 30, 2024 |
|
||
Net increase in member's capital resulting from operations |
|
$ |
|
|
$ |
|
||
Weighted average units outstanding |
|
|
|
|
|
|
||
Net increase in net assets per unit resulting from operations - basic and diluted |
|
$ |
|
|
$ |
|
||
Diluted net increase in net assets per unit resulting from operations is equal to basic net increase in net assets per unit resulting from operations because there were no common unit equivalents outstanding during the period presented.
Note 9. Commitments and Contingencies
The Company has commitments to fund various revolving and first lien senior secured delayed draw term loans. As of June 30, 2024 and December 31, 2023, the total unfunded commitments were $
The Company has entered into an equity commitment letter with the SPV, in connection with the Company’s Senior Secured Credit Facility. See Note 6 to the consolidated financial statements for additional information.
From time to time, the Company may become a party to certain legal proceedings incidental to the normal course of its business. At June 30, 2024, management is not aware of any pending or threatened material litigation.
Note 10. Financial Highlights
The following are the financial highlights for the six months ended June 30, 2024 (in thousands, except unit and per unit data):
|
|
Six Months Ended June 30, 2024 |
|
|
Per Unit Data: |
|
|
|
|
Net asset value at beginning of period |
|
$ |
|
|
Net investment income (1) |
|
|
|
|
Net realized gains (losses) and unrealized appreciation (depreciation) (2) |
|
|
( |
) |
Net increase (decrease) in member’s capital from operations |
|
|
|
|
Distributions declared (3) |
|
|
( |
) |
Net asset value at end of period |
|
$ |
|
|
|
|
|
|
|
Total return based on net asset value (4) |
|
|
% |
|
Units outstanding, end of period |
|
|
|
|
Weighted average units outstanding |
|
|
|
|
|
|
|
|
|
Ratio/Supplemental Data: |
|
|
|
|
Member’s capital at end of period |
|
$ |
|
|
Annualized ratio of net expenses to average member’s capital (5) |
|
|
% |
|
Annualized ratio of net expenses before voluntary waivers to average member’s capital (5)(6) |
|
|
% |
|
Annualized ratio of net investment income to average member’s capital (5) |
|
|
% |
|
Portfolio turnover rate |
|
|
% |
|
Asset coverage ratio, end of period |
|
|
% |
|
|
|
|
|
|
Capital Commitments Data: |
|
|
|
|
Capital commitments, end of period |
|
$ |
|
|
Funded capital commitments, end of period |
|
$ |
|
|
% of capital commitments funded |
|
|
% |
|
21
Note 11. Subsequent Events
Management has evaluated subsequent events through the date of issuance of these consolidated financial statements and has determined that, except as disclosed below, there are no subsequent events outside of the ordinary scope of business that require adjustment to, or disclosure in the consolidated financial statements.
The Company received $
On
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The information contained in this section should be read in conjunction with “Item 1. Consolidated Financial Statements.” This discussion contains forward-looking statements, which relate to future events, our future performance or financial condition and involves numerous risks, uncertainties and other factors outside of our control including, but not limited to, those set forth in “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 and elsewhere in this report. Actual results could differ materially from those implied or expressed in any forward-looking statements.
This report contains forward-looking statements that involve substantial risks and uncertainties, which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue” or “believe” or the negatives thereof or other variations thereon or comparable terminology. Statements that contain these words should be read carefully because they discuss Senior Credit Investments, LLC (the “Company,” “we,” “our,” or “us”) plans, strategies, prospects and expectations concerning our business, operating results, financial condition and other similar matters. We believe that it is important to communicate our future expectations to our investors. The forward-looking statements include information in this report regarding general domestic and global economic conditions, our future financing plans, our ability to operate as a business development company (“BDC”) and the expected performance of, and the yield on, debt investments in our portfolio companies (the “Portfolio Companies”), each of which is a borrower or with which we have some other form of investment.
The following factors are among those that may cause actual results to differ materially from our forward-looking statements in this report:
23
Overview
We are a private, perpetually offered, externally managed, non-diversified, closed-end management investment company, which has elected to be regulated as a BDC under the Investment Company Act of 1940, as amended (the “Investment Company Act”). We are externally managed by the Investment Adviser, which is responsible for sourcing potential investments, conducting due diligence on prospective investments, analyzing investment opportunities, structuring investments and monitoring our portfolio on an ongoing basis. Our Investment Adviser is registered as investment adviser with the Securities and Exchange Commission (“SEC”). We also intend to elect to be treated, and intend to qualify annually thereafter, as a RIC under the Code.
