UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2023
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 814-01175
BAIN CAPITAL SPECIALTY FINANCE, INC.
(Exact Name of Registrant as Specified in its Charter)
Delaware
81-2878769
(State or Other Jurisdiction of
(I.R.S. Employer
Incorporation or Organization)
Identification No.)
200 Clarendon Street, 37th Floor
Boston, MA
02116
(Address of Principal Executive Office)
(Zip Code)
(617) 516-2000
(Registrant’s Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.001 per share
BCSF
New York Stock Exchange
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. Yes ☒ No ☐
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). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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 ☒
Accelerated filer ☐
Non-accelerated filer ☐
Smaller reporting company ☐
Emerging growth company ☐
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 8, 2023 the registrant had 64,562,265.27 shares of common stock outstanding.
Table of Contents
Page
PART I
FINANCIAL INFORMATION
Item 1.
Consolidated Financial Statements
3
Consolidated Statements of Assets and Liabilities as of June 30, 2023 (unaudited) and December 31, 2022
Consolidated Statements of Operations for the three and six months ended June 30, 2023 and 2022 (unaudited)
4
Consolidated Statements of Changes in Net Assets for the three and six months ended June 30, 2023 and 2022 (unaudited)
5
Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (unaudited)
6
Consolidated Schedules of Investments as of June 30, 2023 (unaudited) and December 31, 2022
7
Notes to Consolidated Financial Statements (unaudited)
43
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
113
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
134
Item 4.
Controls and Procedures
PART II
OTHER INFORMATION
Legal Proceedings
135
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits, Financial Statement Schedules
136
Signatures
140
i
FORWARD-LOOKING STATEMENTS
Statements contained in this Quarterly Report on Form 10-Q (the “Quarterly Report”) (including those relating to current and future market conditions and trends in respect thereof) that are not historical facts are based on current expectations, estimates, projections, opinions and/or beliefs of the Company, BCSF Advisors, LP (the “Advisor”) and/or Bain Capital Credit, LP and its affiliated advisers (collectively, “Bain Capital Credit”). Such statements involve known and unknown risks, uncertainties and other factors and undue reliance should not be placed thereon. Certain information contained in this Quarterly Report constitutes “forward-looking statements,” which can be identified by the use of forward-looking terminology such as “may,” “will,” “should,” “seek,” “expect,” “anticipate,” “project,” “estimate,” “intend,” “continue,” “target,” or “believe” or the negatives thereof or other variations thereon or comparable terminology. Due to various risks and uncertainties, actual events or results or the actual performance of the Company may differ materially from those reflected or contemplated in such forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and are difficult to predict, that could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements including, without limitation, the risks, uncertainties and other factors we identify in the section entitled Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K (the “Annual Report”) for the fiscal year ended December 31, 2022 and in our filings with the Securities and Exchange Commission (the “SEC”).
Although we believe that the assumptions on which these forward-looking statements are based are reasonable, some of those assumptions may be based on the work of third parties and any of those assumptions could prove to be inaccurate; as a result, the forward-looking statements based on those assumptions also could prove to be inaccurate. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report should not be regarded as a representation by us that our plans and objectives will be achieved. These risks and uncertainties include those described or identified in the section entitled Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. Investors should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report. We do not undertake any obligation to update or revise any forward-looking statements or any other information contained herein, except as required by applicable law. The safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which preclude civil liability for certain forward-looking statements, do not apply to the forward-looking statements in this Quarterly Report because we are an investment company.
ii
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Bain Capital Specialty Finance, Inc.
Consolidated Statements of Assets and Liabilities
(in thousands, except share and per share data)
As of
June 30, 2023
December 31, 2022
(Unaudited)
Assets
Investments at fair value:
Non-controlled/non-affiliate investments (amortized cost of $1,745,841 and $1,846,172, respectively)
$
1,669,079
1,774,947
Non-controlled/affiliate investment (amortized cost of $149,376 and $133,808, respectively)
191,995
173,400
Controlled affiliate investment (amortized cost of $520,410 and $439,958, respectively)
524,198
438,630
Cash and cash equivalents
87,727
30,205
Foreign cash (cost of $5,203 and $34,528, respectively)
4,612
29,575
Restricted cash and cash equivalents
36,243
65,950
Collateral on forward currency exchange contracts
7,545
9,612
Deferred financing costs
3,276
3,742
Interest receivable on investments
40,342
34,270
Receivable for sales and paydowns of investments
95,893
18,166
Prepaid Insurance
605
194
Unrealized appreciation on forward currency exchange contracts
55
62
Dividend receivable
13,818
13,681
Total Assets
2,675,388
2,592,434
Liabilities
Debt (net of unamortized debt issuance costs of $8,893 and $10,197, respectively)
1,489,607
1,385,303
Interest payable
15,897
12,130
Payable for investments purchased
233
34,292
Base management fee payable
9,116
8,906
Incentive fee payable
4,008
9,216
Unrealized depreciation on forward currency exchange contracts
1,308
—
Accounts payable and accrued expenses
4,906
2,954
Distributions payable
24,534
23,242
Total Liabilities
1,549,609
1,476,043
Commitments and Contingencies (See Note 10)
Net Assets
Common stock, par value $0.001 per share, 100,000,000,000 and 100,000,000,000 shares authorized, 64,562,265 and 64,562,265 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively
65
Paid in capital in excess of par value
1,168,384
Total distributable loss
(42,670
)
(52,058
Total Net Assets
1,125,779
1,116,391
Total Liabilities and Total Net Assets
Net asset value per share
17.44
17.29
See Notes to Consolidated Financial Statements
Consolidated Statements of Operations
For the Three Months Ended June 30
For the Six Months Ended June 30
2023
2022
Income
Investment income from non-controlled/non-affiliate investments:
Interest from investments
47,101
29,769
95,170
64,056
Dividend income
61
108
PIK income
6,249
2,375
10,089
4,883
Other income
1,922
7,690
7,170
8,155
Total investment income from non-controlled/non-affiliate investments
55,333
39,834
112,491
77,202
Investment income from non-controlled/affiliate investments:
2,525
1,901
4,963
2,225
1,630
1,851
3,005
628
45
1,022
1,449
Total investment income from non-controlled/affiliate investments
4,783
3,797
8,990
5,525
Investment income from controlled affiliate investments:
8,562
4,214
14,917
7,636
7,037
4,519
14,054
8,012
Total investment income from controlled affiliate investments
15,599
8,733
28,971
15,648
Total investment income
75,715
52,364
150,452
98,375
Expenses
Interest and debt financing expenses
20,459
11,027
40,009
21,670
Base management fee
8,451
18,026
16,820
Incentive fee
4,069
15,118
7,380
Professional fees
451
446
1,032
836
Directors fees
179
353
354
Other general and administrative expenses
1,493
1,477
3,152
2,897
Total expenses, net of fee waivers
35,706
25,649
77,690
49,957
Net investment income before taxes
26,715
72,762
48,418
Income tax expense, including excise tax
1,097
1,692
Net investment income
38,912
71,070
Net realized and unrealized gains (losses)
Net realized loss on non-controlled/non-affiliate investments
(229
(2,576
(10,880
(1,159
Net realized gain (loss) on foreign currency transactions
(321
3,166
(4,534
2,678
Net realized gain (loss) on forward currency exchange contracts
2,018
(2,385
3,261
Net change in unrealized appreciation on foreign currency translation
127
(2,051
3,894
(1,705
Net change in unrealized appreciation on forward currency exchange contracts
(1,476
8,124
(1,315
9,775
Net change in unrealized appreciation on non-controlled/non-affiliate investments
(6,925
(27,206
(5,537
(32,314
Net change in unrealized appreciation on non-controlled/affiliate investments
(432
9,102
3,027
14,769
Net change in unrealized appreciation on controlled affiliate investments
(485
(63
5,116
7,187
Total net gains (losses)
(9,741
(9,486
(12,614
2,492
Net increase in net assets resulting from operations
29,171
17,229
58,456
50,910
Basic and diluted net investment income per common share
0.60
0.41
1.10
0.75
Basic and diluted increase in net assets resulting from operations per common share
0.45
0.27
0.91
0.79
Basic and diluted weighted average common shares outstanding
64,562,265
Consolidated Statements of Changes in Net Assets
Operations:
Net realized gain (loss)
(550
2,608
(17,799
4,780
Net change in unrealized appreciation
(9,191
(12,094
5,185
(2,288
Stockholder distributions:
Distributions from distributable earnings
(24,534
(21,951
(49,068
(43,902
Net decrease in net assets resulting from stockholder distributions
Total increase (decrease) in net assets
4,637
(4,722
9,388
7,008
Net assets at beginning of period
1,121,142
1,111,736
1,100,006
Net assets at end of period
1,107,014
Net asset value per common share
17.15
Common stock outstanding at end of period
Consolidated Statements of Cash Flows
Cash flows from operating activities
Adjustments to reconcile net increase (decrease) in net assets from operations to net cash used in operating activities:
Purchases of investments
(539,565
(761,843
Proceeds from principal payments and sales of investments
435,472
434,198
Net realized loss from investments
10,880
1,159
Net realized (gain) loss on foreign currency transactions
4,534
(2,678
1,315
(9,775
Net change in unrealized appreciation on investments
(2,606
10,358
(3,894
1,705
Increase in investments due to PIK
(11,111
(6,314
Accretion of discounts and amortization of premiums
(3,151
(2,694
Amortization of deferred financing costs and debt issuance costs
1,770
2,001
Changes in operating assets and liabilities:
2,067
5,558
(6,072
(8,507
(411
(366
(137
7,571
3,767
106
210
(341
(5,208
(658
1,952
(579
Net cash used in operating activities
(51,732
(280,189
Cash flows from financing activities
Borrowings on debt
308,000
349,747
Repayments on debt
(205,000
(157,000
Payments of financing costs
(2,186
Stockholder distributions paid
(47,776
Net cash provided by financing activities
55,224
146,659
Net increase (decrease) in cash, foreign cash, restricted cash and cash equivalents
3,492
(133,530
Effect of foreign currency exchange rates
(640
(1,125
Cash, foreign cash, restricted cash and cash equivalents, beginning of period
125,730
203,581
Cash, foreign cash, restricted cash and cash equivalents, end of period
128,582
68,926
Supplemental disclosure of cash flow information:
Cash interest paid during the period
34,472
19,562
Cash paid for income taxes, including excise taxes during the period
1,209
Supplemental disclosure of non-cash information:
Company investment into Bain Capital Senior Loan Program, LLC
5,584
Deconsolidation of BCC Middle Market CLO 2018-1 LLC
Disposition of assets
470,616
Reduction of liabilities
(390,448
Cash
38,013
Restricted cash
25,910
Foreign cash
5,003
Total cash, foreign cash, restricted cash, and cash equivalents shown in the consolidated statements of cash flows
Consolidated Schedule of Investments
As of June 30, 2023
(In thousands)
Portfolio Company
Investment Type
Index (1)
Spread
Interest Rate
Maturity Date
Principal/Shares (9)
Cost
Market Value
% of NAV (4)
Non-Controlled/Non-Affiliate Investments
Aerospace & Defense
Forming Machining Industries Holdings, LLC (18)(19)
First Lien Senior Secured Loan
SOFR
4.25%
9.66
%
10/9/2025
16,185
16,136
13,676
Second Lien Senior Secured Loan
8.25%
13.66
10/9/2026
6,540
6,509
5,330
GSP Holdings, LLC (15)(19)(26)(29)
5.75% (0.25% PIK)
11.14
11/6/2025
35,388
35,530
33,088
GSP Holdings, LLC (3)(15)(19)(26)
First Lien Senior Secured Loan - Revolver
2,283
2,265
1,987
Kellstrom Aerospace Group, Inc (14)(19)(25)
Equity Interest
1
1,963
968
Kellstrom Commercial Aerospace, Inc. (15)(19)
6.50%
11.72
7/1/2025
29,724
29,327
28,684
Kellstrom Commercial Aerospace, Inc. (3)(15)(19)(26)
6.50% (0.50% PIK)
12.03
1,112
1,105
961
Mach Acquisition R/C (3)(15)(19)
7.65%
12.90
10/18/2026
7,532
7,399
6,930
Mach Acquisition T/L (15)(19)(26)
L
4.50% (4.00% PIK)
13.77
33,826
33,390
31,796
Precision Ultimate Holdings, LLC (14)(19)(25)
1,417
1,192
Robinson Helicopter (14)(19)(25)
1,592
1,706
Robinson Helicopter (15)(19)(29)
11.70
6/30/2028
15,736
15,427
Saturn Purchaser Corp. (15)(19)(29)
5.60%
10.69
7/23/2029
46,032
45,589
Saturn Purchaser Corp. (3)(5)(15)(19)
7/22/2029
(42
Whitcraft-Paradigm (18)(19)(29)
7.00%
12.34
2/28/2029
12,424
12,309
12,300
Whitcraft-Paradigm (2)(3)(5)(15)(19)
(21
(22
WP CPP Holdings, LLC. (15)(19)
7.75%
13.03
4/30/2026
11,724
11,671
9,380
Aerospace & Defense Total
221,566
209,744
18.6
Automotive
American Trailer Rental Group (19)(26)
Subordinated Debt
9.00% (2.00% PIK)
11.00
12/1/2027
5,050
4,994
4,973
15,580
15,324
15,347
19,456
19,120
19,164
Cardo (6)(17)(19)
5.50%
11.08
5/12/2028
98
97
Gills Point S (15)(19)(29)
12.09
5/15/2029
12,695
Gills Point S (3)(15)(19)
First Lien Senior Secured Loan - Delayed Draw
Gills Point S (14)(19)(25)
2
184
Intoxalock (15)(19)(29)
6.75%
12.00
11/1/2028
12,189
12,080
12,128
Intoxalock (2)(3)(5)(15)(19)
(31
(17
JHCC Holdings, LLC (15)(19)
10.66
9/9/2025
19
JHCC Holdings, LLC (15)(19)(29)
10.89
12,104
12,032
JHCC Holdings, LLC (3)(5)(15)(19)
(25
Automotive Total
76,489
76,679
6.8
Banking, Finance, Insurance & Real Estate
Morrow Sodali (3)(15)(19)
5.00%
10.20
4/25/2028
762
736
741
Morrow Sodali (15)(19)(29)
2,639
2,623
2,613
5.25%
10.45
1,960
1,902
1,938
Banking, Finance, Insurance & Real Estate Total
5,261
5,292
0.5
Beverage, Food & Tobacco
Arctic Glacier U.S.A., Inc. (19)(31)
11.65
5/24/2028
13,073
12,814
12,812
Arctic Glacier U.S.A., Inc. (3)(19)(26)(31)
P
4.25% (4.00% PIK)
13.86
1,085
1,047
1,046
NPC International, Inc. (14)(19)(25)(27)