We have entered into an investment advisory agreement (the “Investment Advisory Agreement”) with the Investment Adviser, under which we have agreed to pay the Investment Adviser a management fee as well as an incentive fee based on our investment performance. We have entered into an administration agreement (the “Administration Agreement”) with Alter Domus (US) LLC (the “Administrator”), under which we pay the Administrator fees for its services in addition to reimbursing the Administrator for all reasonable expenses.
Our investment objective is to generate both current income and capital appreciation by investing primarily in senior secured loans to U.S. companies in the upper middle market. We generally use the term “upper middle market” to refer to large companies with annual earnings before interest expense, income tax expense, depreciation and amortization, or “EBITDA,” greater than $75 million. However, we may from time to time invest in smaller companies. We focus on companies backed by private equity sponsors and our capital is typically used by companies to support business growth, acquisitions, leveraged buyouts, refinancing or recapitalizations, and other related activity.
Investments
We focus primarily on senior secured first lien loans of private U.S. companies. Our level of investment activity (both the number of investments and the size of each investment) can and will vary substantially from period to period depending on many factors, including the expected return on new investments, the amount of debt and equity capital available to private companies, the level of merger and acquisition activity for such companies, the general economic environment and the competitive environment for the types of investments we make.
Revenues
We generate revenues in the form of interest income from the debt securities we hold. In the future, we may generate revenue from dividends and capital appreciation on either direct equity investments or equity interests obtained in connection with originating loans, such as options, warrants or conversion rights. The debt we invest in will typically not be rated by any rating agency, but if it were, it is likely that such debt would be below investment grade. In addition, we may also generate revenue in the form of commitment, loan origination, structuring or diligence fees. Certain of these fees may be capitalized and amortized as additional interest income over the life of the related loan.
Expenses
Our primary operating expenses include the payment of the management fee and the incentive fee (each of which is described below) to our Investment Adviser, legal and professional fees, interest, fees and other expenses of financings and other operating and overhead related expenses. The management fee and incentive fees compensate our Investment Adviser for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other costs and expenses relating to our operations and transactions, including:
(i) |
|
our operational, offering and organizational expenses, subject to the preceding paragraph; |
|
|
|
(ii) |
|
fees and expenses, including travel expenses (up to an amount equal to the first-class air travel equivalent), incurred by our Investment Adviser or payable to third parties related to our investments, including, among others, professional fees (including, without limitation, the fees and expenses of consultants and experts) and fees and expenses from evaluating, monitoring, researching and performing due diligence on investments and prospective investments; |
|
|
|
(iii) |
|
interest, fees and other expenses payable on financings, if any, incurred by us; |
|
|
|
(iv) |
|
fees and expenses incurred by us in connection with membership in investment company organizations; |
|
|
|
(v) |
|
commissions or brokerage fees or similar charges incurred in connection with the purchase or sale of securities (including merger fees), but shall not include any placement or similar fees incurred in connection with the sale of units; |
|
|
|
(vi) |
|
fees and expenses associated with calculating our net asset value (“NAV”), including the costs and expenses of an independent valuation firm (the “Independent Valuation Adviser”); |
|
|
|
(vii) |
|
legal, auditing or accounting expenses; |
|
|
|
(viii) |
|
taxes or governmental fees; |
|
|
|
(ix) |
|
the fees and expenses of our Administrator, transfer agent and/or sub-transfer agent; |
24
|
|
|
(x) |
|
the cost of preparing certificates for the units or any other expenses, including clerical expenses of issue, redemption or repurchase of the units; |
|
|
|
(xi) |
|
the expenses of, and fees for, registering or qualifying units for sale, and maintaining our registration; |
|
|
|
(xii) |
|
the fees and expenses of our independent directors; |
|
|
|
(xiii) |
|
the fees or disbursements of custodians of our assets, including expenses incurred in the performance of any obligations enumerated by our organizational documents insofar as they govern agreements with any such custodian; |
|
|
|
(xiv) |
|
the cost of preparing and distributing reports, proxy statements, tender offer documents, and notices to holders of our equity interests, the SEC and other regulatory authorities; |
|
|
|
(xv) |
|
insurance premiums and fidelity bond costs; |
|
|
|
(xvi) |
|
costs of holding unitholder meetings; |
|
|
|
(xvii) |
|
listing fees, if any; |
|
|
|
(xviii) |
|