342
512
41
PPX (14)(19)(25)
Preferred Equity
33
187
5,000
6,159
Beverage, Food & Tobacco Total
19,373
20,245
1.8
Capital Equipment
ClockSpring (15)(19)(26)
6.50% (5.00% PIK)
16.74
8/1/2025
5,436
5,368
East BCC Coinvest II, LLC (14)(19)(25)
1,419
608
Ergotron Acquisition LLC (18)(19)(29)
5.75%
10.96
7/6/2028
12,158
11,946
12,037
FCG Acquisitions, Inc. (14)(19)(25)
Jonathan Acquisition Company (15)(19)
9.10%
14.32
12/22/2027
8,000
7,855
7,880
TCFIII Owl Finance, LLC (19)
12.00%
1/30/2027
5,142
5,090
4,962
Capital Equipment Total
31,678
30,923
2.7
Chemicals, Plastics & Rubber
AP Plastics Group, LLC (18)(19)(29)
4.75%
9.99
8/10/2028
7,212
7,020
6,960
Hultec (14)(19)(25)
651
V Global Holdings LLC (16)(19)(29)
10.87
5,832
5,741
5,745
V Global Holdings LLC (3)(18)(19)
10.99
12/22/2025
2,397
2,275
2,252
V Global Holdings LLC (16)(19)
EURIBOR
9.41
€
99
103
107
Chemicals, Plastics & Rubber Total
15,790
15,715
1.4
8
Construction & Building
Chase Industries, Inc. (15)(19)(26)
7.00% PIK
12.54
5/12/2025
1,403
1,402
1,305
14,833
14,815
13,795
Elk Parent Holdings, LP (14)(19)(25)
12
796
120
1,202
1,607
Regan Development Holdings Limited (6)(17)(19)
9.78
10/29/2023
2,087
2,274
2,186
677
768
709
6,335
6,902
6,617
Service Master (3)(15)(19)(26)
7.50% (1.00% PIK)
14.01
8/16/2027
4,872
4,778
Service Master (15)(19)(26)
915
902
Service Master (14)(19)(25)
350
356
404
21,807
YLG Holdings, Inc. (15)(19)(29)
10.18
10/31/2025
17,050
16,990
YLG Holdings, Inc. (15)(19)
10.15
4,996
4,993
YLG Holdings, Inc. (3)(18)(19)
10.35
598
565
Construction & Building Total
77,766
77,657
6.9
Consumer Goods: Durable
New Milani Group LLC (15)(19)
10.70
6/6/2024
11,389
11,205
Stanton Carpet (15)(19)
9.00%
14.42
3/31/2028
11,434
11,250
Tangent Technologies Acquisition, LLC (15)(19)
8.75%
13.74
5/30/2028
8,915
8,769
8,804
TLC Holdco LP (14)(19)(25)
1,281
1,221
TLC Purchaser, Inc. (15)(19)(26)
2.26% (6.25% PIK)
10/13/2025
36,570
36,066
28,616
TLC Purchaser, Inc. (3)(18)(19)
6.25%
11.75
5,408
5,290
3,337
Consumer Goods: Durable Total
73,801
63,580
5.6
9
Consumer Goods: Non-Durable
Fineline Technologies, Inc. (14)(19)(25)
939
FL Hawk Intermediate Holdings, Inc. (15)(19)
14.50
8/22/2028
15,125
14,783
RoC Opco LLC (15)(19)(29)
7.60%
12.84
2/25/2025
14,964
14,847
RoC Opco LLC (3)(5)(15)(19)
(60
Solaray, LLC (3)(15)(19)
11.59
9/9/2023
14,053
13,807
Solaray, LLC (15)(19)(29)
11.61
30,517
29,983
4.50%
9.84
7,367
7,364
WU Holdco, Inc. (15)(19)(28)
3/26/2026
1,687
1,664
1,603
WU Holdco, Inc. (15)(19)(29)
37,482
37,136
35,608
WU Holdco, Inc. (3)(18)(19)
3/26/2025
3,268
3,250
2,986
Consumer Goods: Non-Durable Total
124,493
122,345
10.9
Consumer Goods: Wholesale
WSP (15)(19)(29)
11.45
4/27/2027
5,527
5,447
4,864
WSP (14)(19)(25)
2,898
452
WSP (2)(3)(5)(15)(19)
(6
(54
216
758
Consumer Goods: Wholesale Total
8,555
6,020
Containers, Packaging & Glass
ASP-r-pac Acquisition Co LLC (16)(19)(29)
6.00%
11.31
12/29/2027
4,063
3,998
3,961
ASP-r-pac Acquisition Co LLC (2)(3)(5)(16)(19)
(49
(81
Iris Holding, Inc. (17)(29)
9.90
6/28/2028
12,952
12,363
11,030
Containers, Packaging & Glass Total
16,312
14,910
1.3
Energy: Oil & Gas
AmSpec Group, Inc (18)(19)
7/2/2024
5,076
Amspec Services, Inc. (15)(19)
2,755
2,744
Amspec Services, Inc. (15)(19)(29)
22,870
22,811
Amspec Services, Inc. (3)(15)(19)
3.75%
2,911
2,899
Energy: Oil & Gas Total
33,448
33,612
3.0
10
Environmental Industries
Reconomy (6)(18)(19)
SONIA
11.18
6/24/2029
£
68
82
86
9.60
7,947
8,213
27
28
29
Reconomy (3)(5)(6)(18)(19)
(69
Titan Cloud Software, Inc (14)(19)(25)
3,226
3,926
Titan Cloud Software, Inc (15)(19)
11.13
9/7/2029
25,714
25,482
25,521
Titan Cloud Software, Inc (3)(15)(19)
11.35
857
771
Titan Cloud Software, Inc (2)(3)(5)(15)(19)
9/7/2028
(43
Environmental Industries Total
37,405
38,503
3.4
FIRE: Finance
Allworth Financial Group, L.P. (15)(19)(29)
12/23/2026
1,497
1,484
1,467
870
858
852
Allworth Financial Group, L.P. (2)(3)(5)(18)(19)
(11
Congress Buyer DD T/L (3)(18)(19)
6/30/2029
Congress Buyer R/C (3)(18)(19)
Congress Buyer T/L A (18)(19)
6.85%
4,743
Congress Wealth (14)(19)(25)
15
294
FNZ UK Finco Limited (6)(18)(19)
9.37
9/30/2026
AUD
81
54
Insigneo Financial Group LLC (15)(19)
8/1/2028
3,825
3,740
3,749
Insigneo Financial Group LLC (14)(19)(25)
2,263
2,142
Parmenion (6)(15)(19)
10.68
5/11/2029
328
409
417
TA/Weg Holdings (15)(19)(29)
11.63
10/2/2025
2,361
2,354
2,343
9,352
9,281
FIRE: Finance Total
25,541
25,293
2.2
11
FIRE: Insurance
Margaux Acquisition Inc. (15)(19)(29)
11.15
12/19/2024
16,584
16,480
Margaux Acquisition Inc. (3)(15)(19)
11.02
12/19/2025
2,138
2,124
Margaux UK Finance Limited (3)(6)(18)(19)
10.80
422
515
536
Margaux UK Finance Limited (6)(18)(19)
7,434
9,636
9,444
MRHT (6)(15)(19)
10.03
2/1/2029
956
1,025
1,033
MRHT (2)(3)(5)(6)(15)(19)
(55
Paisley Bidco Limited (6)(18)(19)
9.54
11/26/2028
6,373
7,561
8,152
8.24
32
36
35
Simplicity (18)(19)(29)
11.64
12/2/2026
16,683
16,220
16,183
Simplicity (2)(3)(5)(18)(19)
(154
(164
(41
(44
World Insurance (15)(19)(29)
4/1/2026
8,233
8,186
8,150
11.09
3,098
3,061
3,067
World Insurance (2)(3)(5)(18)(19)
(10
(9
FIRE: Insurance Total
64,614
65,050
5.8
Healthcare & Pharmaceuticals
Apollo Intelligence (15)(19)(29)
10.91
6/1/2028
15,309
15,182
Apollo Intelligence (3)(5)(16)(19)
(79
Apollo Intelligence (3)(18)(19)
1,201
1,142
Apollo Intelligence (14)(19)(25)
3,162
3,183
CB Titan Holdings, Inc. (14)(19)(25)
1,953
1,036
CB Titan Holdings, Inc. (15)(19)
11/1/2024
186
CPS Group Holdings, Inc. (15)(19)(29)
10.64
3/3/2025
34,504
34,391
CPS Group Holdings, Inc. (3)(18)(19)
10.46
1,776
1,756
Datix Bidco Limited (3)(6)(19)
8.68
10/28/2024
Datix Bidco Limited (6)(18)(19)
11.93
4/27/2026
121
164
154
BBSW
8.41
4/28/2025
42
Great Expressions Dental Center PC (15)(19)
9/28/2023
8,114
8,166
6,572
7.50%
13.25
1,266
1,265
Mertus 522. GmbH (6)(18)(19)
5/28/2026
131
143
139
225
248
238
Premier Imaging, LLC (15)(19)(29)
11.22
1/2/2025
7,105
7,048
Premier Imaging, LLC (3)(15)(19)
1,926
1,874
SunMed Group Holdings, LLC (16)(19)(29)
6/16/2028
8,650
8,535
8,347
Sunmed Group Holdings, LLC (2)(3)(5)(16)(19)
6/16/2027
(14
Healthcare & Pharmaceuticals Total
85,164
82,510
7.3
High Tech Industries
Access (6)(18)(19)
9.68
6/4/2029
80
102
Access (3)(6)(18)(19)
8,577
9,818
10,896
AMI US Holdings Inc. (6)(15)(19)(29)
10.50
4/1/2025
3,836
3,811
Applitools (6)(19)(32)
5/25/2029
16,381
16,253
15,971
Applitools (2)(3)(5)(16)(19)
5/25/2028
(28
(86
Appriss Holdings, Inc. (14)(19)(25)
2,136
1,606
1,546
Appriss Holdings, Inc. (15)(19)
11.90
5/6/2027
11,236
11,077
11,039
Appriss Holdings, Inc. (2)(3)(5)(15)(19)
(13
AQ Software Corporation (14)(19)(25)
1,107
1,129
1,844
1,881
507
517
CB Nike IntermediateCo Ltd (3)(6)(15)(19)
CB Nike IntermediateCo Ltd (6)(15)(19)
10.02
119
Cloud Technology Solutions (CTS) (6)(14)(19)(25)
4,408
5,360
5,674
Cloud Technology Solutions (CTS) (6)(18)(19)(26)
4.00% (3.50% PIK)
12.43
1/3/2030
8,112
9,825
10,304
Drilling Info Holdings, Inc (18)
9.50
7/30/2025
1,491
1,428
Eagle Rock Capital Corporation (14)(19)(25)
3,345
3,989
Element Buyer, Inc. (15)(19)
7/19/2025
10,908
10,920
Element Buyer, Inc. (15)(19)(29)
36,434
36,557
Element Buyer, Inc. (3)(5)(15)(19)
7/19/2024
Eleven Software (15)(19)
13.49
4/25/2027
7,439
Eleven Software (3)(15)(19)
8.10%
13.26
9/25/2026
1,091
1,080
Eleven Software (14)(19)(25)
896
863
Gluware (19)(26)
9.00% (5.50% PIK)
10/15/2025
25,466
24,819
24,409
Gluware (14)(19)(25)
Warrants
4,307
478
457
MRI Software LLC (15)(28)
10.84
2/10/2026
25,530
25,488
24,828
MRI Software LLC (2)(3)(15)
NearMap (6)(18)(19)
7.25%
12.45
12/9/2029
17,848
17,516
17,670
NearMap (2)(3)(5)(15)(19)
(85
(47
Onventis (6)(15)(19)
10.76
1/12/2030
8,919
9,588
9,729
Revalize, Inc. (14)(19)(25)
1,431
1,475
13
High Tech Industries, Continued
Revalize, Inc. (15)(19)(29)
10.95
4/15/2027
5,331
5,118
Revalize, Inc. (18)(19)
2,009
1,995
1,929
Revalize, Inc. (2)(3)(5)(15)(19)
SAM (19)(26)
11.25% PIK
11.25
5/9/2028
36,195
35,948
34,747
Superna Inc. (2)(3)(5)(6)(15)(19)
3/6/2028
Superna Inc. (6)(15)(19)
11.74
2,748
2,702
2,659
Superna Inc. (6)(14)(19)(25)
1,463
1,213
Swoogo LLC (15)(19)
8.00%
13.19
12/9/2026
2,330
2,296
2,318
Swoogo LLC (2)(3)(5)(15)(19)
Utimaco (6)(18)(19)
9.71
5/13/2029
92
11.56
128
125
262
260
257
Utimaco (6)(14)(19)(25)
2,123
2,120
Ventiv Holdco, Inc. (15)(19)(29)
9/3/2025
13,866
13,781
13,658
Ventiv Holdco, Inc. (2)(3)(5)(18)(19)
(20
Ventiv Topco, Inc. (14)(19)(25)
2,833
1,978
VPARK BIDCO AB (6)(16)(19)
CIBOR
4.00%
7.42
3/10/2025
DKK
570
93
84
NIBOR
8.06
NOK
740
69
High Tech Industries Total
273,473
271,777
24.1
Hotel, Gaming & Leisure
Aimbridge Acquisition Co., Inc. (18)(19)
12.67
2/1/2027
14,193
13,950
13,484
Concert Golf Partners Holdco (16)(19)(29)
10.93
3/30/2029
6,795
6,677
Concert Golf Partners Holdco LLC (3)(16)(19)
10.63
4/2/2029
2,297
2,223
Concert Golf Partners Holdco LLC (3)(5)(16)(19)
(39
Pyramid Global Hospitality (15)(19)(29)
13.08
1/19/2027
9,975
9,708
9,776
Pyramid Global Hospitality (2)(3)(5)(15)(19)
(93
(70
Saltoun (18)(19)(29)
11.00%
4/11/2028
4,715
4,244
Saltoun (19)
1,346
1,211
Hotel, Gaming & Leisure Total
38,487
37,737
14
Media: Advertising, Printing & Publishing
Ansira Holdings, Inc. (7)(14)(19)
12/20/2024
44,754
40,589
5,123
4,992
5,383
5,125
Ansira Holdings, Inc. (14)(19)
Kpler (6)(15)(19)
3/3/2030
15,081
15,655
16,287
Kpler (6)(18)(19)
3,346
3,542
3,614
11.43
4,412
5,263
5,549
TGI Sport Bidco Pty Ltd (6)(18)(19)
7.11%
12.20
4,187
2,866
TGI Sport Bidco Pty Ltd (6)(17)(19)
11.19
76
Media: Advertising, Printing & Publishing Total
78,108
28,381
2.5
Media: Broadcasting & Subscription
Lightning Finco Limited (6)(16)(19)
11.23
8/31/2028
1,443
1,432
9.23
1,300
1,421
1,418
Media: Broadcasting & Subscription Total
2,853
2,861
0.3
Media: Diversified & Production
9 Story Media Group Inc. (3)(5)(6)(18)(19)
CAD
(1
9 Story Media Group Inc. (6)(16)(19)
CDOR
10.32
1,285
997
970
9 Story Media Group Inc. (6)(18)(19)
8.73
582
616
634
Aptus 1724 Gmbh (6)(19)(21)
11.76
2/23/2028
4,971
4,884
Efficient Collaborative Retail Marketing Company, LLC (15)(19)
13.00
6/30/2024
14,967
12,123
9,720
9,736
7,873
Efficient Collaborative Retail Marketing Company, LLC (3)(15)(19)
11.98
1,275
Music Creation Group Bidco GmbH (6)(19)(21)
4,065
3,984
3,994
Media: Diversified & Production Total
36,545
31,753
2.8
Media: Publishing
OGH Bidco Limited (6)(18)(19)
6/29/2029
175
OGH Bidco Limited (3)(6)(18)(19)
1,231
1,413
1,486
Media: Publishing Total
1,577
1,661
0.2
Retail
New Look (Delaware) Corporation (3)(6)(15)(19)
5/26/2028
383
375
291
New Look Vision Group (6)(19)
10.88
44
40
New Look Vision Group (6)(15)(19)
22
21
New Look Vision Group (3)(6)(15)(19)
5/26/2026
2,180
1,625
1,572
Thrasio, LLC (15)(29)
12.50
12/18/2026
8,441
8,285
6,584
Retail Total
10,351
8,508
0.8
Services: Business
ACAMS (14)(19)(25)
3,090
AMCP Clean Acquisition Company, LLC (18)
4.40%
7/10/2025
6,196
6,118
5,576
3,913
3,891
3,522
Avalon Acquiror, Inc. (18)(19)(29)
11.49
3/10/2028
14,500
14,381
14,137
Avalon Acquiror, Inc. (3)(15)(19)
3,361
3,213
3,151
Brook Bidco (6)(18)(19)(26)
6.87% (0.50% PIK)
11.05
7/7/2028
748
1,015
950
Brook Bidco (6)(14)(19)(25)
5,675
7,783
8,207
Caribou Bidco Limited (6)(18)(19)
9.43
1/29/2029
8,070
10,810
10,251
Caribou Bidco Limited (3)(6)(18)(19)
16
20
Chamber Bidco Limited (6)(17)(19)
10.71
6/7/2028
237
235
Darcy Partners (19)(32)
13.07
1,519
1,504
1,503
Darcy Partners (14)(19)(25)
359
360
351
Darcy Partners (2)(3)(15)(19)
(3
Elevator Holdco Inc. (14)(19)(25)
2,448
3,502
iBanFirst (6)(19)(26)(32)
10.00% PIK
13.59
7/13/2028
2,988
3,074
3,260
iBanFirst (6)(19)(26)
90
94
3,141
3,176
3,426
iBanFirst Facility (6)(14)(19)(25)
7,112
8,136
20,090
ImageTrend (15)(19)
12.80
1/31/2029
20,000
19,725
19,700
ImageTrend (2)(3)(5)(15)(19)
(56
Learning Pool (6)(16)(19)(26)
7.01% (0.50% PIK)
12.31
298
378
137
masLabor (14)(19)(25)
345
1,214
Services: Business, Continued
masLabor (15)(19)
7/1/2027
8,449
8,255
Opus2 (6)(14)(19)(25)
2,272
2,900
Opus2 (6)(18)(19)
5.03%
9.96
5/5/2028
123
167
156
Parcel2Go (3)(6)(18)(19)
7/15/2028
39
50
47
Parcel2Go (6)(18)(19)
170
155
Parcel2Go (6)(14)(19)(25)
3,605
4,237
2,506
Refine Intermediate, Inc. (15)(19)(29)
9.74
3/3/2027
1,037
Refine Intermediate, Inc. (3)(5)(18)(19)
9/3/2026
(65
Smartronix (2)(3)(5)(15)(19)
11/23/2027
(97
Smartronix (15)(19)(29)
11.21
11/23/2028
12,572
12,379
12,415
Spring Finco BV (6)(18)(19)
7/15/2029
125,520
11,857
11,690
Spring Finco BV (3)(6)(18)(19)
SumUp Holdings Luxembourg S.à.r.l. (6)(19)(32)
8.50%
11.97
2/17/2026
6,805
8,138
7,424
TEI Holdings Inc. (15)(19)(29)
25,935
25,865
TEI Holdings Inc. (3)(18)(19)
12/23/2025
302
261
WCI Gigawatt Purchaser (15)(19)
11/19/2027
WCI Gigawatt Purchaser (3)(15)(19)
10.90
1,287
1,234
1,223
WCI Gigawatt Purchaser (15)(19)(29)
1,408
Services: Business Total
167,938
178,739
15.9
Services: Consumer
MZR Aggregator (14)(19)(25)
798
662
MZR Buyer, LLC (15)(19)(29)
12/21/2026
11,964
11,815
11,665
MZR Buyer, LLC (3)(15)(19)
1,737
1,676
Surrey Bidco Limited (5)(6)(7)(14)(17)(19)(26)
6.28% (1.00% PIK)
5/11/2026
57
51
Zeppelin BidCo Pty Limited (6)(18)(19)
BBSY
8.61
6/28/2024
206
Services: Consumer Total
14,431
14,121
17
Telecommunications
DC Blox Inc. (14)(19)(25)
124
3,822
3,851
4,793
DC Blox Inc. (15)(19)(26)
4.00% (4.00% PIK)
13.53
3/22/2026
31,994
31,821
177
Meriplex Communications, Ltd. (16)(19)(29)
9.93
7/17/2028
12,185
11,972
Meriplex Communications, Ltd. (3)(16)(19)
5,182
5,060
Meriplex Communications, Ltd. (3)(5)(16)(19)
Taoglas (14)(19)(25)
2,259
Taoglas (15)(19)(29)
12.24
18,903
18,717
18,714
Taoglas (6)(18)(19)
455
442
Taoglas (2)(3)(15)(19)
(36
Taoglas (3)(6)(15)(19)
12.27
477
463
Telecommunications Total
74,555
76,005
Transportation: Cargo
A&R Logistics, Inc. (15)(19)
5/5/2025
5,882
5,849
2,386
2,368
A&R Logistics, Inc. (15)(19)(29)
21,842
21,678
2,674
2,663
A&R Logistics, Inc. (3)(15)(19)
11.01
245
150
ARL Holdings, LLC (14)(19)(25)
445
667
1,113
Grammer Investment Holdings LLC (14)(19)(25)
1,011
1,019
122
Grammer Investment Holdings LLC (19)(25)
10.00%
10.00
791
962
Grammer Purchaser, Inc. (15)(19)(29)
9/30/2024
3,790
3,730
Grammer Purchaser, Inc. (3)(15)(19)(29)
9.70
516
Gulf Winds International (18)(19)(29)
7.10%
12.19
12/16/2028
11,849
Gulf Winds International (2)(3)(5)(15)(19)
(144
(26
Omni Intermediate (15)(19)
10.39
11/23/2026
1,671
1,656
Omni Intermediate (3)(15)(19)
11/30/2026
Omni Logistics, LLC (15)(19)
9.15%
14.39
12/30/2027
8,770
8,729
REP Coinvest III- A Omni, L.P. (14)(19)(25)
1,377
1,868
RoadOne (19)(29)
11.11
12/29/2028
11,848
11,945
RoadOne (3)(18)(19)
1,731
1,627
1,618
267
146
Transportation: Cargo Total
76,306
79,184
7.0
18
Transportation: Consumer
PrimeFlight Acquisition LLC (15)(19)(29)
11.94
5/1/2029
17,250
16,915
16,733
Toro Private Investments II, L.P. (14)(19)(25)
Toro Private Investments II, L.P. (6)(18)
13.36
5/29/2026
7,084
5,835
4,497
Toro Private Investments ll, L.P. (15)(26)
1.10% (7.25% PIK)
13.45
2/28/2025
416
414
410
Transportation: Consumer Total
26,254
21,640
1.9
Wholesale
Abracon Group Holding, LLC. (18)(19)(29)
11,461
11,260
11,002
Abracon Group Holding, LLC. (2)(3)(5)(16)(19)
(34
Abracon Group Holding, LLC. (3)(16)(19)
1,494
1,436
1,292
Aramsco, Inc. (18)(19)(29)
8/28/2024
13,993
13,918
Aramsco, Inc. (3)(5)(18)(19)
Armor Group, LP (14)(19)(25)
1,012
SureWerx (2)(3)(5)(16)(19)
12/28/2029
(15
SureWerx (3)(16)(19)
11.99
188
163
180
Wholesale Total
27,707
28,634
2.6
Non-Controlled/Non-Affiliate Investments Total
1,745,841
148.3
Non-Controlled/Affiliate Investments
Ansett Aviation Training (6)(10)(18)(19)
4.69%
9.04
9/24/2031
7,072
5,308
4,713
Ansett Aviation Training (6)(10)(14)(19)(25)
5,119
3,842
6,768
9,150
11,481
1.0
ADT Pizza, LLC (10)(14)(19)(25)
6,720
6,732
14,581
Walker Edison (10)(14)(19)(25)
60
5,592
4,634
Walker Edison (10)(15)(19)(26)
6.75% PIK
3/31/2027
5,419
5,418
Walker Edison (3)(10)(18)(19)(26)
161
6.25% PIK
3,182
14,354
13,395
1.2
Blackbrush Oil & Gas, L.P. (10)(14)(19)(25)
1,198
38,505
11,777
33,028
Blackbrush Oil & Gas, L.P. (10)(15)(19)(26)(29)
5.00% (2.00% PIK)
12.65
9,132
9,131
20,909
42,159
3.8
BCC Middle Market CLO 2018-1, LLC (6)(10)(19)(25)
Structured Product
10/20/2030
25,635
24,050
23,159
2.1
Direct Travel, Inc. (10)(18)(19)
11.39
3,457
11.89
59,342
Direct Travel, Inc. (10)(18)(19)(28)
1,764
4,841
202
Direct Travel, Inc. (3)(10)(18)(19)(28)
4,575
Direct Travel, Inc. (10)(14)(19)(25)
13,039
74,181
87,220
7.7
Non-Controlled/Affiliate Investments Total
149,376
17.1
Controlled Affiliate Investments
BCC Jetstream Holdings Aviation (Off I), LLC (6)(10)(11)(14)(19)(20)(25)
11,863
10,863
BCC Jetstream Holdings Aviation (On II), LLC (10)(11)(19)(20)
6/2/2024
8,013
6,811
BCC Jetstream Holdings Aviation (On II), LLC (10)(11)(14)(19)(20)(25)
1,116
Gale Aviation (Offshore) Co (6)(10)(11)(19)(25)
90,450
89,672
111,442
107,346
9.5
Legacy Corporate Lending HoldCo, LLC (10)(11)(19)(25)
641
5,175
5,816
Investment Vehicles
Bain Capital Senior Loan Program, LLC (6)(10)(11)(19)
Subordinated Note Investment Vehicles
12/27/2033
115,995
Bain Capital Senior Loan Program, LLC (6)(10)(11)(25)
Preferred Equity Interest Investment Vehicles
(1,080
Equity Interest Investment Vehicles
5,594
1,879
International Senior Loan Program, LLC (6)(10)(11)(15)(19)
13.55
2/22/2028
186,979
International Senior Loan Program, LLC (6)(10)(11)(25)
62,337
59,365
65,831
Investment Vehicles Total
367,943
369,604
32.8
Lightning Holdings B, LLC (6)(10)(11)(14)(19)(25)
34,899
35,209
41,432
3.7
Controlled Affiliate Investments Total
520,410
46.5
Investments Total
2,415,627
2,385,272
211.9
Cash Equivalents
Goldman Sachs Financial Square Government Fund Institutional Share Class (30)
5.02
106,722
Cash Equivalents Total
Investments and Cash Equivalents Total
2,522,349
2,491,994
221.4
Forward Foreign Currency Exchange Contracts
Currency Purchased
Currency Sold
Counterparty
Settlement Date
Unrealized Appreciation(8)
US DOLLARS 100
NORWEGIAN KRONE 1,240
Bank of New York Mellon
7/26/2023
(16
US DOLLARS 11,934
NORWEGIAN KRONE 122,500
Citibank
488
US DOLLARS 6,138
POUND STERLING 5,000
8/4/2023
(219
US DOLLARS 448
AUSTRALIAN DOLLARS 240
8/15/2023
289
US DOLLARS 121
EURO 000
11/15/2023
(121
US DOLLARS 6,092
POUND STERLING 3,125
11/17/2023
2,121
US DOLLARS 3,578
EURO 3,260
1/18/2024
US DOLLARS 15,431
EURO 14,000
1/24/2024
(7
US DOLLARS 5,068
EURO 4,610
2/7/2024
(19
US DOLLARS 10,027
AUSTRALIAN DOLLARS 14,470
3/5/2024
335
US DOLLARS 11,436
POUND STERLING 9,440
(541
US DOLLARS 54,490
EURO 50,480
(1,282
US DOLLARS 4,896
CANADIAN DOLLAR 6,610
(119
US DOLLARS 2,054
POUND STERLING 1,710
3/15/2024
(115
US DOLLARS 10,773
EURO 9,890
5/17/2024
(187
US DOLLARS 3,951
POUND STERLING 3,150
6/21/2024
US DOLLARS 4,704
POUND STERLING 3,570
6/24/2024
142
US DOLLARS 10,866
POUND STERLING 8,950
(456
US DOLLARS 33,662
POUND STERLING 27,860
1/9/2025
(1,340
US DOLLARS 098
EURO 090
(2
US DOLLARS 4,186
POUND STERLING 3,430
6/10/2025
(99
US DOLLARS 5,309
EURO 4,800
(76
US DOLLARS 5,371
EURO 5,000
6/13/2025
(240
US DOLLARS 2,762
AUSTRALIAN DOLLARS 3,739
7/28/2025
(1,253
Investment
Acquisition Date
ACAMS
3/10/2022
ADT Pizza, LLC
10/29/2018
Ansett Aviation Training
3/24/2022
Apollo Intelligence
6/1/2022
Appriss Holdings, Inc.
5/3/2021
AQ Software Corporation
12/10/2021
4/14/2022
12/29/2022
ARL Holdings, LLC
5/3/2019
Armor Group, LP
8/28/2018
Bain Capital Senior Loan Program, LLC
12/27/2021
BCC Jetstream Holdings Aviation (Off I), LLC
6/1/2017
BCC Jetstream Holdings Aviation (On II), LLC
BCC Middle Market CLO 2018-1, LLC
2/28/2022
Blackbrush Oil & Gas, L.P.
9/3/2020
Brook Bidco
7/8/2021
CB Titan Holdings, Inc.
5/1/2017
Cloud Technology Solutions (CTS)
12/15/2022
Congress Wealth
6/30/2023
Darcy Partners
DC Blox Inc.
3/22/2021
3/23/2021
Direct Travel, Inc.
10/2/2020
Eagle Rock Capital Corporation
12/9/2021
East BCC Coinvest II, LLC
7/23/2019
Elevator Holdco Inc.
12/23/2019
Eleven Software
4/25/2022
Elk Parent Holdings, LP
11/1/2019
FCG Acquisitions, Inc.
1/24/2019
Fineline Technologies, Inc.
2/22/2021
23
Gale Aviation (Offshore) Co
1/2/2019
Gills Point S
5/17/2023
Gluware
10/15/2021
Grammer Investment Holdings LLC
10/1/2018
Hultec
3/31/2023
iBanFirst Facility
7/13/2021
Insigneo Financial Group LLC
8/1/2022
International Senior Loan Program, LLC
Kellstrom Aerospace Group, Inc
7/1/2019
Legacy Corporate Lending HoldCo, LLC
4/21/2023
Lightning Holdings B, LLC
1/2/2020
masLabor
7/1/2021
MZR Aggregator
12/22/2020
NPC International, Inc.
4/1/2021
Opus2
6/16/2021
Parcel2Go
7/15/2021
PPX
7/29/2021
Precision Ultimate Holdings, LLC
11/6/2019
REP Coinvest III- A Omni, L.P.
2/5/2021
Revalize, Inc.
Robinson Helicopter
6/30/2022
Service Master
8/16/2021
Superna Inc.
3/8/2022
Taoglas
2/28/2023
Titan Cloud Software, Inc
11/4/2022
TLC Holdco LP
10/11/2019
Toro Private Investments II, L.P.
4/2/2019
Utimaco
6/28/2022
Ventiv Topco, Inc.
9/3/2019
Walker Edison
3/1/2023
WSP
8/31/2021
24
As of December 31, 2022
Interest
Maturity
Principal /
Market
% of
Spread (1)
Rate
Date
Shares (9)
Value
NAV (4)
4.25
8.98
16,269
16,206
13,504
8.25
12.98
6,503
5,265
10.48
35,352
35,459
33,054
GSP Holdings, LLC (15)(19)(26)
10.24
4,550
4,528
4,254
894
6.00
9.88
29,898
29,611
28,403
6.25% (0.5% PIK)
1,173
1,136
960
7.50
11.96
4,017
3,864
3,465
12.72
33,012
32,502
31,197
1,362
1,710
6.50
10.92
26,272
25,716
25,878
5.60
8.54
56,867
56,299
(46
Whitcraft LLC (15)(19)(29)
7.00
11.73
4/3/2023
28,686
28,651
Whitcraft LLC (3)(15)(19)
5.00
1,450
1,448
7.75
12.17
11,659
9,438
258,508
246,387
22.1
4,999
4,937
4,949
15,424
15,144
15,270
19,261
18,889
19,068
10.21
6.75
19,522
19,327
Intoxalock (3)(15)(19)
343
310
309
5.75
8,332
8,309
8,145
21,263
21,108
20,785
JHCC Holdings, LLC (3)(15)(19)
11.17
1,746
1,719
1,682
89,840
89,633
8.0
25
9.42
815
787
783
Morrow Sodali (15)(19)
2,641
2,619
9.48
832
4,260
4,265
0.4
0.0
16.08
5,301
5,217
5,248
661
12,219
11,987
11,975
9.00
13.75
7,843
7,860
4,782
4,635
31,248
30,379
4.75
8.97
7,287
7,076
7,069
8.99
5,862
5,761
5,642
V Global Holdings LLC (2)(3)(5)(16)(19)
(147
(363
8.04
100
12,793
12,451
1.1
26
1,335
1,334
1,114
14,122
14,095
11,792
630
1,545
Regan Development Holdings Limited (6)(18)(19)
8.29
4/18/2023
2,139
694
6,888
6,477
34,277
34,002
32,392
Service Master (3)(15)(19)
8.50
12.94
7,030
6,746
Service Master (15)(19)
12.99
926
911
426
21,923
27,151
27,067
9.21
5,022
5,017
YLG Holdings, Inc. (3)(5)(15)(19)
(40
122,480
118,977
10.7
10.73
21,475
21,053
21,206
11,232
8.75
12.95
8,756
TLC Purchaser, Inc. (15)(19)(26)(29)
6.25% (2.00% PIK)
35,621
35,007
27,874
TLC Purchaser, Inc. (3)(15)(19)
6.25
10.77
7,693
7,549
5,622
84,818
75,051
6.7
1,083
13.73
14,753
12.73
15,041
14,882
RoC Opco LLC (3)(15)(19)
2,731
2,653
Solaray, LLC (15)(19)
10.43
14,165
14,094
30,762
30,608
3.55
9.08
5,950
5,941
WU Holdco, Inc. (15)(19)
5.50
10.23
1,700
1,674
1,598
37,677
37,272
35,417
2,930
2,906
2,592
125,947
124,239
11.1
WSP Initial Term Loan (15)(19)(29)
6,002
5,905
5,477
WSP Initial Term Loan (2)(3)(5)(19)
(8
(157
WSP LP Interest (14)(19)(25)
1,506
WSP Revolving Loan (3)(18)(19)
8,835
6,834
0.6
10.38
4,083
4,013
4,032
ASP-r-pac Acquisition Co LLC (2)(3)(5)(19)
8.94
13,017
11,871
16,338
15,862
2,770
2,751
32,990
32,858
Amspec Services, Inc. (3)(18)(19)
3.75
1,204
1,186
36,795
36,964
3.3
Reconomy (6)(15)(19)
8.20
Reconomy (3)(5)(6)(19)
(75
6.60
25,464
25,457
Titan Cloud Software, Inc (2)(3)(5)(19)
(108
(114
(57
28,488
28,623
9.17
1,505
1,490
1,460
Allworth Financial Group, L.P. (3)(15)(19)(29)
874
861
848
Allworth Financial Group, L.P. (2)(3)(5)(19)
(12
(73
9.19
3,733
3,729
2,190
2,191
396
10.75
2,373
2,364
9,399
20,490
20,377
Margaux Acquisition Inc. (15)(19)
9.49
9,105
9,088
17,591
17,445
9.98
957
Margaux UK Finance Limited (3)(5)(6)(19)
(5
7,493
9,689
9,053
MRHT (3)(6)(18)(19)
7/26/2028
2,631
2,655
2,817
MRHT (6)(18)(19)
6.90
500
535
7.06
249
231
7.41
101
Paisley Bidco Limited (3)(6)(18)(19)
First Lien Senior Secured Loan- Revolver
8.30
5,165
6,128
6,257
7.11
34
10.33
8,274
8,218
8,192
3,114
3,070
3,083
World Insurance (3)(15)(19)
10.07
593
596
58,741
58,558
5.3
15,271
15,127
Apollo Intelligence (3)(5)(19)
(87
3,197
3,164
612
44,790
44,606
44,566
CPS Group Holdings, Inc. (2)(3)(5)(19)
(27
Datix Bidco Limited (6)(19)
4.50
6.69
9.44
147
8.07
Great Expressions Dental Center PC (15)(19)(26)
4.25% (0.5% PIK)
7,730
7,768
7,285
Great Expressions Dental Center PC (3)(15)(19)(26)
1,078
1,010
8.11
138
8.69
236
10.13
7,141
7,064
1,936
1,866
8,694
8,568
8,151
SunMed Group Holdings, LLC (3)(16)(19)
590
574
513
TecoStar Holdings, Inc. (15)(19)
12.91
9,472
9,390
8,264
101,609
98,450
8.8
30
5.25
7,578
8,549
9,156
9.63
3,856
10.57
25,316
25,085
25,063
Applitools (2)(3)(5)(19)
-
1,470
7.25
11.54
11,264
11,084
10,926
Appriss Holdings, Inc. (2)(3)(5)(19)
(23
AQ Software Corporation (14)(18)(19)(25)
1,095
1,825
502
CB Nike IntermediateCo Ltd (3)(6)(19)
9.16
344
340
5,326
Cloud Technology Solutions (CTS) (6)(18)(19)
7,406
8,815
8,859
Cloud Technology Solutions (CTS) (2)(3)(5)(6)(19)
8.63
11,149
11,133
10,759
Eagle Rock Capital Corporation (14)(18)(19)(25)
3,575
9.89
10,965
10,978
7/18/2025
36,625
36,767
8.00
11.55
7,371
12.77
149
946
9.00% (3.50% PIK)
19,576
18,915
18,206
3,328
399
MRI Software LLC (15)
25,662
25,602
24,732
MRI Software LLC (2)(3)
53
11.48
39,648
38,855
NearMap (2)(3)(5)(6)(19)
(92
5,358
5,313
5,077
1,993
1,904
Revalize, Inc. (2)(3)(5)(18)(19)
31
High Tech Industries Continued
Superna Inc. (2)(3)(5)(6)(19)
(53
Superna Inc. (6)(15)(19)(29)
11.24
14,920
14,652
14,622
1,429
2,291
2,295
Swoogo LLC (2)(3)(5)(18)(19)
7.95
10.06
259
2,203
13,771
13,668
13,530
(30
2,230
4.00
6.03
7.12
271,044
268,283
24.0
Hospitality Holdings
201
5,836
Hospitality Holdings Total
6,037
11.62
13,917
13,483
10.28
6,816
6,690
1,852
1,777
Saltoun (19)(29)
4,714
4,573
Saltoun (3)(19)
1,352
881
28,406
27,605
Ansira Holdings, Inc. (7)(14)(15)(19)
42,836
40,675
20,989
5,134
2,516
Ansira Holdings, Inc. (3)(7)(14)(15)(19)
8.79
5,099
1,771
Ansira Holdings, Inc. (3)(18)(19)
4,166
2,851
75
66
53,717
28,193
7.45
1,392
2,849
2,835
9 Story Media Group Inc. (3)(5)(6)(19)
1,001
953
7.20
585
619
626
10.97
4,909
14,961
12,717
9,711
8,254
International Entertainment Investments Limited (6)(18)(19)
7.71
11/30/2025
87
3,977
4,014
36,646
32,854
2.9
7.44
168
OGH Bidco Limited (3)(5)(6)(19)
(68
96
Batteries Plus Holding Corporation (15)(19)(29)
18,172
Batteries Plus Holding Corporation (3)(15)(19)
916
New Look (Delaware) Corporation (6)(15)(19)(29)
9,653
9,568
9,266
385
376
292
1,688
1,250
8,485
8,308
7,519
Walker Edison (7)(14)(15)(19)(26)(29)
5.75% (3.00% PIK)
13.48
8/5/2027
21,019
20,685
13,084
59,340
50,479
4.6
3,859
4.35
8.67
16,254
16,141
13,491
3,934
3,906
3,265
Avalon Acquiror, Inc. (15)(19)(29)
10.83
24,598
24,376
24,352
10.74
1,050
886
966
3.00% (4.25% PIK)
10.16
717
976
867
7,136
7.19
10,801
9,751
9.28
12.44
1,526
1,511
Darcy Partners (19)(25)
434
Darcy Partners (3)(19)
3,241
2,820
2,889
3,019
83
85
8.50% PIK
10.04
3,000
3,018
3,212
12,463
7.25% PIK
10.56
284
366
masLabor (19)(25)
masLabor (3)(15)(19)
13.50
689
672
8,492
8,275
Services: Business Continued
2,958
7.96
148
8.93
169
3,247
1,094
1,077
Smartronix (2)(3)(5)(18)(19)
(106
(158
10.17
12,636
12,419
12,320
503
Spring Finco BV (3)(6)(19)
6,650
7,951
7,119
166
36,044
35,902
TEI Holdings Inc. (3)(15)(19)
10.47
307
4,804
4,708
965
906
901
10.41
1,447
1,420
168,916
169,053
15.1
786
16,806
16,570
MZR Buyer, LLC (3)(5)(19)
Surrey Bidco Limited (6)(7)(14)(17)(19)(26)
67
46
7.89
17,508
17,778
1.6
4,548
DC Blox Inc. (3)(15)(19)(26)
2.00% (6.00% PIK)
29,262
29,046
15,294
15,003
15,141
3,304
3,189
3,181
282
230
254
51,321
52,386
4.7
5,913
5,869
2,399
2,398
31,982
31,670
31,981
2,688
2,673
361
255
635
1,045
9.72
3,830
3,768
11.33
26,625
25,828
25,826
Gulf Winds International (2)(3)(5)(19)
(159
Omni Intermediate (3)(5)(15)(19)
(4
Omni Intermediate (15)(19)(29)
9.73
1,175
1,166
Omni Intermediate (3)(19)
13.69
8,686
8,771
3,387
RoadOne (18)(19)(29)
10.81
19,289
18,711
RoadOne (2)(3)(5)(19)
998
866
105,769
109,945
9.9
Toro Private Investments II, L.P. (6)(14)(19)(25)
1,066
Toro Private Investments II, L.P. (18)(26)
5.00% (1.75% PIK)
6,756
5,297
4,645
Toro Private Investments II, L.P. (15)(26)
1.50% (7.25% PIK)
401
402
8,786
6,113
5.90
11,518
11,299
11,288
Abracon Group Holding, LLC. (2)(3)(5)(19)
(37
(101
14,066
13,958
Aramsco, Inc. (3)(18)(19)
9.59
654
SureWerx (18)(19)
11.30
8,365
8,156
8,198
SureWerx (2)(3)(5)(19)
SureWerx (3)(18)(19)
12/28/2028
35,072
36,133
3.2
1,846,172
159.0
37
4.69
4,818
5,310
10,128
0.9
6,721
30,785
9,040
9,039
20,817
39,825
3.6
Structured Products
22,763
Fire: Finance Total
2.0
Direct Travel, Inc. (10)(15)(19)
13.23
3,440
58,721
1,741
Direct Travel, Inc. (3)(10)(15)(19)
4,125
13,033
73,070
86,103
133,808
15.5
38
BCC Jetstream Holdings Aviation (Off I), LLC (6)(10)(11)(19)(20)(25)
10,388
6/2/2023
6,400
BCC Jetstream Holdings Aviation (On II), LLC (10)(11)(19)(20)(25)
91,326
108,114
9.7
50,995
(644
3,347
62,630
302,943
303,307
27.2
25,264
25,573
27,209
2.4
439,958
39.3
2,419,938
2,386,977
213.8
4.16
63,394
5.7
2,483,332
2,450,371
219.5
Unrealized
Appreciation(8)
US DOLLARS 291
EURO 220
1/9/2023
56
US DOLLARS 37,234
POUND STERLING 31,000
(66
EURO 4,000
US DOLLARS 4,023
US DOLLARS 4,122
(150
US DOLLARS 11,848
POUND STERLING 9,890
2/17/2023
US DOLLARS 7,894
AUSTRALIAN DOLLARS 11,440
3/3/2023
112
US DOLLARS 10,917
(458
US DOLLARS 1,804
CANADIAN DOLLAR 2,360
US DOLLARS 41,180
EURO 40,810
(2,575
US DOLLARS 1,777
POUND STERLING 1,530
3/16/2023
(67
285
US DOLLARS 3,094
EURO 2,920
2,312
US DOLLARS 11,215
POUND STERLING 9,000
341
US DOLLARS 3,143
EURO 3,000
(168
214
Acquisition
Marlin-Cobalt Aggregator, L.P.