costs incurred in connection with any claim, litigation, arbitration, mediation, government investigation or dispute in connection with our business and the amount of any judgment or settlement paid in connection therewith, or the enforcement of our rights against any person and indemnification or contribution expenses payable by us to any person and other extraordinary expenses not incurred in the ordinary course of our business; |
|
|
|
(xix) |
|
expenses incurred by the Investment Adviser payable to third parties, including agents, consultants, attorneys or other advisors, relating to or associated with monitoring our financial and legal affairs, providing administrative services, monitoring or administering investments; |
|
|
|
(xx) |
|
expenses relating to the issue, repurchase and transfer of units to the extent not borne by the relevant transferring unitholder and/or assignees; |
|
|
|
(xxi) |
|
costs and expenses attributable to normal and extraordinary investment banking, commercial banking, accounting, auditing, appraisal, valuation, administrative agent activities, custodial and registration services provided to us, including in each case services with respect to the proposed purchase or sale of securities by us that are not reimbursed by the issuer of such securities or others (whether or not such purchase or sale is consummated, including broken deal fees); |
|
|
|
(xxii) |
|
costs of amending, restating or modifying our charter, our amended and restated bylaws, the Investment Advisory Agreement or related documents of us or related entities; |
|
|
|
(xxiii) |
|
fees, costs, and expenses incurred in connection with the termination, liquidation or dissolution of us or related entities; and |
|
|
|
(xxiv) |
|
all other properly and reasonably chargeable expenses incurred by us or the Investment Adviser in connection with administering our business. |
In addition, we shall bear the fees and expenses related to the preparation and maintaining of any necessary registrations with regulators in order to market our units in certain jurisdictions and fees and expenses associated with preparation and maintenance of any key information document or similar document required by law or regulation.
Prior to the commencement of operations on December 7, 2023, our Investment Adviser and its affiliates bore all organization and offering expenses in connection with our formation and the initial closing of the private offering. We will reimburse the Investment Adviser for all such expenses that it incurs on our behalf up to a maximum aggregate amount of $1.5 million in connection with our formation and the initial closing of the private offering, and the Investment Adviser has agreed to bear all such organization and offering expenses that were incurred prior to the commencement of operations in excess of $1.5 million. In all cases, placement or similar fees incurred in connection with the sales of our common units are not considered organization or offering costs and will be borne by our Investment Adviser and its affiliates. Following the commencement of operations, we will be responsible for all organization and offering expenses. Organization and offering costs incurred prior to the commencement of operations totaled $1.5 million.
Upon commencement of operations, organization expenses incurred were expensed, and our initial offering costs (other than the organization expenses) are being amortized over a twelve-month period beginning with the commencement of our operations.
From time to time, our Investment Adviser, our Administrator, or their affiliates may pay third-party providers of goods or services. We will reimburse the Investment Adviser, the Administrator or such affiliates thereof for any such amounts paid on our behalf.
25
Portfolio and Investment Activity
Our portfolio and investment activity during the three and six months ended June 30, 2024 is presented below (information at amortized cost unless otherwise indicated) (dollars in thousands):
|
|
Three Months Ended June 30, 2024 |
|
|
Six Months Ended June 30, 2024 |
|
||
Total investments, beginning of period |
|
$ |
116,541 |
|
|
$ |
105,495 |
|
New investments purchased |
|
|
37,634 |
|
|
|
48,765 |
|
Payment-in-kind interest capitalized |
|
|
88 |
|
|
|
88 |
|
Net accretion of discount on investments |
|
|
186 |
|
|
|
328 |
|
Net realized gain on investments |
|
|
— |
|
|
|
— |
|
Investments repaid |
|
|
(1,001 |
) |
|
|
(1,228 |
) |
Total investments, end of period |
|
$ |
153,448 |
|
|
$ |
153,448 |
|
|
|
|
|
|
|
|
||
Portfolio Companies at beginning of period |
|
|
25 |
|
|
|
22 |
|
Number of new Portfolio Companies |
|
|
4 |
|
|
|
7 |
|
Number of exited Portfolio Companies |
|
|
— |
|
|
|
— |
|
Portfolio Companies at end of period |
|
|
29 |
|
|
|
29 |
|
Our portfolio composition and weighted average yields as of June 30, 2024 and December 31, 2023 was as follows (dollars in millions):
|
|
June 30, 2024 |
|
|
December 31, 2023 |
|
||
Weighted average yield on debt investments, at amortized cost (1) |
|
|
11.6 |
% |
|
|
12.0 |
% |
Weighted average yield on debt investments, at fair value (1) |
|
|
11.5 |
% |
|
|
11.8 |
% |
Weighted average EBITDA (2) |
|
$ |
199 |
|
|
$ |
209 |
|
Weighted average loan-to-value (“LTV”) (3) |
|
|
37 |
% |
|
|
37 |
% |
Percentage of first lien secured debt portfolio investments, at fair value |
|
|
100 |
% |
|
|
100 |
% |
Percentage of debt investments bearing a floating rate, at fair value |
|
|
99.8 |
% |
|
|
100 |
% |
As of June 30, 2024 and December 31, 2023, there were no investments on non-accrual status.
Critical Accounting Estimates
Our financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results may differ from these estimates. Understanding our accounting policies and the extent to which we use management judgment and estimates in applying these policies is integral to understanding our financial statements.
Our critical accounting estimates should be read in conjunction with our risk factors described in “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023 and as described in Note 2 of this Quarterly Report on Form 10-Q for the quarter ended June 30, 2024.
Fair Value Measurements
We apply Financial Accounting Standards Board Accounting Standards Codification (“ASC”) Topic 820, which establishes a framework for measuring fair value in accordance with U.S. GAAP and required disclosures of fair value measurements.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is a market-based measurement, not an entity-specific measurement. For some assets and liabilities, observable market transactions or market information might be available. For other assets and liabilities, observable market transactions and market information might not be available. However, the objective of a fair value measurement in both cases is the same—to estimate the price when an orderly transaction to sell the asset or transfer the liability would take place between market participants at the measurement date under current market conditions (that is, an exit price at the measurement date from the perspective of a market participant that holds the asset or owes the liability).
ASC 820 establishes a hierarchal disclosure framework which ranks the observability of inputs used in measuring financial instruments at fair value. The observability of inputs is impacted by a number of factors, including the type of financial instruments and their specific characteristics. Financial instruments with readily available quoted prices, or for which fair value can be measured from quoted prices in active markets, generally will have a
26
higher degree of market price observability and a lesser degree of judgment applied in determining fair value. The levels used for classifying investments are not necessarily an indication of the risk associated with investing in these securities.
The three-level hierarchy for fair value measurement is defined as follows:
Level 1—inputs to the valuation methodology are quoted prices available in active markets for identical instruments as of the reporting date. The types of financial instruments included in Level 1 include unrestricted securities, including equities and derivatives, listed in active markets.
Level 2—inputs to the valuation methodology are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date. The type of financial instruments in this category includes less liquid and restricted securities listed in active markets, securities traded in other than active markets, government and agency securities, and certain over-the-counter derivatives where the fair value is based on observable inputs.
Level 3—inputs to the valuation methodology are unobservable and significant to overall fair value measurement. The inputs into the determination of fair value require significant management judgment or estimation. Financial instruments that are included in this category include investments in privately held entities and certain over-the-counter derivatives where the fair value is based on unobservable inputs.
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. Our assessment of the significance of a particular input to the fair value measurement requires judgment and considers factors specific to the financial instrument.
The Company’s board of directors (the “Board of Directors” or the “Board”) has designated the Investment Adviser as its “Valuation Designee” pursuant to Rule 2a-5 under the Investment Company Act, and in that role, the Investment Adviser is responsible for performing fair value determinations relating to all of the Company’s investments, including periodically assessing and managing any material valuation risks and establishing and applying fair value methodologies, in accordance with valuation policies and procedures that have been approved by the Company’s Board of Directors. Even though the Company’s Board of Directors designated the Company’s Investment Adviser as “Valuation Designee,” the Company’s Board of Directors continues to be responsible for overseeing the processes for determining fair valuation.
The majority of our investments are expected to fall within Level 3 of the fair value hierarchy. We do not expect that there will be readily available market values for most of the investments which will be in our portfolio, and we will value such investments at fair value as determined in good faith by the Valuation Designee under the direction of the Board of Directors using a documented valuation policy, described below, and a consistently applied valuation process. The factors that may be taken into account in pricing the investments at fair value include, as relevant, the nature and realizable value of any collateral, the Portfolio Company’s ability to make payments and its earnings and discounted cash flow, and the markets in which the Portfolio Company does business, comparison to publicly traded securities and other relevant factors. Available current market data are considered such as applicable market yields and multiples of publicly traded securities, comparison of financial ratios of peer companies, and changes in the interest rate environment and the credit markets that may affect the price at which similar investments would trade in their principal market, and other relevant factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Valuation Designee will consider the pricing indicated by the external event to corroborate or revise its valuation.