BCC BCSF DCB Blocker LP Interest
5/16/2022
WSP LP Interest
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Organization
Bain Capital Specialty Finance, Inc. (the “Company”, “we”, “our” and “us”) was formed on October 5, 2015 and commenced investment operations on October 13, 2016. The Company has elected to be treated and is regulated as a business development company (a “BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for tax purposes the Company has elected to be treated and intends to operate in a manner so as to continuously qualify as a regulated investment company (a “RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). The Company is externally managed by BCSF Advisors, LP (the “Advisor” or “BCSF Advisors”), our investment adviser that is registered with the Securities and Exchange Commission (the “SEC”) under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). The Advisor also provides the administrative services necessary for the Company to operate (in such capacity, the “Administrator” or “BCSF Advisors”).
On November 19, 2018, the Company closed its initial public offering (the “IPO”), which was a Qualified IPO, issuing 7,500,000 shares of its common stock at a public offering price of $20.25 per share. Shares of common stock of the Company began trading on the New York Stock Exchange under the symbol “BCSF” on November 15, 2018.
The Company’s primary focus is capitalizing on opportunities within its Advisor’s Senior Direct Lending Strategy, which seeks to provide risk-adjusted returns and current income to its stockholders by investing primarily in middle-market companies with between $10.0 million and $150.0 million in EBITDA. The Company focuses on senior investments with a first or second lien on collateral and strong structures and documentation intended to protect the lender. The Company generally seeks to retain voting control in respect of the loans or particular classes of securities in which the Company invests through maintaining affirmative voting positions or negotiating consent rights that allow the Company to retain a blocking position. The Company may also invest in mezzanine debt and other junior securities and in secondary purchases of assets or portfolios, as described below. Investments are likely to include, among other things, (i) senior first lien, stretch senior, senior second lien, unitranche, (ii) mezzanine debt and other junior investments and (iii) secondary purchases of assets or portfolios that primarily consist of middle-market corporate debt. The Company may also invest, from time to time, in equity securities, distressed debt, debtor-in-possession loans, structured products, structurally subordinate loans, investments with deferred interest features, zero-coupon securities and defaulted securities.
Our operations comprise only a single reportable segment.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The Company’s consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). The Company’s consolidated financial statements and related financial information have been prepared pursuant to the requirements for reporting on Form 10‑Q and Regulation S-X. These consolidated financial statements reflect adjustments that in the opinion of the Company are necessary for the fair statement of the financial position and results of operations for the periods presented herein and are not necessarily indicative of the full fiscal year. The Company has determined it meets the definition of an investment company and follows the accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 — Financial Services — Investment Companies. The functional currency of the Company is U.S. dollars and these consolidated financial statements have been prepared in that currency. Certain prior period information has been reclassified to conform to the current period presentation and this had no effect on the Company’s consolidated financial position or the consolidated results of operations as previously reported.
The information included in this Form 10-Q should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022.
Basis of Consolidation
The Company will generally consolidate any wholly, or substantially, owned subsidiary when the design and purpose of the subsidiary is to act as an extension of the Company’s investment operations and to facilitate the execution of the Company’s investment strategy. Accordingly, the Company consolidated the results of its subsidiaries BCSF I, BCSF II C, BCSF CFSH, LLC, BCSF CFS, LLC and BCC Middle Market CLO 2019‑1, LLC in its consolidated financial statements. All intercompany transactions and balances have been eliminated in consolidation. Since the Company is an investment company, portfolio investments held by the Company are not consolidated into the consolidated financial statements. The portfolio investments held by the Company (including its investments held by consolidated subsidiaries) are included on the consolidated statements of assets and liabilities as investments at fair value.
Use of Estimates
The preparation of the consolidated financial statements in conformity with US GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates and such differences could be material.
Valuation of Portfolio Investments
The Advisor shall value the investments owned by the Company, subject at all times to the oversight of the Board. The Advisor shall follow its own written valuation policies and procedures as approved by the Board when determining valuations. A short summary of the Advisor’s valuation policies is below.
Investments for which market quotations are readily available are typically valued at such market quotations. Pursuant to Rule 2a-5 under the 1940 Act, the Board designates the Advisor as Valuation Designee to perform fair value determinations for the Company for investments that do not have readily available market quotations. Market quotations are obtained from an independent pricing service, where available. If a price cannot be obtained from an independent pricing service or if the independent pricing service is not deemed to be current with the market, certain investments held by the Company will be valued on the basis of prices provided by principal market makers. Generally, investments marked in this manner will be marked at the mean of the bid and ask of the independent broker quotes obtained. To validate market quotations, the Company utilizes a number of factors to determine if the quotations are representative of fair value, including the source and number of quotations. Debt and equity securities that are not publicly traded or whose market prices are not readily available will be valued at a price that reflects such security’s fair value.
With respect to unquoted portfolio investments, the Company will value each investment considering, among other measures, discounted cash flow models, comparable company multiple models, comparisons of financial ratios of peer companies that are public, and other factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Company will use the pricing indicated by the external event to corroborate and/or assist us in our 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 differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.
With respect to investments for which market quotations are not readily available, in particular, illiquid/hard to value assets, the Advisor will typically undertake a multi-step valuation process, which includes among other things, the below:
In following this approach, the types of factors that are taken into account in the fair value pricing of investments include, as relevant, but are not limited to: comparison to publicly traded securities, including factors such as yield, maturity and measures of credit quality; the enterprise value of a portfolio company; the nature and realizable value of any collateral; the portfolio company’s ability to make payments and its earnings and discounted cash flows; and the markets in which the portfolio company does business. In cases where an independent valuation firm provides fair valuations for investments, the independent valuation firm provides a fair valuation report, a description of the methodology used to determine the fair value and their analysis and calculations to support their conclusion.
The Company applies ASC Topic 820, Fair Value Measurement (“ASC 820”), which establishes a framework for measuring fair value in accordance with US GAAP and required disclosures of fair value measurements. The fair value of a financial instrument is the amount that would be received in an orderly transaction between market participants at the measurement date. The Company determines the fair value of investments consistent with its valuation policy. The Company discloses the fair value of its investments in a hierarchy which prioritizes and ranks the level of market observability used in the determination of fair value. In accordance with ASC 820, these levels are summarized below:
A financial instrument’s level within the hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuations of Level 2 investments are generally based on quotations received from pricing services, dealers or brokers. Consideration is given to the source and nature of the quotations and the relationship of recent market activity to the quotations provided.
Transfers between levels, if any, are recognized at the beginning of the reporting period in which the transfers occur. The Company evaluates the source of inputs used in the determination of fair value, including any markets in which the investments, or similar investments, are trading. When the fair value of an investment is determined using inputs from a pricing service (or principal market makers), the Company considers various criteria in determining whether the investment should be classified as a Level 2 or Level 3 investment. Criteria considered includes the pricing methodologies of the pricing services (or principal market makers) to determine if the inputs to the valuation are observable or unobservable, as well as the number of prices obtained and an assessment of the quality of the prices obtained. The level of an investment within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. However, the determination of what constitutes “observable” requires significant judgment.
The fair value assigned to these investments is based upon available information and may fluctuate from period to period. In addition, it does not necessarily represent the amount that might ultimately be realized upon sale. Due to inherent uncertainty of valuation, the estimated fair value of investments may differ from the value that would have been used had a ready market for the security existed, and the difference could be material.
Securities Transactions, Revenue Recognition and Expenses
The Company records its investment transactions on a trade date basis. The Company measures realized gains or losses by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment, using the specified identification method. Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Discount and premium to par value on investments acquired are accreted and amortized, respectively, into interest income over the life of the respective investment using the effective interest method. Commitment fees are recorded on an accrual basis and recognized as interest income. Loan origination fees, original issue discount and market discount or premium are capitalized and amortized against or accreted into interest income using the effective interest method or straight-line method, as applicable. For the Company’s investments in revolving bank loans, the cost basis of the investment purchased is adjusted for the cash received for the discount on the total balance committed. The fair value is also adjusted for price appreciation or depreciation on the unfunded portion. As a result, the purchase of commitments not completely funded may result in a negative value until it is offset by the future amounts called and funded. Upon prepayment of a loan or debt security, any prepayment premium, unamortized upfront loan origination fees and unamortized discount are recorded as interest income.
Dividend income on preferred equity investments is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity investments is recorded on the record date for private portfolio companies and on the ex-dividend date for publicly traded portfolio companies. Distributions received from an equity interest, limited liability company or a limited partnership investment are evaluated to determine if the distribution should be recorded as dividend income or a return of capital.
Certain investments may have contractual payment-in-kind (“PIK”) interest or dividends. PIK represents accrued interest or accumulated dividends that are added to the loan principal of the investment on the respective interest or dividend payment dates rather than being paid in cash and generally becomes due at maturity or upon being called by the issuer. PIK is recorded as interest or dividend income, as applicable. 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. Accrued PIK interest or dividends are generally reversed through interest or dividend income, respectively, when an investment is placed on non-accrual status.
Certain structuring fees and amendment fees are recorded as other income when earned. Administrative agent fees received by the Company are recorded as other income when the services are rendered.
Expenses are recorded on an accrual basis.
Non-Accrual Loans
Loans or debt securities are placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Accrued interest generally is reversed when a loan or debt security is placed on non-accrual status. Interest payments received on non-accrual loans or debt securities may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans and debt securities are restored to accrual status when past due principal and interest are paid and, in management’s judgment, principal and interest payments are likely to remain current. The Company may make exceptions to this treatment if a loan has sufficient collateral value and is in the process of collection. As of June 30, 2023, there were four loans from two issuers on non-accrual. As of December 31, 2022, there were five loans from three issuers placed on non-accrual status.
Distributions
Distributions to common stockholders are recorded on the record date. The amount to be distributed, if any, is determined by the Board each quarter, and is generally based upon the earnings estimated by the Advisor. Distributions from net investment income and net realized capital gains are determined in accordance with U.S. federal income tax regulations, which may differ from those amounts determined in accordance with US GAAP. The Company may pay distributions to its stockholders in a year in excess of its investment company taxable income and net capital gain for that year and, accordingly, a portion of such distributions may constitute a return of capital for U.S. federal income tax purposes. This excess generally would be a tax-free return of capital in the period and generally would reduce the stockholder’s tax basis in its shares. These book/tax differences are either temporary or permanent in nature. To the extent these differences are permanent; they are charged or credited to paid-in capital in excess of par, accumulated undistributed net investment income or accumulated net realized gain (loss), as appropriate, in the period that the differences arise. Temporary and permanent differences are primarily attributable to differences in the tax treatment of certain investments and the tax characterization of income and non-deductible expenses.
The Company intends to timely distribute to its stockholders substantially all of its annual taxable income for each year, except that the Company may retain certain net capital gains for reinvestment and, depending upon the level of the Company’s taxable income earned in a year, the Company may choose to carry forward taxable income for distribution in the following year and incur applicable U.S. federal excise tax and pay a 4% tax on such income, as required. To the extent that we determine that our estimated current year taxable income will be in excess of estimated dividend distributions for the current year from such income, we accrue excise tax, if any, on estimated excess taxable income as such taxable income is earned. For the three months ended June 30, 2023 and 2022 we recorded an expense of $0.8 million and $0.0 million, respectively for U.S. federal excise tax. For the six months ended June 30, 2023 and 2022 we recorded an expense of $1.3 million and $0.0 million, respectively for U.S. federal excise tax.
The specific tax characteristics of the Company’s distributions will be reported to stockholders after the end of the calendar year. All distributions will be subject to available funds, and no assurance can be given that the Company will be able to declare such distributions in future periods.
The Company distributes net capital gains (i.e., net long-term capital gains in excess of net short-term capital losses), if any, at least annually out of the assets legally available for such distributions. However, the Company may decide in the future to retain such capital gains for investment, incur a corporate-level tax on such capital gains, and elect to treat such capital gains as deemed distributions to stockholders.
Dividend Reinvestment Plan
The Company has adopted a dividend reinvestment plan that provides for the reinvestment of cash dividends and distributions. Stockholders who do not “opt out” of the Company’s dividend reinvestment plan will have their cash dividends and distributions automatically reinvested in additional shares of the Company’s common stock, rather than receiving cash dividends and distributions.
Offering Costs
Offering costs consist primarily of fees and expenses incurred in connection with the offering of shares, legal, printing and other costs associated with the preparation and filing of applicable registration statements. To the extent such expenses relate to equity offerings, these expenses are charged as a reduction of paid-in-capital upon each such offering.
Cash, Restricted Cash, and Cash Equivalents
Cash and cash equivalents consist of deposits held at custodian banks, and highly liquid investments, such as money market funds, with original maturities of three months or less. Cash and cash equivalents are carried at cost or amortized cost, which approximates fair value. The Company may deposit its cash and cash equivalents in financial institutions and, at certain times, such balances may exceed the Federal Deposit Insurance Corporation insurance limits. Cash equivalents are presented separately on the consolidated schedules of investments. Restricted cash is collected and held by the trustee who has been appointed as custodian of the assets securing certain of the Company’s financing transactions.
Foreign Currency Translation
The accounting records of the Company are maintained in U.S. dollars. The fair values of foreign securities, foreign cash and other assets and liabilities denominated in foreign currency are translated to U.S. dollars based on the current exchange rates at the end of each business day. Income and expenses denominated in foreign currencies are translated at current exchange rates when accrued or incurred. Unrealized gains and losses on foreign currency holdings and non-investment assets and liabilities attributable to the changes in foreign currency exchange rates are included in the net change in unrealized appreciation on foreign currency translation on the consolidated statements of operations. Net realized gains and losses on foreign currency holdings and non-investment assets and liabilities attributable to changes in foreign currency exchange rates are included in net realized gain (loss) on foreign currency transactions on the consolidated statements of operations. The portion of both realized and unrealized gains and losses on investments that result from changes in foreign currency exchange rates is not separately disclosed, but is included in net realized gain (loss) on investments and net change in unrealized appreciation on investments, respectively, on the consolidated statements of operations.
Forward Currency Exchange Contracts
The Company may enter into forward currency exchange contracts to reduce the Company’s exposure to foreign currency exchange rate fluctuations in the value of foreign currencies. A forward currency exchange contract is an agreement between two parties to buy and sell a currency at a set price on a future date. The Company does not utilize hedge accounting and as such the Company recognizes the value of its derivatives at fair value on the consolidated statements of assets and liabilities with changes in the net unrealized appreciation on forward currency exchange contracts recorded on the consolidated statements of operations. Forward currency exchange contracts are valued using the prevailing forward currency exchange rate of the underlying currencies. Unrealized appreciation on forward currency exchange contracts are recorded on the consolidated statements of assets and liabilities by counterparty on a net basis, not taking into account collateral posted which is recorded separately, if applicable. Cash collateral maintained in accounts held by counterparties is included in collateral on forward currency exchange contracts on the consolidated statements of assets and liabilities. Notional amounts and the gross fair value of forward currency exchange contracts assets and liabilities are presented separately on the consolidated schedules of investments.