With respect to investments for which market quotations are not readily available, or for which market quotations are deemed not reflective of the fair value, the valuation procedures adopted by our Board of Directors contemplates a multi-step valuation process each quarter, as described below:
We do not intend to issue units at a purchase price below the then-current NAV per unit, except as permitted by Section 23 under the Investment Company Act.
27
When our NAV is determined other than on a quarter-end (such as in connection with issuances of common units on dates occurring mid-quarter), it is determined by our Investment Adviser, acting under delegated authority from, and subject to the supervision of, our Board of Directors and in accordance with procedures adopted by our Board of Directors.
Rule 2a-5 under the Investment Company Act was recently adopted by the SEC and establishes requirements for appointing a “valuation designee” and determining fair value in good faith for purposes of the Investment Company Act. Our valuation procedures comply with the new rule’s requirements.
Results of Operations
Operating results for the three and six months ended June 30, 2024 was as follows (in thousands):
|
|
Three Months Ended June 30, 2024 |
|
|
Six Months Ended June 30, 2024 |
|
||
Total investment income |
|
$ |
4,356 |
|
|
$ |
7,975 |
|
Net expenses |
|
|
2,455 |
|
|
|
4,542 |
|
Net investment income |
|
|
1,901 |
|
|
|
3,433 |
|
Net realized gain |
|
|
— |
|
|
|
— |
|
Net change in unrealized depreciation |
|
|
(26 |
) |
|
|
(198 |
) |
Net increase in member’s capital resulting from operations |
|
$ |
1,875 |
|
|
$ |
3,235 |
|
Net increase in member’s capital resulting from operations can vary from period to period as a result of various factors, including acquisitions, the level of new investment commitments, the recognition of realized gains and losses and changes in unrealized appreciation and depreciation on the investment portfolio. The Company completed its acquisition of initial loans and commitments and began operations on December 4, 2023. Accordingly, there is no activity in the comparable period to June 30, 2024.
Investment Income
Investment income, was as follows (in thousands):
|
|
Three Months Ended June 30, 2024 |
|
|
Six Months Ended June 30, 2024 |
|
||
Interest income |
|
$ |
4,120 |
|
|
$ |
7,693 |
|
Payment-in-kind interest income |
|
|
101 |
|
|
|
101 |
|
Other income |
|
|
135 |
|
|
|
181 |
|
Total investment income |
|
$ |
4,356 |
|
|
$ |
7,975 |
|
For the three and six months ended June 30, 2024, total investment income was $4.4 million and $8.0 million, respectively, driven primarily by income earned on our investments. The size of our investment portfolio at fair value increased to $154.6 million at June 30, 2024 from $106.9 million at December 31, 2023.
Expenses
Expenses were as follows (in thousands):
|
|
Three Months Ended June 30, 2024 |
|
|
Six Months Ended June 30, 2024 |
|
||
Interest and other financing expenses |
|
$ |
1,794 |
|
|
$ |
3,084 |
|
Management fees |
|
|
258 |
|
|
|
514 |
|
Income-based incentive fees |
|
|
237 |
|
|
|
346 |
|
Capital gains incentive fees |
|
|
(3 |
) |
|
|
(25 |
) |
Other general and administrative expenses |
|
|
661 |
|
|
|
1,458 |
|
Total expenses before Fee Waiver |
|
|
2,947 |
|
|
|
5,377 |
|
Management fees waived |
|
|
(258 |
) |
|
|
(514 |
) |
Incentive fees waived |
|
|
(234 |
) |
|
|
(321 |
) |
Net expenses |
|
$ |
2,455 |
|
|
$ |
4,542 |
|
For the three and six months ended June 30, 2024, net expenses were $2.5 million and $4.5 million, respectively, primarily attributable to interest and other financing expenses partially offset by the Fee Waivers from our Investment Adviser.
28
Interest and other financing expenses
Total interest expense (including unused fees and amortization of deferred financing and debt issuance costs) of $1.8 million and $3.1 million, respectively, for the three and six months ended June 30, 2024 was driven by $73.1 million and $60.0 million, respectively, of average borrowings under our credit facility.
Management fees
For the three and six months ended June 30, 2024, management fees were $0.3 million and $0.5 million, respectively. Management fees are incurred at annual rate of 1.25% of the average value of our net assets at the end of the most recently completed calendar quarter. The Investment Adviser has agreed to waive the management fees for the one-year period following the initial closing, which resulted in a waiver of $0.3 million and $0.5 million, respectively, for the three and six months ended June 30, 2024.
Incentive fees
For the three and six months ended June 30, 2024, total incentive fees were $0.2 million and $0.3 million, respectively. The Investment Adviser has agreed to waive the incentive fee for the first one-year period following the initial closing, which resulted in a waiver of $0.2 million and $0.3 million, respectively, for the three and six months ended June 30, 2024.
Net Realized Gain (Loss)
For the three and six months ended June 30, 2024, we had no realized gains (losses) on investments.
Net Unrealized Appreciation (Depreciation)
Net unrealized appreciation (depreciation) was comprised of the following (in thousands):
|
|
Three Months Ended June 30, 2024 |
|
|
Six Months Ended June 30, 2024 |
|
||
Non-controlled/non-affiliated investments |
|
|
|
|
|
|
||
Net unrealized depreciation |
|
$ |
(26 |
) |
|
$ |
(198 |
) |
For the three and six months ended June 30, 2024, we recognized gross unrealized appreciation on investments of $0.5 million and $0.8 million, respectively, and gross unrealized depreciation on investments of $0.5 million and $1.0 million, respectively, resulting in net change in unrealized depreciation of $0.0 million and $0.2 million, respectively, on investments.
Liquidity and Capital Resources
The Company’s liquidity and capital resources are generated and generally available through our continuous offering of common units and debt offerings, our Senior Secured Credit Facility (as defined in Note 6 to the consolidated financial statements), as well as from cash flows from operations, investment sales of liquid assets and receipt of investment principal and interest.
As of June 30, 2024, we had one Senior Secured Credit Facility outstanding with a maximum available amount of $200 million that is committed to increase to $400 million on December 7, 2024. We may enter into additional credit facilities, increase the size of our existing credit facilities or issue additional debt securities, including debt securitizations and unsecured debt. Any such incurrence or issuance would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. In accordance with the Investment Company Act, with certain limited exceptions, we are only allowed to incur borrowings, issue debt securities or issue preferred stock, if immediately after the borrowing or issuance, the ratio of total assets (less total liabilities other than indebtedness) to total indebtedness is at least 150%.
We believe that our current cash and cash equivalents on hand, our available borrowing capacity under our Senior Secured Credit Facility and our anticipated cash flows from operations will be adequate to meet our cash needs for our daily operations in the near term.
Cash Equivalents
Cash equivalents include highly liquid investments, including money market funds, not held for resale with original maturities of three months or less.
Restricted Cash
Restricted cash includes the amount of principal and interest collections received as well as amounts in reserve to fund draws on our credit facility that are all held at SCI BDC SPV I LLC.
Debt
As of June 30, 2024, we had an aggregate principal amount of $91.4 million of debt outstanding under our Senior Secured Credit Facility. The Senior Secured Credit Facility matures on December 7, 2028, unless there is an earlier termination or an acceleration following an event of default.
See Note 6 to the consolidated financial statements for information on the Company’s debt.
Member’s Capital
See Note 7 to the consolidated financial statements for information on the Company’s common units and related capital activities.
29
Distributions
The Board authorizes and declares distribution amounts per unit. The following table presents distributions that were declared during the three and six months ended June 30, 2024 (in thousands, except per unit data):
Declaration Date |
|
Record Date |
|
Payment Date |
|
Per Unit |
|
|
Amount |
|
||
March 28, 2024 |
|
March 28, 2024 |
|
April 5, 2024 |
|
$ |
5.6624 |
|
|
$ |
252 |
|
May 13, 2024 |
|
May 28, 2024 |
|
June 6, 2024 |
|
|
37.1568 |
|
|
|
1,657 |
|
|
|
|
|
|
|
$ |
42.8192 |
|
|
$ |
1,909 |
|
The Company adopted a dividend reinvestment plan, pursuant to which we will reinvest all cash dividends or other distributions authorized by the Board of Directors and declared by the Company on behalf of unitholders who affirmatively elect to reinvest their dividends or other distributions. As a result, if the Board of Directors authorizes, and we declare, a cash dividend or other distribution, then unitholders who have elected to participate in our dividend reinvestment plan will have their cash distributions automatically reinvested in additional common units, rather than receiving the cash dividend or other distribution.