Changes in net unrealized appreciation are recorded on the consolidated statements of operations in net change in unrealized appreciation on forward currency exchange contracts. Net realized gains and losses are recorded on the consolidated statements of operations in net realized gain (loss) on forward currency exchange contracts. Realized gains and losses on forward currency exchange contracts are determined using the difference between the fair market value of the forward currency exchange contract at the time it was opened and the fair market value at the time it was closed or covered. Additionally, losses, up to the fair value, may arise if the counterparties do not perform under the contract terms.
Deferred Financing Costs and Debt Issuance Costs
The Company records costs related to issuance of revolving debt obligations as deferred financing costs. These costs are deferred and amortized using the straight-line method over the stated maturity life of the obligation. The Company records costs related to the issuance of term debt obligations as debt issuance costs. These costs are deferred and amortized using the effective interest method. These costs are presented as a reduction to the outstanding principal amount of the term debt obligations on the consolidated statements of assets and liabilities. In the event that we modify or extinguish our debt before maturity, the Company follows the guidance in ASC Topic 470‑50, Modification and Extinguishments. For modifications to or exchanges of our revolving debt obligations, any unamortized deferred financing costs related to lenders who are not part of the new lending group are expensed. For extinguishments of our term debt obligations, any unamortized debt issuance costs are deducted from the carrying amount of the debt in determining the gain or loss from the extinguishment.
Income Taxes
The Company has elected to be treated for U.S. federal income tax purposes as a RIC under the Code. So long as the Company maintains its status as a RIC, it will generally not be subject to corporate-level U.S. federal income taxes on any ordinary income or capital gains that it distributes at least annually as dividends to its stockholders. As a result, any tax liability related to income earned and distributed by the Company represents obligations of the Company’s stockholders and will not be reflected in the consolidated financial statements of the Company.
The Company intends to comply with the applicable provisions of the Code pertaining to RICs and to make distributions of taxable income sufficient to relieve it from substantially all federal income taxes. Accordingly, no provision for federal income taxes is required in the consolidated financial statements. For income tax purposes, distributions made to stockholders are reported as ordinary income, capital gains, non-taxable return of capital, or a combination thereof. The tax character of distributions paid to stockholders through June 30, 2023 may include return of capital, however, the exact amount cannot be determined at this point. The final determination of the tax character of distributions will not be made until the Company files our tax return for the tax year ending December 31, 2023. The character of income and gains that the Company distributes is determined in accordance with income tax regulations that may differ from GAAP. BCSF CFSH, LLC, BCSF CFS, LLC, and BCC Middle Market CLO 2019‑1, LLC are disregarded entities for tax purposes and are consolidated with the tax return of the Company.
The Company evaluates tax positions taken or expected to be taken in the course of preparing its consolidated financial statements to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority. Tax positions not deemed to meet the “more-likely-than-not” threshold are reversed and recorded as a tax benefit or expense in the current year. All penalties and interest associated with income taxes, if any, are included in income tax expense. Conclusions regarding tax positions are subject to review and may be adjusted at a later date based on factors including, but not limited to, on-going analyses of tax laws, regulations and interpretations thereof. Management has analyzed the Company’s tax positions, and has concluded that no liability for unrecognized tax benefits related to uncertain tax positions on returns to be filed by the Company for all open tax years should be recorded. The Company identifies its major tax jurisdiction as the United States, and the Company is not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will change materially in the next 12 months. As of June 30, 2023, the tax years that remain subject to examination are from 2019 forward.
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Recent Accounting Pronouncements
In March 2020, the FASB issued ASU No. 2020-04, “Reference Rate Reform (Topic 848),” which provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments apply only to contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate (“LIBOR”) or another reference rate expected to be discontinued because of reference rate reform. In January 2021, the FASB issued ASU No. 2021-01, Reference Rate Reform (Topic 848), which expanded the scope of Topic 848 to include derivative instruments impacted by discounting transition. In December 2022, the FASB issued an ASU, ASU 2022-06, which includes amendments to defer the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the reference rate reform relief in Topic 848. The Company is currently evaluating the impact of the adoption of ASU 2020-04 and 2021-01 on its financial statements.
In March 2022, the FASB issued ASU 2022-02, “Financial Instruments - Credit Losses (Topic 326)”, which is intended to address issues identified during the post-implementation review of ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The amendment, among other things, eliminates the accounting guidance for troubled debt restructurings by creditors in Subtopic 310-40, “Receivables - Troubled Debt Restructurings by Creditors”, while enhancing disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The new guidance is effective for interim and annual periods beginning after December 15, 2022. The adoption of ASU 2022-02 did not have a material impact on the consolidated financial statements.
In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820), which affects all entities that have investments in equity securities measured at fair value that are subject to a contractual sale restriction. The amendments in ASU 2022-03 clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring the fair value. The amendments also require additional disclosures for equity securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. The effective date for the amendments in ASU 2022-03 are for fiscal years beginning after December 15, 2024 and interim periods within those fiscal years. The Company is currently evaluating the impact of the adoption of ASU 2022-03 on its financial statements.
49
Note 3. Investments
The following table shows the composition of the investment portfolio, at amortized cost and fair value as of June 30, 2023 (with corresponding percentage of total portfolio investments):
Amortized Cost
Percentage of Total Portfolio
Fair Value
1,617,678
67.0
1,532,422
64.2
89,234
85,797
44,528
44,446
62,497
99,650
4.2
209,217
8.7
229,737
9.6
480
Subordinated Note Investment Vehicles (1)
302,974
12.5
12.7
Preferred Equity Interest Investment Vehicles (1)
Equity Interest Investment Vehicles (1)
64,959
67,710
Total
100.0
The following table shows the composition of the investment portfolio, at amortized cost and fair value as of December 31, 2022 (with corresponding percentage of total portfolio investments):
First Lien Senior Secured Loans
1,703,591
70.4
1,630,877
68.3
Second Lien Senior Secured Loans
98,120
4.1
93,950
3.9
43,752
43,922
57,106
80,945
Equity Interests
189,896
7.8
210,689
524
Subordinated Notes in Investment Vehicles (1)
237,974
9.8
10.0
Preferred Equity Interests in Investment Vehicles (1)
Equity Interests in Investment Vehicles (1)
65,977
The following table shows the composition of the investment portfolio by geographic region, at amortized cost and fair value as of June 30, 2023 (with corresponding percentage of total portfolio investments):
USA
2,069,256
85.7
2,019,468
84.7
Cayman Islands
125,659
5.2
131,104
5.5
United Kingdom
66,616
66,918
Belgium
38,936
52,320
Australia
29,666
32,172
Germany
24,665
24,683
Ireland
19,262
19,182
Luxembourg
13,973
11,921
Netherlands
Guernsey
8,006
8,604
Canada
7,426
6,937
Sweden
153
Israel
The following table shows the composition of the investment portfolio by geographic region, at amortized cost and fair value as of December 31, 2022 (with corresponding percentage of total portfolio investments):
2,113,220
87.3
2,076,143
87.0
116,023
4.8
118,535
5.0
54,510
2.3
52,633
50,981
51,947
14,126
18,779
19,004
18,754
17,608
0.7
17,882
19,186
17,779
8,131
6,573
6,687
185
158
The following table shows the composition of the investment portfolio by industry, at amortized cost and fair value as of June 30, 2023 (with corresponding percentage of total portfolio investments):
Investment Vehicles (2)
15.4
342,158
14.2
328,571
13.7
11.3
7.5
5.1
111,515
120,616
100,435
108,860
3.5
88,155
76,975
3.1
54,357
75,771
FIRE: Insurance (1)
FIRE: Finance (1)
55,407
54,268
1.5
26,105
34,826
Consumer goods: Wholesale
0.1
52
The following table shows the composition of the investment portfolio by industry, at amortized cost and fair value as of December 31, 2022 (with corresponding percentage of total portfolio investments):
379,100
15.7
364,629
15.2
11.2
7.1
131,342
5.4
137,154
81,856
92,216
57,612
76,789
44,540
43,140
7,233
14,616
On February 9, 2021, the Company and Pantheon ("Pantheon"), a leading global alternative private markets manager, formed the International Senior Loan Program, LLC (“ISLP”), an unconsolidated joint venture. ISLP invests primarily in non-US first lien senior secured loans. ISLP was formed as a Delaware limited liability company. The Company and Pantheon committed to initially provide $138.3 million of debt and $46.1 million of equity capital, to ISLP. Equity contributions will be called from each member on a pro-rata basis, based on their equity commitments. Pursuant to the terms of the transaction, Pantheon invested $50.0 million to acquire a 29.5% stake in ISLP. The Company contributed debt investments of $317.1 million for a 70.5% stake in ISLP, and received a one-time gross distribution of $190.2 million in cash in consideration of contributing such investments. As of June 30, 2023, the Company’s investment in ISLP consisted of subordinated notes of $187.0 million, and equity interests of $65.8 million. As of December 31, 2022, the Company’s investment in ISLP consisted of subordinated notes of $187.0 million, and equity interests of $62.6 million.
As of June 30, 2023, the Company had commitments with respect to their equity and subordinated note interests of ISLP in the aggregate amount of $249.3 million. The Company has contributed $249.3 million in capital and has $0.0 million in unfunded capital contributions. As of June 30, 2023, Pantheon had commitments with respect to their equity and subordinated note interests of ISLP in the aggregate amount of $103.9 million. Pantheon has contributed $103.9 million in capital and has $0.0 million in unfunded capital contributions.
As of December 31, 2022, the Company had commitments with respect to their equity and subordinated note interests of ISLP in the aggregate amount of $249.3 million. The Company has contributed $249.3 million in capital and has $0.0 million in unfunded capital contributions. As of December 31, 2022, Pantheon had commitments with respect to their equity and subordinated note interests of ISLP in the aggregate amount of $103.9 million. Pantheon has contributed $103.9 million in capital and has $0.0 million in unfunded capital contributions.
In future periods, the Company may sell certain of its investments or a participating interest in certain of its investments to ISLP. Since inception, the Company has sold $883.2 million of its investments to ISLP. The sale of the investments met the criteria set forth in ASC 860, Transfers and Servicing for treatment as a sale.
The Company has determined that ISLP is an investment company under ASC, Topic 946, Financial Services—Investment Companies; however, in accordance with such guidance, the Company will generally not consolidate its investment in a company other than a wholly or substantially owned investment company subsidiary, which is an extension of the operations of the Company, or a controlled operating company whose business consists of providing services to the Company. The Company does not consolidate its investments in ISLP as it is not a substantially wholly owned investment company subsidiary. In addition, the Company does not control ISLP due to the allocation of voting rights among ISLP members. The Company measures the fair value of ISLP in accordance with ASC Subtopic 820, Fair Value Measurements and Disclosures, using the net asset value (or its equivalent) as a practical expedient. The Company and Pantheon each appointed two members to ISLP’s four-person Member Designees’ Committee. All material decisions with respect to ISLP, including those involving its investment portfolio, require unanimous approval of a quorum of Member Designees’ Committee.
As of June 30, 2023, ISLP had $686.6 million in debt and equity investments, at fair value. As of December 31, 2022, ISLP had $707.7 million in debt and equity investments, at fair value.
Additionally, ISLP, through a wholly-owned subsidiary, entered into a $300.0 million senior secured revolving credit facility which bears interest at LIBOR (or an alternative risk-free interest rate index) plus 225 basis points with JP Morgan (“ISLP Credit Facility Tranche A”). On February 4, 2022, ISLP entered into the second amended and restated credit agreement, which among other things formed an additional tranche (“ISLP Credit Facility Tranche B” and collectively with ISLP Credit Facility Tranche A, the “ISLP Credit Facilities”) with an initial financing limit of $50.0 million on May 31, 2022, and $200.0 million on August 31, 2022, bringing the total facility size to $500.0 million. As of June 30, 2023, the ISLP Credit Facility had $350.7 million of outstanding debt under the credit facility. As of December 31, 2022 the ISLP Credit Facility had $375.3 million of outstanding debt under the credit facility. The combined weighted average interest rate (excluding deferred upfront financing costs and unused fees) of the aggregate borrowings outstanding for the six months ended June 30, 2023 was 5.8%. The combined weighted average interest rate (excluding deferred upfront financing costs and unused fees) of the aggregate borrowings outstanding for the year ended December 31, 2022 was 3.3%.
Below is a summary of ISLP’s portfolio at fair value:
Total investments
686,583
707,683
Weighted average yield on investments
9.3
Number of borrowers in ISLP
Largest portfolio company investment
47,147
46,687
Total of five largest portfolio company investments
203,765
197,270
Unfunded commitments
10,326
14,212
Below is a listing of ISLP’s individual investments as of June 30, 2023:
% of Members
Equity (4)
Australian Dollar
Ansett Aviation Training (18)(19)
14,144
9,830
9,425
Ansett Aviation Training (14)(19)
10,238
7,115
13,536
16,945
22,961
24.6
FNZ UK Finco Limited (18)(19)
7,660
4,926
5,105
Datix Bidco Limited (18)(19)
4,169
3,294
2,779
TGI Sport Bidco Pty Ltd (17)(19)
9,730
7,032
6,484
Zeppelin BidCo Pty Limited (18)(19)
20,415
16,103
13,604
14.6
Australian Dollar Total
48,300
50,933
54.6
British Pound
Reconomy (18)(19)
6,050
7,045
7,685
8.2
Parmenion (15)(19)
32,300
39,129
41,031
44.0
Datix Bidco Limited (3)(19)
788
943
1,000
12,013
16,916
15,260
17,859
16,260
17.4
Access (18)(19)
9,092
10,010
OGH Bidco Limited (18)(19)
5,172
6,073
6,007
13,160
15,183
16,550
21,256
22,557
24.2
Caribou Bidco Limited (3)(18)(19)
1,576
2,002
Caribou Bidco Limited (18)(19)
19,500
24,171
24,771
Comet Bidco Limited (18)
10.22
8,920
Brook Bidco (18)(19)(26)
23,009
31,119
29,228
Learning Pool (16)(19)(26)
5,051
6,417
9,356
8,939
Opus2 (18)(19)
5.03
12,151
16,412
15,436
Parcel2Go (3)(18)(19)
5,093
4,629
Parcel2Go (18)(19)
12,395
16,707
15,312
121,506
115,654
123.9
Surrey Bidco Limited (7)(14)(17)(19)(26)
5,660
7,200
5,033
British Pound Total
223,087
218,230
233.8
Canadian Dollar
9 Story Media Group Inc. (3)(19)
9 Story Media Group Inc. (16)(19)
6,764
5,370
5,108
New Look Vision Group (19)
17,784
14,571
12,893
1,644
1,663
New Look Vision Group (15)(19)
1,195
929
864
17,144
15,420
16.5
Canadian Dollar Total
22,514
20,528
22.0
Danish Krone
VPARK BIDCO AB (16)(19)
56,429
9,231
8,269
8.9
Danish Krone Total
European Currency
9,330
9,414
10,025
2,440
2,475
2,662
MRHT (15)(19)
12,000
12,962
12,960
Paisley Bidco Limited (18)(19)
3,178
3,367
3,467
16,329
16,427
17.6
Mertus 522. GmbH (18)(19)
12,999
15,720
13,756
22,244
26,898
23,538
Pharmathen (18)(19)
5.73
10/25/2028
13,492
15,000
14,718
Pharmathen (3)(18)(19)
1,329
1,381
58,947
53,393
57.2
Utimaco (18)(19)
8,250
8,337
8,820
Onventis (15)(19)
5,317
5,455
13,654
14,275
15.3
Lightning Finco Limited (16)(19)
2,951
2,857
9 Story Media Group Inc. (18)(19)
3,646
4,435
Aptus 1724 Gmbh (18)(19)
35,000
41,245
37,322
45,680
41,299
44.2
iBanFirst (19)(26)(32)
11,505
12,975
12,550
SumUp Holdings Luxembourg S.à.r.l. (19)(32)
30,900
35,457
33,709
48,432
46,259
49.5
European Currency Total
197,882
187,197
200.5
Norwegian Krone
73,280
8,651
6,825
Spring Finco BV (18)(19)
48,840
4,810
4,549
4.9
Norwegian Krone Total
13,461
11,374
12.2
58
U.S. Dollar
Cardo (17)(19)
9,582
10.3
23,398
23,047
24.7
Consumer Goods: Non-durable
RoC Opco LLC (15)(19)
7.60
15,796
Consumer Goods: Non-durable Total
16.9
4,938
Golden State Buyer, Inc. (16)(19)
9.95
6/21/2026
9,536
9,506
8,987
CB Nike IntermediateCo Ltd (3)(19)
CB Nike IntermediateCo Ltd (15)(19)
11,923
NearMap (18)(19)
11,800
11,576
11,682
16,450
16,304
16,121
8,550
8,474
8,379
48,277
48,105
51.5
23,907
23,745
Media: Broadcasting and Subscription Total
25.6
Aptus 1724 Gmbh (19)(21)
10,000
9,947
10.5
59
Avalon Acquiror, Inc. (15)(19)
11,880
11,784
11,583
Chamber Bidco Limited (17)(19)
23,423
23,251
Smartronix (15)(19)
10,862
10,749
10,726
45,784
45,732
49.0
U.S. Dollar Total
190,973
190,052
203.5
705,448
735.5
Settlement
EURO 477
AUSTRALIAN DOLLARS 785
Morgan Stanley
01/17/2024
EURO 3,061
AUSTRALIAN DOLLARS 4,980
06/10/2025
EURO 889
AUSTRALIAN DOLLARS 1,400
Standard Chartered
EURO 1,819
AUSTRALIAN DOLLARS 2,872
07/18/2023
73
EURO 402
CANADIAN DOLLARS 599
09/27/2023
EURO 325
CANADIAN DOLLARS 480
EURO 918
DANISH KRONE 6,844
EURO 3,118
BRITISH POUNDS 2,840
06/12/2025
EURO 4,705
BRITISH POUNDS 4,130
(113
EURO 818
BRITISH POUNDS 710
12/19/2023
EURO 706
BRITISH POUNDS 610
11/28/2023
EURO 835
NORWEGIAN KRONE 9,517
EURO 1,614
US DOLLARS 1,790
01/09/2025
EURO 666
US DOLLARS 740
06/18/2025
EURO 18,365
US DOLLARS 20,330
(280
EURO 940
US DOLLARS 1,042
EURO 16,565
US DOLLARS 18,170
EURO 1,305
US DOLLARS 1,417
US DOLLARS 1,026
BRITISH POUNDS 2,050
US DOLLARS 2,560
Goldman Sachs
BRITISH POUNDS 13,990
US DOLLARS 17,417
07/22/2024
268
US DOLLARS 7,046
AUSTRALIAN DOLLARS 11,118
(359
US DOLLARS 1,837
AUSTRALIAN DOLLARS 2,735
US DOLLARS 3,774
AUSTRALIAN DOLLARS 5,435
US DOLLARS 13,555
AUSTRALIAN DOLLARS 19,560
460
US DOLLARS 1,689
CANADIAN DOLLARS 2,321
US DOLLARS 1,390
CANADIAN DOLLARS 1,860
US DOLLARS 3,921
DANISH KRONE 26,496
US DOLLARS 29,728
EURO 29,700
(2,698
US DOLLARS 960
EURO 890
US DOLLARS 24,515
EURO 22,640
(443
US DOLLARS 1,616
EURO 1,470
US DOLLARS 4,132
EURO 3,730
US DOLLARS 1,000
BRITISH POUNDS 840
US DOLLARS 13,374
BRITISH POUNDS 10,983
(344
US DOLLARS 17,258
07/20/2023
(526
US DOLLARS 19,976
BRITISH POUNDS 16,040
(415
US DOLLARS 3,187
BRITISH POUNDS 2,540
US DOLLARS 4,601
BRITISH POUNDS 3,690
US DOLLARS 3,558
NORWEGIAN KRONE 36,843
117
(3,843
Below is a listing of ISLP’s individual investments as of December 31, 2022:
(in thousands)
10,620
20,256
23.2
4,902
5,219
6.0
3,292
2,841
9,658
6,963
6,580
7.6
16,084
13,909
16.0
48,186
48,805
56.1
Reconomy (15)(19)
7,310
8.4
39,084
39,028
44.8
Datix Bidco Limited (19)
963
1,086
1,163
9.94
14,515
18,002
15,678
18.0
63
9,084
9,521
International Entertainment Investments Limited (18)(19)
8,753
12,316
10,576
6,022
SOFR+
8.53
15,170
15,901
21,192
22,150
25.5
1,905
24,151
23,562
5.29
7,362
6,173
22,066
29,929
26,661
4,812
6,424
5,815
6,695
8,934
8,090
16,379
14,682
5,089
4,423
16,675
14,602
119,244
105,913
121.7
5,353
7,215
4,527
233,182
214,703
246.7
64
6,798
5,397
5,016
17,875
14,631
12,660
2,306
1,650
1,633
New Look Vision Group (3)(15)(19)
934
746
17,215
15,039
17.3
22,612
20,055
23.1
8,122
Chemicals, Plastics, & Rubber
9,353
9,637
Chemicals, Plastics, & Rubber Total
2,612
MRHT (18)(19)
21,335
24,551
22,839
9,900
9,941
10,598
3,402
37,859
36,839
42.3
15,705
13,638
26,873
23,335
Pharmathen (19)
8.48
14,973
14,299
Pharmathen (3)(19)
778
806
58,342
52,078
59.8
8,330
8,832
10.1
2,804
3,665
4,458
3,923
7.98
41,137
36,812
45,595
40,735
46.9
10,856
12,258
11,622
35,419
33,078
47,677
44,700
51.4
212,654
198,237
227.8
7,475
8.6
4,982
12,457
14.3
9,575
23,516
22,634
26.0
Consumer goods: Non-durable
15,878
Consumer goods: Non-durable Total
18.2
Consumer goods: Durable
4,932
Consumer goods: Durable Total
8.92
14,086
14,035
13,453
34,016
16,292
8,468
58,776
59,016
67.9
23,729
27.5
9,875
11,940
11,833
11,821
23,234
10,917
10,795
10,644
45,862
45,888
52.7
206,244
205,304
235.9
745,570
813.2
EURO 1,827
1/18/2023
EURO 3,201
3/15/2023
EURO 756
CANADIAN DOLLARS 1,029
EURO 479
CANADIAN DOLLARS 640
3/27/2023
DANISH KRONE 6,612
EURO 796
6/14/2023
EURO 2,045
BRITISH POUNDS 1,800
EURO 4,740
95
EURO 1,099
BRITISH POUNDS 940
EURO 823
NORWEGIAN KRONE 8,589
EURO 2,530
US DOLLARS 2,610
EURO 2,009
US DOLLARS 2,035
111
US DOLLARS 952
EURO 24,252
US DOLLARS 24,060
1,856
EURO 8,460
US DOLLARS 8,330
706
US DOLLARS 3,394
CANADIAN DOLLARS 2,610
US DOLLARS 1,923
US DOLLARS 7,014
(533
US DOLLARS 16,512
AUSTRALIAN DOLLARS 24,280
US DOLLARS 1,801
CANADIAN DOLLARS 2,456
US DOLLARS 2,902
CANADIAN DOLLARS 3,981
(38
US DOLLARS 3,412
DANISH KRONE 25,600
(267
US DOLLARS 5,084
EURO 5,150
(416
US DOLLARS 29,446
(2,291
US DOLLARS 940
EURO 954
(80
US DOLLARS 21,972
EURO 20,740
3/9/2023
(274
US DOLLARS 1,585
EURO 1,488
US DOLLARS 1,194
EURO 1,120
US DOLLARS 6,411
BRITISH POUNDS 5,650
(393
US DOLLARS 18,142
BRITISH POUNDS 15,997
(1,111
US DOLLARS 5,938
BRITISH POUNDS 4,970
US DOLLARS 2,418
BRITISH POUNDS 2,000
US DOLLARS 885
BRITISH POUNDS 720
US DOLLARS 3,160
NORWEGIAN KRONE 33,250
(217
(2,560
70
Below is the financial information for ISLP:
Selected Balance Sheet Information
Investments at fair value (amortized cost of $705,448 and $745,570, respectively)
18,093
12,242
Foreign cash (cost of $29,131 and $10,274, respectively)
29,581
10,279
Collateral on foreign currency exchange contracts
4,601
2,624
Capital contributions receivable
13,162
Deferred financing costs (net of accumulated amortization of $1,589 and $1,150, respectively)
2,320
2,759
9,547
7,617
Unrealized appreciation on forward currency contracts
1,053
Other receivable
Total assets
750,773
757,478
Debt
350,691
375,260
Subordinated notes payable to members
262,998
262,022
13,015
10,456
Interest payable on debt
7,107
3,785
Interest payable on subordinated notes
17,157
13,118
3,613
Dividend payable
2,195
273
Total liabilities
657,428
670,449
Members’ equity
93,345
87,029
Total liabilities and members’ equity
Selected Statements of Operations Information
For the Three Months Ended
For the Six Months Ended
June 30, 2022
Investment Income
Interest Income
17,980
9,394
35,349
17,637
6,028
1,873
11,689
3,764
Interest expense on members subordinated notes
4,325
8,327
General and administrative expenses
595
1,562
1,162
Total expenses
15,561
6,793
30,408
13,253
2,419
2,601
4,941
4,384
Net realized and unrealized gain (losses)
Net realized loss on investments
(1,219
(3,157
(1,895
(374
2,173
(1,567
2,808
Net realized gain on forward contracts
145
723
Net unrealized gain (loss) on foreign contracts
(5,178
15,641
(7,585
19,497
Net change in unrealized appreciation on forward contracts
(429
3,210
8,886
(26,547
19,021
(32,970
Net gain (loss) on investments
1,925
(6,019
5,448
(7,669
Net increase (decrease) in members’ equity resulting from operations
4,344
(3,418
10,389
(3,285
71
On February 9, 2022, the Company, and an entity advised by Amberstone Co., Ltd. (“Amberstone”), a credit focused investment manager that advises institutional investors, committed capital to a newly formed joint venture, Bain Capital Senior Loan Program, LLC ("SLP"), an unconsolidated joint venture. Pursuant to an amended and restated limited liability company agreement (the “LLC Agreement”) between the Company and Amberstone, each such party has a 50% economic ownership interest in SLP. Amberstone’s initial capital commitments to SLP are $179.0 million, with each party expected to maintain their pro rata proportionate share for each capital contribution. SLP will seek to invest primarily in senior secured first lien loans of U.S. borrowers. Through these capital contributions, SLP acquired 70% of the membership equity interests of the Company’s 2018‑1 portfolio (“2018‑1”). The Company retained 30% of the 2018‑1 membership equity interests as a non-controlling equity interest. As of June 30, 2023, the Company’s investment in SLP consisted of subordinated notes of $116.0 million, preferred equity interests of ($1.1) million and equity interests of $1.9 million. As of December 31, 2022, the Company’s investment in SLP consisted of subordinated notes of $51.0 million, preferred equity interests of ($0.6) million and equity interests of $3.3 million.
In future periods, the Company may sell certain of its investments or a participating interest in certain of its investments to SLP. Since inception, the Company has sold $917.6 million of its investments to SLP. The sale of the investments met the criteria set forth in ASC 860, Transfers and Servicing for treatment as a sale.
The Company has determined that SLP is an investment company under ASC, Topic 946, Financial Services—Investment Companies; however, in accordance with such guidance, the Company will generally not consolidate its investment in a company other than a wholly or substantially owned investment company subsidiary, which is an extension of the operations of the Company, or a controlled operating company whose business consists of providing services to the Company. The Company does not consolidate its investments in SLP as it is not a substantially wholly owned investment company subsidiary. In addition, the Company does not control SLP due to the allocation of voting rights among SLP members. The Company measures the fair value of SLP in accordance with ASC Subtopic 820, Fair Value Measurements and Disclosures, using the net asset value (or its equivalent) as a practical expedient. The Company and Amberstone each appointed two members to SLP’s four-person Member Designees’ Committee. All material decisions with respect to SLP, including those involving its investment portfolio, require unanimous approval of a quorum of Member Designees’ Committee.
On March 7, 2022, SLP acquired 70% of the Company’s Membership Interests of BCC Middle Market CLO 2018‑1 LLC (the “2018‑1 Issuer”). The Company received $56.1 million in proceeds resulting in a realized gain of $1.2 million, which is included in net realized gain in non-controlled/non-affiliate investments. The sale of the investments met the criteria set forth in ASC 860, Transfers and Servicing for treatment as a sale. Through this acquisition, the 2018‑1 Issuer became a consolidated subsidiary of SLP and was deconsolidated from the Company’s consolidated financial statements. The Company retained the remaining 30% of the 2018‑1 membership interests as a non-controlling equity interest. Please see Note 6 for additional details on the formation of the 2018‑1 Issuer and the related CLO Transaction.
On June 15, 2023, the Company entered into a First Supplemental Indenture (“2018-1 Supplemental Indenture”), dated as of June 15, 2023, pursuant to Section 8.1(xxxi) of the Indenture, dated as of September 28, 2018, between BCC Middle Market CLO 2018-1, LLC, as issuer, and Wells Fargo Bank, National Association, as trustee. The 2018-1 Supplemental Indenture provides for, among other things, an adoption of an alternate reference rate of Term SOFR plus 0.26161%, effective July 1, 2023.
The Class A‑1 A, A‑1 B, A‑2, B and C 2018‑1 Notes (the “2018‑1 Notes”) are scheduled to mature on October 20, 2030 and are included in SLP’s consolidated financial statements. The Membership Interests are eliminated in consolidation on SLP’s consolidated financial statements. Below is a table summary of the 2018‑1 Notes as of June 30, 2023:
Interest rate at
2018-1 Debt
Principal Amount
Spread above Index
Class A-1 A
158,762
1.55
% + 3 Month LIBOR
6.80
Class A-1 B
34,698
1.80
7.05
Class A-2
55,100
2.15
7.40
Class B
29,300
3.00
Class C
30,400
9.25
Total 2018-1 Notes
308,260
72
Additionally, SLP, through a wholly-owned subsidiary, has entered into a $225.0 million senior secured revolving credit facility which bears interest at SOFR plus 210 basis points with Wells Fargo, subject to leverage and borrowing base restrictions (the “MM_22_2 Credit Facility”). The maturity date of the MM_22_2 Credit Facility is August 24, 2025. As of June 30, 2023 the MM_22_2 Credit Facility had $219.8 million of outstanding debt under the credit facility. As of June 30, 2023, the effective rate on the MM_22_2 Credit Facility was 7.2% per annum. As of December 31, 2022 the MM_22_2 Credit Facility had $113.7 million of outstanding debt under the credit facility. As of December 31, 2022, the effective rate on the MM_22_2 Credit Facility was 6.4% per annum.
The combined weighted average interest rate (excluding deferred upfront financing costs and unused fees) of the aggregate borrowings outstanding as of June 30, 2023 was 6.9%. The combined weighted average interest rate (excluding deferred upfront financing costs and unused fees) of the aggregate borrowings outstanding for the year ended December 31, 2022 was 4.3%.
Below is a summary of SLP’s portfolio at fair value:
830,104
546,654
11.5
10.6
Number of borrowers in SLP
32,532
23,016
147,880
111,597
1,628
1,838
Below is a listing of SLP’s individual investments as of June 30, 2023:
Senior Loan Program, LLC
Principal (9)
U.S. Dollars
Robinson Helicopter (12)(15)(19)(34)
31,817
31,413
Saturn Purchaser Corp. (15)(19)(34)
21,644
21,541
Whitcraft-Paradigm (18)(19)(34)
9,877
62,831
63,336
327.0
Cardo (12)(17)(19)
10,800
Gills Point S (15)(19)(34)
Intoxalock (15)(19)(34)
17,186
17,018
17,100
JHCC Holdings, LLC (15)(19)(34)
8,290
JHCC Holdings, LLC (12)(15)(19)(34)
16,531
16,353
62,369
62,721
323.8
Morrow Sodali Global LLC (12)(15)(19)
7,879
7,781
7,801
40.3
Hultec(15)(19)(34)
3/31/2029
6,546
6,351
6,349
V Global Holdings LLC (12)(16)(19)(34)
20,217
20,111
19,914
26,462
26,263
135.6
YLG Holdings, Inc. (12)(15)(19)(34)
20,454
105.6
9,974
Stanton Carpet (12)(15)(19)
4,920
TLC Purchaser, Inc. (12)(15)(19)(26)
10,243
9,525
8,015
24,419
22,989
118.7
FL Hawk Intermediate Holdings, Inc. (12)(15)(19)
6,000
RoC Opco LLC (12)(15)(19)
8,708
Solaray, LLC (12)(15)(19)
10,552
10,367
WU Holdco, Inc. (12)(15)(19)
6,494
6,169
6,286
5,972
38,040
37,216
192.1
74
WSP Initial Term Loan (12)(15)(19)
5,640
5,567
4,964
ASP-r-pac Acquisition Co LLC (12)(16)(19)(34)
22,935
22,734
22,361
Iris Holding, Inc. (17)(34)
9,925
9,512
8,452
32,246
30,813
159.1
Amspec Services, Inc. (12)(15)(19)(34)
19,667
Blackbrush Oil & Gas, L.P. (12)(15)(19)(26)
4,460
24,127
124.6
Allworth Financial Group, L.P. (12)(15)(19)
2,122
2,080
8,388
8,220
10,510
10,300
53.2
Margaux Acquisition Inc. (15)(19)(34)
9,058
Margaux Acquisition Inc. (12)(15)(19)(34)
11,313
Simplicity (18)(19)(34)
19,950
19,357
19,352
39,728
39,723
205.1
Apollo Intelligence (12)(15)(19)
10,719
10,629
CPS Group Holdings, Inc. (12)(15)(19)(34)
19,653
19,611
SunMed Group Holdings, LLC (12)(16)(19)
9,581
9,246
39,821
39,618
204.5
AMI US Holdings Inc. (3)(12)(15)(19)
4/1/2024
AMI US Holdings Inc. (12)(15)(19)
2,799
6,058
Applitools (19)(32)
10,383
10,287
10,123
Drilling Info Holdings, Inc (12)(18)(34)
20,315
19,934
19,414
9,809
Superna Inc. (12)(15)(19)(34)
33,624
33,226
Ventiv Holdco, Inc. (12)(15)(19)
9,865
9,717
92,187
90,752
468.5
Aimbridge Acquisition Co., Inc. (12)(18)(19)
5,653
5,700
Concert Golf Partners Holdco (12)(16)(19)(34)
20,592
20,238
Pyramid Global Hospitality (15)(19)(34)
15,960
15,510
Saltoun (12)(18)(19)
10,421
10,397
9,379
51,798
51,312
264.9
New Look (Delaware) Corporation (15)(19)
9,604
9,236
9,220
Thrasio, LLC (12)(15)
12,979
10,124
22,215
19,344
99.9
4.40
8,319
7,487
First Lien Senior Secured Loan-Delayed Draw
1,655
1,515
Avalon Acquiror, Inc. (12)(15)(19)(34)
32,547
32,265
31,733
Refine Intermediate, Inc. (12)(15)(19)(34)
19,712
Smartronix (12)(15)(19)
13,002
12,794
12,839
TEI Holdings Inc. (12)(15)(19)(34)
19,134
WCI Gigawatt Purchaser (12)(15)(19)(34)
20,538
20,269
20,127
118,014
117,230
605.2
Eagle Parent Corp (12)(16)
3,326
3,317
3,253
MZR Buyer, LLC (12)(15)(19)(34)
27,654
27,584
26,963
30,901
30,216
156.0
Meriplex Communications, Ltd. (16)(19)(34)
14,759
Taoglas (15)(19)(34)
9,902
24,661
24,864
128.4
A&R Logistics, Inc. (12)(15)(19)(34)
20,587
Grammer Purchaser, Inc. (3)(12)(15)(19)
207
Grammer Purchaser, Inc. (12)(15)(19)
3,428
Gulf Winds International (18)(19)(34)
7.10
14,303
13,979
14,231
Omni Intermediate (15)(19)(34)
7,196
Omni Logistics, LLC (12)(15)(19)
9.15
RoadOne (19)(34)
7,004
6,807
6,863
57,204
57,512
296.8
PrimeFlight Acquisition LLC (15)(19)(34)
6.85
19,400
100.1
Abracon Group Holding, LLC. (18)(19)(34)
11,910
11,707
11,433
Aramsco, Inc. (12)(18)(19)
9,435
SureWerx (18)(19)(34)
12/14/2029
8,344
8,147
8,281
29,289
29,149
150.5
840,024
4285.5
77
Below is a listing of SLP’s individual investments as of December 31, 2022:
% ofMembers
22,515
22,059
22,177
11,886
Whitcraft LLC (12)(15)(19)
10,683
10,603
44,548
44,860
194.7
9,901
JHCC Holdings, LLC (12)(15)(19)
7,521
7,351
28,222
28,051
7,939
7,830
7,820
33.9
20,319
20,201
19,557
84.9
YLG Holdings, Inc. (12)(15)(19)
10,534
45.7
4,913
9,976
9,097
7,806
14,010
12,806
55.6
10,637
10,584
6,527
6,526
6,136
6,319
5,940
38,235
37,413
162.3
78
6,125
6,036
5,589
24.3
23,051
22,827
9,519
32,346
31,860
138.2
Amspec Services, Inc. (12)(15)(19)
9,771
4,416
14,187
61.6
2,133
2,069
8,431
8,178
10,564
10,247
44.5
Margaux Acquisition Inc. (12)(15)(19)
10,451
45.4
10,692
10,594
CPS Group Holdings, Inc. (12)(15)(19)
9,728
9,630
9,028
30,000
29,448
127.8
AMI US Holdings Inc. (3)(12)(19)
8,903
Drilling Info Holdings, Inc (12)(18)
10,774
10,693
21,614
21,423
21,182
9,797
9,626
50,816
50,108
217.5
79
5,605
20,696
20,309
10,419
10,393
10,106
36,307
36,502
158.4
Batteries Plus Holding Corporation (12)(15)(19)
10,500
13,046
11,562
23,546
22,062
95.7
22,686
22,482
22,459
20,800
13,068
12,742
TEI Holdings Inc. (12)(15)(19)
9,238
20,694
20,393
20,280
85,752
85,519
371.1
8.83
3,344
3,334
3,291
26,350
26,307
114.2
Conterra Ultra Broadband Holdings, Inc. (15)(34)
9.18
3,802
3,691
3,668
11,774
15,465
15,548
67.5
A&R Logistics, Inc. (12)(15)(19)
10,668
3,463
7,232
26,570
115.3
11,970
11,745
11,731
9,484
21,229
21,215
92.1
553,199
2372.4
Below is the financial information for SLP:
Investments at fair value (amortized cost of $840,024 and $553,199, respectively)
555
4,590
33,539
56,013
Prepaid expenses
4,956
5,190
4,584
3,380
873,738
615,827
4,681
2,607
77,384
Debt (net of unamortized debt issuance costs of $1,264 and $1,349, respectively)
526,796
478,051
232,000
102,000
4,722
3,631
773
854,368
592,785
Members’ equity (deficit)
(2,278
860
Noncontrolling interests
21,648
22,182
Total members' equity
19,370
23,042
Selected Statement of Operations Information
21,132
7,295
37,656
9,811
9,264
2,710
16,856
3,454
1,809
7,467
2,445
Professional fees and other expenses
971
358
1,732
470
14,916
4,877
26,055
6,369
6,216
2,418
11,601
3,442
Net realized gain on investments
(2,976
(3,896
(3,375
(4,042
Net loss on investments
(2,950
(3,891
(3,302
(4,031
Net increase (decrease) from operations
3,266
(1,473
8,299
(589
Less: net decrease attributable to noncontrolling interests
(933
(2,462
Net increase (decrease) in partners' capital from operations
2,333
5,837
Note 4. Fair Value Measurements
Fair Value Disclosures
The following table presents fair value measurements of investments by major class, cash equivalents and derivatives as of June 30, 2023, according to the fair value hierarchy:
Fair Value Measurements
Level 1
Level 2
Level 3
Measured at Net Asset Value (2)
Investments:
57,826
1,474,596
Total Investments
2,260,816
66,630
Cash equivalents
Forward currency exchange contracts (asset)
Forward currency exchange contracts (liability)
(1,308
The following table presents fair value measurements of investments by major class, cash equivalents and derivatives as of December 31, 2022, according to the fair value hierarchy:
Measured at
Net Asset
Value (2)
76,619
1,554,258
Preferred Equity
2,245,025
65,333
The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the six months ended June 30, 2023:
First Lien
Second Lien
Subordinated
Senior
Notes in
Secured
Equity
Structured
Preferred
Loans
Interests
Vehicles (2)
Products
Investments
Balance as of January 1, 2023
Purchases of investments and other adjustments to cost (1)
415,793
19,322
65,000
5,391
505,506
Paid-in-kind interest income
9,896
703
10,734
Net accretion of discounts (amortization of premiums)
2,549
213
2,834
Principal repayments and sales of investments (1)
(485,969
(8,430
(494,399
(13,026
731
13,314
(251
823
Net realized gains (losses) on investments
(8,905
(802
(9,707
Balance as of June 30, 2023
Change in unrealized appreciation attributable to investments still held at June 30, 2023
(21,070
(7,221
Transfers between levels, if any, are recognized at the beginning of the quarter in which transfers occur. For the six months ended June 30, 2023, transfers from Level 2 to Level 3, if any, were primarily due to decreased price transparency. For the six months ended June 30, 2023, transfers from Level 3 to Level 2, if any, were primarily due to increased price transparency.