To maintain our RIC status, we must distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. Although we currently intend to distribute realized net capital gains (i.e., net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for such distributions, we may in the future decide to retain such capital gains for investments.
Unit Repurchase Program
The Company intends to commence a unit repurchase program in which it has the ability to repurchase the Company’s common unit outstanding as of the close of the previous calendar quarter. The Board of Directors may amend or suspend the unit repurchase program if in its reasonable judgment it deems such action to be in the Company’s best interest and the best interest of our unitholders. As a result, unit repurchases may not be available each quarter. Should the Board of Directors suspend the unit repurchase program, the Board of Directors will consider whether the continued suspension of the program is in the best interests of the Company and unitholders on a quarterly basis. The Company intends to conduct such repurchase offers in accordance with the requirements of Rule 13e-4 promulgated under the Exchange Act and the Investment Company Act. All units purchased by the Company pursuant to the terms of each tender offer will be retired and thereafter will be authorized and unissued units.
Under the unit repurchase plan, to the extent the Company offers to repurchase units in any particular quarter, it is expected to repurchase units pursuant to tender offers on or around the last business day of that quarter using a purchase price equal to the NAV per unit as of the last calendar day of the applicable quarter, except that units that have not been outstanding for at least one year will be repurchased at 98% of such NAV (an “Early Repurchase Deduction”). The one-year holding period is measured as of the subscription closing date immediately following the prospective repurchase date. The Early Repurchase Deduction may be waived in the case of repurchase requests arising from the death, divorce or qualified disability of the holder. The Early Repurchase Deduction will be retained by the Company for the benefit of remaining unitholders.
Member’s Capital
Under the terms of our limited liability agreement, the Company is authorized to issue up to 1,000,000,000 common units.
On March 3, 2023, Jefferies Credit Partners LLC, an affiliate of the Investment Adviser, purchased 1,000 common units for $1,000. Our common units will be issued by us on a continuous basis at a price per unit generally equal our next calculated NAV per unit.
There were no common units issued or proceeds received for the three and six months ended June 30, 2024.
Contractual Obligations
We have entered into the Investment Advisory Agreement with the Investment Adviser to provide us with investment advisory services and the Administration Agreement with the Administrator to provide us with administrative services. Payments for investment advisory services under the Investment Advisory Agreements and reimbursements under the Administration Agreement and support are described in Note 2 and Note 3 to the consolidated financial statements.
We have also entered into an equity commitment letter with our wholly owned, consolidated subsidiary, SCI BDC SPV I LLC, in connection with the Company’s Senior Secured Credit Facility. See Note 6 to the consolidated financial statements for additional information.
Off-Balance Sheet Arrangements
We may become a party to financial instruments with off-balance sheet risk in the normal course of our business to meet the financial needs of our Portfolio Companies. These instruments may include commitments to extend credit and involve, to varying degrees, elements of liquidity and credit risk in excess of the amount recognized in the balance sheet.
Other Commitments and Contingencies
From time to time, we may become a party to certain legal proceedings incidental to the normal course of its business. At June 30, 2024, management is not aware of any pending or threatened litigation.
30
Related-Party Transactions
We entered into a number of business relationships with affiliated or related parties, including the following:
See Note 3 to the consolidated financial statements for additional information.
Recent Developments
See Note 11 to the consolidated financial statements for a summary of recent developments.
31
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are subject to financial market risks, including changes in interest rates and the valuations of our investment portfolio. Uncertainty with respect to the economic effects of elevated interest rates in response to inflation and significant volatility in the financial markets due to the Russian/Ukraine and Middle East conflicts, has materially impacted and could continue to materially impact our market risks, including those listed below. For additional information concerning potential impact on our business and our operating results, see “Item 1A. Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2023.
Investment Valuation Risk
Because there is not a readily available market value for most of the investments in our portfolio, we value most of our portfolio investments at fair value based on, among other things, the input of our management and audit committee and the independent valuation firm that has been engaged at the direction of our Board of Directors to assist in the valuation of each portfolio investment without a readily available market quotation. The Board of Directors has designated the Investment Adviser as its “Valuation Designee” pursuant to Rule 2a-5 under the Investment Company Act, and in that role, the Investment Adviser is responsible for performing fair value determinations relating to all of the Company’s investments, including periodically assessing and managing any material valuation risks and establishing and applying fair value methodologies, in accordance with valuation policies and procedures that have been approved by the Company’s Board of Directors. Even though the Company’s Board of Directors designated the Company’s Investment Adviser as “Valuation Designee,” the Company’s Board of Directors continues to be responsible for overseeing the processes for determining fair valuation.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Additionally, the fair value of our investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that we may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which we have recorded it. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized appreciation or depreciation reflected in the valuations currently assigned. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” and “—Fair Value Measurements” as well as Notes 2 and 5 to our consolidated financial statements for more information relating to our investment valuation.