The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the six months ended June 30, 2022:
Balance as of January 1, 2022
1,674,890
151,844
107,066
125,437
53,991
20,027
126
2,133,381
658,706
53,929
15,477
52,700
8,537
18,573
808,400
Paid-in-kind interest
253
6,255
2,127
221
2,401
(753,527
(136
(37,844
(791,507
(24,109
10,450
(953
13,422
374
(98
(914
(984
(122
(1,173
Transfers out of Level 3
(47,672
Transfers to Level 3
15,288
11,495
26,783
Balance as of June 30, 2022
1,530,721
216,020
95,340
178,137
75,950
39,280
506
2,135,954
Change in unrealized appreciation attributable to investments still held at June 30, 2022
(22,995
(1,128
Transfers between levels, if any, are recognized at the beginning of the quarter in which transfers occur. For the six months ended June 30, 2022, transfers from Level 2 to Level 3, if any, were primarily due to decreased price transparency. For the six months ended June 30, 2022, transfers from Level 3 to Level 2, if any, were primarily due to increased price transparency.
Significant Unobservable Inputs
ASC 820 requires disclosure of quantitative information about the significant unobservable inputs used in the valuation of assets and liabilities classified as Level 3 within the fair value hierarchy. Disclosure of this information is not required in circumstances where a valuation (unadjusted) is obtained from a third-party pricing service and the information regarding the unobservable inputs is not reasonably available to the Company and as such, the disclosures provided below exclude those investments valued in that manner.
The valuation techniques and significant unobservable inputs used in Level 3 fair value measurements of assets as of June 30, 2023 were as follows:
Significant
Range of Significant
Fair Value of
Unobservable
Unobservable Inputs
Level 3 Assets (1)
Valuation Technique
Inputs
(Weighted Average (2))
1,196,348
Discounted cash flows
Comparative Yields
5.9
26.8
(12.0%)
112,938
Comparable company multiple
EBITDA Multiple
x
(8.3x)
Probably weighting of alternative outcomes
25.0
75.0
8,761
Discount Rate
11,553
Collateral coverage
Recovery Rate
13.8
23.9
(15.7%)
Subordinated Notes in Investment Vehicles
12.1
13.3
(12.2%)
135,738
13.4
16.4
(15.4%)
68,937
1.7
24.8
(11.7x)
Preferred equity
89,473
(7.1x)
5,002
(10.3x)
2,172,803
The Company used the income approach and market approach to determine the fair value of certain Level 3 assets as of June 30, 2023. The significant unobservable inputs used in the income approach are the comparative yield and discount rate. The comparative yield and discount rate are used to discount the estimated future cash flows expected to be received from the underlying investment. An increase/decrease in the comparative yield or discount rate would result in a decrease/increase, respectively, in the fair value. The significant unobservable inputs used in the market approach are the comparable company multiple and the recovery rate. The multiple is used to estimate the enterprise value of the underlying investment. An increase/ decrease in the multiple would result in an increase/decrease, respectively, in the fair value. The recovery rate represents the extent to which proceeds can be recovered. An increase/decrease in the recovery rate would result in an increase/decrease, respectively, in the fair value.
The valuation techniques and significant unobservable inputs used in Level 3 fair value measurements of assets as of December 31, 2022 were as follows:
1,196,770
20.4
(11.6%)
139,041
11.8
(8.6x)
8.3
19,484
14.8
(13.2%)
8,429
21.8
11.9
13.5
15.0
128,923
(15.2%)
65,472
22.8
(12.0x)
75,619
23.0
(7.2x)
(8.9x)
2,118,974
The Company used the income approach and market approach to determine the fair value of certain Level 3 assets as of December 31, 2022. The significant unobservable inputs used in the income approach are the comparative yield and discount rate. The comparative yield and discount rate are used to discount the estimated future cash flows expected to be received from the underlying investment. An increase/decrease in the comparative yield or discount rate would result in a decrease/increase, respectively, in the fair value. The significant unobservable inputs used in the market approach are the comparable company multiple and the recovery rate. The multiple is used to estimate the enterprise value of the underlying investment. An increase/ decrease in the multiple would result in an increase/decrease, respectively, in the fair value. The recovery rate represents the extent to which proceeds can be recovered. An increase/decrease in the recovery rate would result in an increase/decrease, respectively, in the fair value.
Debt Not Carried at Fair Value
Fair value is estimated by using market quotations or discounting remaining payments using applicable current market rates, which take into account changes in the Company’s marketplace credit ratings, or market quotes, if available. If the Company’s debt obligations were carried at fair value, the fair value and level would have been as follows:
Level
2019-1 Debt
339,837
330,634
March 2026 Notes
266,260
259,769
October 2026 Notes
257,468
247,873
Sumitomo Credit Facility
546,000
443,000
Total Debt
1,409,565
1,281,276
Note 5. Related Party Transactions
Investment Advisory Agreement
The Company entered into the first amended and restated investment advisory agreement as of November 14, 2018 (the “Prior Advisory Agreement”) with the Advisor, pursuant to which the Advisor manages the Company’s investment program and related activities. On November 28, 2018, the Board, including a majority of the Independent Directors, approved a second amended and restated advisory agreement (the “Amended Advisory Agreement”) between the Company and BCSF Advisors, LP (“the Advisor”). On February 1, 2019, Shareholders approved the Amended Advisory Agreement which replaced the Prior Advisory Agreement.
Base Management Fee
The Company pays the Advisor a base management fee (the “Base Management Fee”), accrued and payable quarterly in arrears. The Base Management Fee is calculated at an annual rate of 1.5% (0.375% per quarter) of the average value of the Company’s gross assets (excluding cash and cash equivalents, but including assets purchased with borrowed amounts) at the end of each of the two most recently completed calendar quarters. Such amount shall be appropriately adjusted (based on the actual number of days elapsed relative to the total number of days in such calendar quarter) for any share issuance or repurchases by the Company during a calendar quarter. The Base Management Fee for any partial quarter will be appropriately prorated. Effective February 1, 2019, the base management fee has been revised to a tiered management fee structure so that the base management fee of 1.5% (0.375% per quarter) of the average value of the Company’s gross assets (excluding cash and cash equivalents, but including assets purchased with borrowed amounts) will continue to apply to assets held at an asset coverage ratio down to 200%, but a lower base management fee of 1.0% (0.25% per quarter) of the average value of the Company’s gross assets (excluding cash and cash equivalents, but including assets purchased with borrowed amounts) will apply to any amount of assets attributable to leverage decreasing the Company’s asset coverage ratio below 200%.
For the three months ended June 30, 2023 and 2022, management fees were $9.1 million and $8.5 million, respectively. For the six months ended June 30, 2023 and 2022, management fees were $18.0 million and $16.8 million, respectively. For the three months ended June 30, 2023, $0.0 million was contractually waived and $0.0 million was voluntarily waived. For the six months ended June 30, 2023, $0.0 million was contractually waived and $0.0 million was voluntarily waived. For the three months ended June 30, 2022, $0.0 million was contractually waived and $0.0 million was voluntarily waived. For the six months ended June 30, 2022, $0.0 million was contractually waived and $0.0 million was voluntarily waived.
As of June 30, 2023, and December 31, 2022, $9.1 million and $8.9 million, respectively, remained payable related to the base management fee accrued in base management fee payable on the consolidated statements of assets and liabilities.
Incentive Fee
The incentive fee consists of two parts that are determined independently of each other such that one component may be payable even if the other is not.
The first part, the Incentive Fee based on income is calculated and payable quarterly in arrears as detailed below.
The second part, the capital gains incentive fee, is determined and payable in arrears as detailed below.
Incentive Fee on Pre-Incentive Fee Net Investment Income
Pre-incentive fee net investment income means interest income, dividend income and any other income (including any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies but excluding fees for providing managerial assistance) accrued during the calendar quarter, minus operating expenses for the quarter (including the Base Management Fee, any expenses payable under the Administration Agreement, and any interest expense and dividends paid on any outstanding preferred stock, but excluding the incentive fee). Pre-incentive fee net investment income includes, in the case of investments with a deferred interest feature such as market discount, original issue discount (“OID”), debt instruments with PIK interest, preferred stock with PIK dividends and zero-coupon securities, accrued income that the Company has not yet received in cash.
88
Pre-incentive fee net investment income does not include any realized or unrealized capital gains or losses or unrealized capital appreciation or depreciation. Because of the structure of the incentive fee, it is possible that the Company may pay an incentive fee in a quarter where the Company incurs a loss. For example, if the Company receives pre-incentive fee net investment income in excess of the Hurdle rate for a quarter, the Company will pay the applicable incentive fee even if the Company has incurred a loss in that quarter due to realized and unrealized capital losses.
The incentive fee based on income is calculated and payable quarterly in arrears based on the aggregate pre-incentive fee net investment income in respect of the current calendar quarter and the eleven preceding calendar quarters (the “Trailing Twelve Quarters”). This calculation is referred to as the “Three-Year Lookback.”
Pre-incentive fee net investment income in respect of the relevant Trailing Twelve Quarters is compared to a “Hurdle Amount” equal to the product of (i) the hurdle rate of 1.5% per quarter (6% annualized) and (ii) the sum of our net assets (defined as total assets less indebtedness and before taking into account any incentive fees payable during the period) at the beginning of each applicable calendar quarter comprising the relevant Trailing Twelve Quarters. The Hurdle Amount will be calculated after making appropriate adjustments to our NAV at the beginning of each applicable calendar quarter for our subscriptions (which shall include all issuances by us of shares of our Common Stock, including issuances pursuant to the Company’s dividend reinvestment plan) and distributions during the applicable calendar quarter.
The quarterly incentive fee based on income is calculated, subject to the Incentive Fee Cap (as defined below), based on the amount by which (A) aggregate pre-incentive fee net investment income in respect of the relevant Trailing Twelve Quarters exceeds (B) the Hurdle Amount for such Trailing Twelve Quarters. The amount of the excess of (A) over (B) described in this paragraph for such Trailing Twelve Quarters is referred to as the “Excess Income Amount.” The incentive fee based on income that is paid to the Advisor in respect of a particular calendar quarter will equal the Excess Income Amount less the aggregate incentive fees based on income that were paid to the Advisor in the preceding eleven calendar quarters (or portion thereof) comprising the relevant Trailing Twelve Quarters.
The incentive fee based on income for each calendar quarter is determined as follows:
Incentive Fee Cap
The incentive fee based on income is subject to a cap (the “Incentive Fee Cap”). The Incentive Fee Cap in respect of any calendar quarter is an amount equal to 17.5% of the Cumulative Net Return (as defined below) during the relevant Trailing Twelve Quarters less the aggregate incentive fees based on income that were paid to the Advisor in the preceding eleven calendar quarters (or portion thereof) comprising the relevant Trailing Twelve Quarters.
“Cumulative Net Return” during the relevant Trailing Twelve Quarters means (x) the pre-incentive fee net investment income in respect of the relevant Trailing Twelve Quarters less (y) any Net Capital Loss, if any, in respect of the relevant Trailing Twelve Quarters. If, in any quarter, the Incentive Fee Cap is zero or a negative value, the Company will pay no incentive fee based on income to the Advisor in respect of that quarter. If, in any quarter, the Incentive Fee Cap for such quarter is a positive value but is less than the incentive fee based on income that is payable to the Advisor for such quarter calculated as described above, the Company will pay an incentive fee based on income to the Advisor equal to the Incentive Fee Cap in respect of such quarter. If, in any quarter, the Incentive Fee Cap for such quarter is equal to or greater than the incentive fee based on income that is payable to the Advisor for such quarter calculated as described above, the Company will pay an incentive fee based on income to the Advisor equal to the incentive fee calculated as described above for such quarter without regard to the Incentive Fee Cap.
89
“Net Capital Loss” in respect of a particular period means the difference, if positive, between (i) aggregate capital losses, whether realized or unrealized, in respect of such period and (ii) aggregate capital gains, whether realized or unrealized, in respect of such period.
For the three months ended June 30, 2023 and 2022, the Company incurred $4.0 million and $4.1 million, respectively, of income incentive fees (before waivers), which are included in incentive fees on the consolidated statements of operations. The Advisor has voluntarily waived $0.0 million and $0.0 million, respectively, of the income incentive fees earned by the Advisor during the three months ended June 30, 2023 and 2022. Such income incentive fee waiver is irrevocable and such waived income incentive fees will not be subject to recoupment in future periods. This income incentive fee waiver does not impact any income incentive fees earned by the Advisor in future periods.
For the six months ended June 30, 2023 and 2022, the Company incurred $15.1 million and $7.4 million, respectively, of income incentive fees (before waivers), which are included in incentive fees on the consolidated statements of operations. The Advisor has voluntarily waived $0.0 million and $0.0 million, respectively, of the income incentive fees earned by the Advisor during the six months ended June 30, 2023 and 2022. Such income incentive fee waiver is irrevocable and such waived income incentive fees will not be subject to recoupment in future periods. This income incentive fee waiver does not impact any income incentive fees earned by the Advisor in future periods.
As of June 30, 2023 and December 31, 2022, there was $4.0 million and $9.2 million, respectively, related to the income incentive fee accrued in incentive fee payable on the consolidated statements of assets and liabilities.
The Amended Advisory Agreement approved by Stockholders on February 1, 2019 incorporates (i) a three-year lookback provision and (ii) a cap on quarterly income incentive fee payments based on net realized or unrealized capital loss, if any, during the applicable three-year lookback period.
Annual Incentive Fee Based on Capital Gains
The second part of the incentive fee is a capital gains incentive fee that will be determined and payable in arrears in cash as of the end of each fiscal year (or upon termination of the Amended Advisory Agreement, as of the termination date), and equals to 17.5% of our realized capital gains as of the end of the fiscal year. In determining the capital gains incentive fee payable to the Advisor, the Company calculates the cumulative aggregate realized capital gains and cumulative aggregate realized capital losses since our inception, and the aggregate unrealized capital depreciation as of the date of the calculation, as applicable, with respect to each of the investments in our portfolio. For this purpose, cumulative aggregate realized capital gains, if any, equals the sum of the differences between the net sales price of each investment, when sold, and the cost of such investment. Cumulative aggregate realized capital losses equals the sum of the amounts by which the net sales price of each investment, when sold, is less than the cost of such investment. Aggregate unrealized capital depreciation equals the sum of the difference, if negative, between the valuation of each investment as of the applicable calculation date and the cost of such investment. At the end of the applicable year, the amount of capital gains that serves as the basis for our calculation of the capital gains incentive fee equals the cumulative aggregate realized capital gains less cumulative aggregate realized capital losses, less aggregate unrealized capital depreciation, with respect to our portfolio of investments. If this number is positive at the end of such year, then the capital gains incentive fee for such year will equal to 17.5% of such amount, less the aggregate amount of any capital gains incentive fees paid in respect of our portfolio in all prior years.