Interest Rate Risk
Interest rate sensitivity refers to the change in our earnings that may result from changes in the level of interest rates. Because we fund, and continue to expect to fund, a portion of our investments with borrowings, our net investment income is, and is expected to continue to 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.
As of June 30, 2024, on a fair value basis, 99.8% of our debt portfolio investments bore interest at variable rates, which are SOFR based and typically have durations of one to six months after which they reset to current market interest rates, and substantially all are subject to certain floors. Our Senior Secured Credit Facility bears interest at a Term SOFR or a Base Rate, in each case plus an applicable margin equal to 2.70% for borrowings that reference Term SOFR and 1.70% for borrowings that reference the Base Rate.
We regularly measure our exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities. Based on that review, we determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates.
The following table shows the estimated annual impact on net investment income of base rate changes in interest rates (considering interest rate flows for variable rate instruments) to our loan portfolio and outstanding debt as of June 30, 2024, assuming no changes in our investment and borrowing structure (in thousands):
Basis Point Change |
|
Interest Income |
|
|
Interest Expense |
|
|
Net Income |
|
|||
Up 200 basis points |
|
$ |
3,134 |
|
|
$ |
(1,829 |
) |
|
$ |
1,305 |
|
Up 100 basis points |
|
|
1,567 |
|
|
|
(914 |
) |
|
|
653 |
|
Up 50 basis points |
|
|
784 |
|
|
|
(457 |
) |
|
|
327 |
|
Down 50 basis points |
|
|
(784 |
) |
|
|
457 |
|
|
|
(327 |
) |
Down 100 basis points |
|
|
(1,567 |
) |
|
|
914 |
|
|
|
(653 |
) |
Down 200 basis points |
|
|
(3,134 |
) |
|
|
1,829 |
|
|
|
(1,305 |
) |
We may hedge against interest rate fluctuations from time-to-time by using standard hedging instruments such as futures, options and forward contracts subject to the requirements of the Investment Company Act and applicable commodities laws. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio of investments.
32
Item 4. Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that the information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and such information is accumulated and communicated to management, including the Chief Executive Officer and the Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives.
We carried out an evaluation, under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2024. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of June 30, 2024, our disclosure controls and procedures were effective to accomplish their objectives at the reasonable assurance level.
(b) Changes in Internal Controls Over Financial Reporting
No changes in our internal control over financial reporting (as such term is defined in Rule 13a-15(f) of the Exchange Act) occurred during the quarter ended June 30, 2024 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
33
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
We are not currently subject to any material pending legal proceedings. From time to time, we may be a party to certain legal proceedings in the ordinary course of business, including proceedings relating to the enforcement of our rights under contracts with our Portfolio Companies. Our business is also subject to extensive regulation, which may result in regulatory proceedings against us.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, which could materially affect our business, financial condition and/or operating results. These risks are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
34
Item 6. Exhibits.
Exhibit Number |
|
Description |
|
||
|
||
|
||
|
||
|
||
|
||
|
||
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents |
104 |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
The agreements and other documents filed as exhibits to this report are not intended to provide factual information or other disclosure other than with respect to the terms of the agreements or other documents themselves, and you should not rely on them for that purpose. In particular, any representations and warranties made by us in these agreements or other documents were made solely within the specific context of the relevant agreement or document and may not describe the actual state of affairs as of the date they were made or at any other time.
35
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
Senior Credit Investments, LLC |
|
|
|
|
|
Date: August 13, 2024 |
|
By: |
/s/ Jason Kennedy |
|
|
|
Jason Kennedy |
|
|
|
Chief Executive Officer and President |
|
|
|
(Principal Executive Officer) |
|
|
|
|
Date: August 13, 2024 |
|
By: |
/s/ John Dalton |
|
|
|
John Dalton |
|
|
|
Chief Financial Officer |
|
|
|
(Principal Financial Officer) |
36