There was no capital gains incentive fee payable to the Advisor under the Amended Advisory Agreement as of June 30, 2023 and December 31, 2022.
US GAAP requires that the incentive fee accrual consider the cumulative aggregate unrealized capital appreciation of investments or other financial instruments in the calculation, as an incentive fee would be payable if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the Amended Advisory Agreement (“GAAP Incentive Fee”). There can be no assurance that such unrealized appreciation will be realized in the future. Accordingly, such fee, as calculated and accrued, would not necessarily be payable under the Amended Advisory Agreement, and may never be paid based upon the computation of incentive fees in subsequent period.
For the three months ended June 30, 2023 and 2022, the Company accrued $0.0 million and $0.0 million of incentive fees related to the GAAP Incentive Fee which is included in incentive fee on the consolidated statements of operations. For the six months ended June 30, 2023 and 2022, the Company accrued $0.0 million and $0.0 million of incentive fees related to the GAAP Incentive Fee which is included in incentive fee on the consolidated statements of operations. As of June 30, 2023 and December 31, 2022 there was $0.0 million and $0.0 million related to the GAAP Incentive Fee accrued in incentive fee payable on the consolidated statements of assets and liabilities, respectively.
Administration Agreement
The Company has entered into an administration agreement (the “Administration Agreement”) with the advisor, pursuant to which the Administrator will provide the administrative services necessary for us to operate, and the Company will utilize the Administrator’s office facilities, equipment and recordkeeping services. Pursuant to the Administration Agreement, the Administrator has agreed to oversee our public reporting requirements and tax reporting and monitor our expenses and the performance of professional services rendered to us by others. The Administrator has also hired a sub-administrator to assist in the provision of administrative services. The Company will reimburse the Administrator for its costs and expenses and our allocable portion of overhead incurred by it in performing its obligations under the Administration Agreement, including certain compensation paid to or compensatory distributions received by our officers (including our Chief Compliance Officer and Chief Financial Officer) and any of their respective staff who provide services to us, operations staff who provide services to us, and internal audit staff, if any, to the extent internal audit performs a role in our Sarbanes-Oxley internal control assessment. Our allocable portion of overhead will be determined by the Administrator, which expects to use various methodologies such as allocation based on the percentage of time certain individuals devote, on an estimated basis, to the business and affairs of the Company, and will be subject to oversight by the Board. The Company incurred expenses related to the Administrator of $0.2 million and $0.0 million for the three months ended June 30, 2023 and 2022, respectively, which is included in other general and administrative expenses on the consolidated statements of operations. The Company incurred expenses related to the Administrator of $0.4 million and $0.0 million for the six months ended June 30, 2023 and 2022, respectively, which is included in other general and administrative expenses on the consolidated statements of operations. As of June 30, 2023 and December 31, 2022 there were $0.2 million and $0.1 million in expenses related to the Administrator that were payable and included in “accounts payable and accrued expenses” in the consolidated statements of assets and liabilities, respectively. The sub-administrator is paid its compensation for performing its sub-administrative services under the sub-administration agreement. The Company incurred expenses related to the sub-administrator of $0.2 million and $0.1 million for the three months ended June 30, 2023 and 2022, respectively, which is included in other general and administrative expenses on the consolidated statements of operations. The Company incurred expenses related to the sub-administrator of $0.3 million and $0.3 million for the six months ended June 30, 2023 and 2022, respectively, which is included in other general and administrative expenses on the consolidated statements of operations. The Administrator will not seek reimbursement in the event that any such reimbursements would cause any distributions to our stockholders to constitute a return of capital. In addition, the Administrator is permitted to delegate its duties under the Administration Agreement to affiliates or third parties and the Company will reimburse the expenses of these parties incurred and paid by the Advisor on our behalf.
Resource Sharing Agreement
The Company’s investment activities are managed by the Advisor, an investment adviser that is registered with the SEC under the Advisers Act. The Advisor is responsible for originating prospective investments, conducting research and due diligence investigations on potential investments, analyzing investment opportunities, negotiating and structuring our investments and monitoring our investments and portfolio companies on an ongoing basis.
The Advisor has entered into a Resource Sharing Agreement (the “Resource Sharing Agreement”) with Bain Capital Credit, LP (“Bain Capital Credit”), pursuant to which Bain Capital Credit provides the Advisor with experienced investment professionals (including the members of the Advisor’s Credit Committee) and access to the resources of Bain Capital Credit so as to enable the Advisor to fulfill its obligations under the Amended Advisory Agreement. Through the Resource Sharing Agreement, the Advisor intends to capitalize on the significant deal origination, credit underwriting, due diligence, investment structuring, execution, portfolio management and monitoring experience of Bain Capital Credit’s investment professionals. There can be no assurance that Bain Capital Credit will perform its obligations under the Resource Sharing Agreement. The Resource Sharing Agreement may be terminated by either party on 60 days’ notice, which if terminated may have a material adverse consequence on the Company’s operations.
Co-investments
The Company will invest alongside our affiliates, subject to compliance with applicable regulations and our allocation procedures. Certain types of negotiated co-investments will be made only in accordance with the terms of the exemptive order the Company received from the SEC initially on August 23, 2016, as amended on March 23, 2018 (the “Order”). Under the terms of the Order, a “required majority” (as defined in Section 57(o) of the 1940 Act) of our independent directors must be able to reach certain conclusions in connection with a co-investment transaction, including that (1) the terms of the proposed transaction are reasonable and fair to us and our stockholders and do not involve overreaching of us or our stockholders on the part of any person concerned, and (2) the transaction is consistent with the interests of our stockholders and is consistent with our Board’s approved criteria. In certain situations where co-investment with one or more funds managed by the Advisor or its affiliates is not covered by the Order, the personnel of the Advisor or its affiliates will need to decide which funds will proceed with the investment. Such personnel will make these
91
determinations based on policies and procedures, which are designed to reasonably ensure that investment opportunities are allocated fairly and equitably among affiliated funds over time and in a manner that is consistent with applicable laws, rules and regulations.
Revolving Advisor Loan
On March 27, 2020, the Company entered into an unsecured revolving loan agreement (the “Revolving Advisor Loan”) with BCSF Advisors, LP, the investment adviser of the Company. The Revolving Advisor Loan had a maximum credit limit of $50.0 million and matured on March 27, 2023. The Revolving Advisor Loan accrued interest at the Applicable Federal Rate from the date of such loan until the loan was repaid in full. Please see Note 6 for additional details.
Related Party Commitments
As of June 30, 2023 and December 31, 2022, the Advisor held 449,699.30 and 476,679.81 shares of the Company’s common stock, respectively. An affiliate of the Advisor is the investment manager to certain pooled investment vehicles which are investors in the Company. These investors held 12,875,920.66 and 12,875,920.66 shares of the Company at June 30, 2023 and December 31, 2022, respectively.
Non-Controlled/Affiliate and Controlled Affiliate Investments
Investments during the six months ended June 30, 2023 in which the portfolio company was an "affiliated person" (as defined in the 1940 Act) and/or an "affiliated person" that the Company is deemed to "control" (as defined in the 1940 Act) are as follows:
Fair Value as of December 31, 2022
Gross Additions
Gross Reductions
Change in Unrealized Appreciation
Realized Gains (Losses)
Fair Value as of June 30, 2023
Dividend, Interest, and PIK Income
Other Income
Non-Controlled/affiliate investment
ADT Pizza, LLC, Equity Interest (1)
Ansett Aviation Training First Lien Senior Secured Loan
(105
195
Ansett Aviation Training Equity Interest (1)
1,458
BCC Middle Market CLO 2018-1, LLC. Equity Interest
Blackbrush Oil & Gas, L.P. First Lien Senior Secured Loan
558
Blackbrush Oil & Gas, L.P. Equity Interest (1)
Blackbrush Oil & Gas, L.P. Preferred Equity (1)
2,243
Direct Travel, Inc. First Lien Senior Secured Loan
274
Direct Travel, Inc. First Lien Senior Secured Loan - Delayed Draw
228
621
4,004
450
278
Direct Travel, Inc. Equity Interest (1)
Walker Edison First Furniture Company LLC Equity Interest (1)
5,593
(959
Walker Edison First Furniture Company LLC First Lien Senior Secured Loan
205
Walker Edison First Furniture Company LLC First Lien Senior Secured Loan - Revolver
141
Walker Edison First Furniture Company LLC First Lien Senior Secured Loan - Delayed Draw
Total Non-Controlled/affiliate investment
15,568
Controlled affiliate investment
Bain Capital Senior Loan Program, LLC Subordinated Note Investment Vehicles
3,719
Bain Capital Senior Loan Program, LLC Class A Preferred Equity Interests Investment Vehicles
(436
Bain Capital Senior Loan Program, LLC Class B Equity Interests Investment Vehicles
(1,468
3,815
BCC Jetstream Holdings Aviation (On II), LLC, First Lien Senior Secured Loan
411
(1,010
BCC Jetstream Holdings Aviation (On II), LLC, Equity Interest (1)
BCC Jetstream Holdings Aviation (Off I), LLC, Equity Interest (1)
475
Gale Aviation (Offshore) Co, Equity Interest
(1,654
International Senior Loan Program, LLC, Equity Interest Investment Vehicle
3,201
2,871
International Senior Loan Program, LLC, Subordinated Note Investment Vehicle
12,208
Legacy Corporate Lending HoldCo, LLC Equity Interest
Legacy Corporate Lending HoldCo, LLC Preferred Equity
Lightning Holdings Equity Interest (1)
4,587
Total Controlled affiliate investment
80,452
612,030
96,020
8,143
716,193
37,961
(1)Non-income producing
Transactions during the year ended December 31, 2022 in which the issuer was either an Affiliated Person or an Affiliated Person that the Company is deemed to Control are as follows:
as of
Change in
Realized
Dividend,
December 31,
Gross
Gains
Interest, and
Other
2021
Additions
Reductions
Appreciation
(Losses)
PIK Income
19,527
(4,947
15,924
(9,830
(490
(786
486
Ansett Aviation Training Equity Interest
11,526
(7,115
1,468
(569
160
24,051
(1,288
4,109
12,336
1,029
(4,327
842
19,720
9,391
4,766
Direct Travel, Inc. First Lien Senior Secured Loan – Delayed Draw
2,831
539
365
48,347
1,165
9,209
113,290
55,547
(21,272
27,190
(1,355
13,121
3,509
(654
851
(2,247
2,413
6,627
636
(863
800
BCC Jetstream Holdings Aviation (On II), LLC, Equity Interest
BCC Jetstream Holdings Aviation (Off I), LLC, Equity Interest
10,563
(175
1,068
72,839
1,465
17,022
44,444
19,769
(1,583
61,542
Lightning Holdings B, LLC- Equity Interest (1)
14,851
11,421
937
274,761
151,432
12,437
38,220
388,051
206,979
39,627
51,341
Note 6. Debt
In accordance with applicable SEC staff guidance and interpretations, as a BDC, with certain exceptions, effective February 2, 2019, the Company is permitted to borrow amounts such that its asset coverage ratio is at least 150% after such borrowing (if certain requirements are met), rather than 200%, as previously required. As of June 30, 2023 and December 31, 2022, the Company’s asset coverage ratio based on aggregated borrowings outstanding was 175.1% and 180.0%, respectively.
The Company’s outstanding borrowings as of June 30, 2023 and December 31, 2022 were as follows:
Total Aggregate
Principal
Amount
Carrying
Committed
Outstanding
Value (1)
352,500
351,163
351,099
50,000
300,000
296,952
296,392
295,492
294,812
Sumitomo Credit Facility (2)
665,000
1,617,500
1,498,500
1,667,500
1,395,500
The combined weighted average interest rate (excluding deferred upfront financing costs and unused fees) of the aggregate borrowings outstanding for the six months ended June 30, 2023 and year ended December 31, 2022 were 5.1% and 3.5%, respectively.
The following table shows the contractual maturities of our debt obligations as of June 30, 2023:
Payments Due by Period
Less than
More than
1 year
1 — 3 years
3 — 5 years
5 years
Total Debt Obligations
846,000
2018‑1 Notes
On September 28, 2018 (the “2018‑1 Closing Date”), we, through BCC Middle Market CLO 2018‑1 LLC (the “2018‑1 Issuer”), a Delaware limited liability company and a wholly owned and consolidated subsidiary of the Company, completed its $451.2 million term debt securitization (the “CLO Transaction”). The notes issued in connection with the CLO Transaction (the “2018‑1 Notes”) are secured by a diversified portfolio of the 2018‑1 Issuer consisting primarily of middle market loans, the majority of which are senior secured loans (the “2018‑1 Portfolio”). At the 2018‑1 Closing Date, the 2018‑1 Portfolio was comprised of assets transferred from the Company and its consolidated subsidiaries. All transfers were eliminated in consolidation and there were no realized gains or losses recognized in the CLO Transaction.
The CLO Transaction was executed through a private placement of the following 2018‑1 Notes. The Class A‑1 A, A‑1 B, A‑2, B and C 2018‑1 Notes were issued at par and are scheduled to mature on October 20, 2030. The Company received 100% of the membership interests (the “Membership Interests”) in the 2018‑1 Issuer in exchange for its sale to the 2018‑1 Issuer of the initial closing date loan portfolio. The Membership Interests do not bear interest. At the time of the transaction, the Class A‑1 A, A‑1 B, A‑2, B and C 2018‑1 Notes were included in the consolidated financial statements and the Membership Interests were eliminated in consolidation. On March 7, 2022, the Company sold 70% of the membership equity interests of the Company’s 2018-1 Notes to SLP, which resulted in the deconsolidation of the 2018-1 Notes from the Company’s consolidated financial statements as further discussed in Note 3.
For the three months ended June 30, 2023 and 2022, the components of interest expense related to the 2018-1 Issuer were as follows:
For the Three Months Ended June 30,
Borrowing interest expense
Amortization of deferred financing costs and upfront commitment fees
Total interest and debt financing expenses
For the six months ended June 30, 2023 and 2022, the components of interest expense related to the 2018-1 Issuer were as follows:
For the Six Months Ended June 30,
1,299
1,327
2019‑1 Debt
On August 28, 2019, the Company, through BCC Middle Market CLO 2019‑1 LLC (the “2019‑1 Issuer”), a Cayman Islands limited liability company and a wholly-owned and consolidated subsidiary of the Company, and BCC Middle Market CLO 2019‑1 Co-Issuer, LLC (the “Co-Issuer” and, together with the Issuer, the “Co-Issuers”), a Delaware limited liability company, completed its $501.0 million term debt securitization (the “2019‑1 CLO Transaction”). The notes issued in connection with the 2019‑1 CLO Transaction (the “2019‑1 Notes”) are secured by a diversified portfolio of the Co-Issuers consisting primarily of middle market loans, the majority of which are senior secured loans (the “2019‑1 Portfolio”). The Co-Issuers also issued Class A‑1L Loans (the “Loans” and, together with the 2019‑1 Notes, the “2019‑1 Debt”). The Loans are also secured by the 2019‑1 Portfolio. At the 2019‑1 closing date, the 2019‑1 Portfolio was comprised of assets transferred from the Company and its consolidated subsidiaries. All transfers were eliminated in consolidation and there were no realized gains or losses recognized in the 2019‑1 CLO Transaction.
On November 30, 2021, the Co-Issuers refinanced the 2019‑1 CLO Transaction through a private placement of $410 million of senior secured and senior deferrable notes consisting of: (i) $282.5 million of Class A‑1‑R Senior Secured Floating Rate Notes, which currently bear interest at the applicable reference rate plus 1.50% per annum; (ii) $55 million of Class A‑2‑R Senior Secured Floating Rate Notes, which bear interest at the applicable reference rate plus 2.00% per annum; (iii) $47.5 million of Class B-R Senior Deferrable Floating Rate Notes, which bear interest at the applicable reference rate plus 2.60% per annum; and (iv) $25.0 million of Class C-R Senior Deferrable Floating Rate Notes, which bear interest at the applicable reference rate plus 3.75% per annum (collectively, the “2019‑1 CLO Reset Notes”). As part of the transactions, the 2019-1 Issuer was redomiciled from Cayman to Jersey. The 2019‑1 CLO Reset Notes are scheduled to mature on October 15, 2033 and the reinvestment period ends October 15, 2025. The Company retained $32.5 million of the Class B-R Notes and $25.0 million of the Class C-R Notes. The retained notes by the Company are eliminated in consolidation. The transaction resulted in a realized loss on the extinguishment of debt of $2.3 million from the acceleration of unamortized debt issuance costs of. The obligations of the Issuer under the CLO Transaction are non-recourse to the Company.
On June 15, 2023, the Company entered into a Second Supplemental Indenture (“2019-1 Supplemental Indenture”), dated as of June 15, 2023, pursuant to Section 8.1(xxxi) of the Indenture, dated as of November 30, 2021, between BCC Middle Market CLO 2019-1, LTD, as issuer, and Wells Fargo Bank, National Association, as trustee. The 2019-1 Supplemental Indenture provides for, among other things, an adoption of an alternate reference rate of Term SOFR plus 0.26161%, effective July 1, 2023.
The 2019‑1 CLO Reset Notes was executed through a private placement of the following 2019‑1 Debt:
Class A-1-R
282,500
1.50
6.76
Class A-2-R
55,000
2.00
7.26
Class B-R
2.60
7.86
Total 2019-1 Debt
Membership Interests
102,250
Non-interest bearing
Not applicable
454,750
The Loans and Class A‑1‑R, A‑2‑R, and B-R Notes are included in the consolidated financial statements of the Company. The $32.5 million of the Class B-R Notes, $25.0 million of the Class C-R Notes and Membership Interests retained by the Company are eliminated in consolidation.
The Company serves as portfolio manager of the 2019‑1 Issuer pursuant to a portfolio management agreement between the Company and the 2019‑1 Issuer. For so long as the Company serves as portfolio manager, the Company will not charge any management fee or subordinated interest to which it may be entitled.
During the reinvestment period, pursuant to the indenture and loan agreement governing the 2019‑1 Notes and Loans, respectively, all principal collections received on the underlying collateral may be used by the 2019‑1 Issuer to purchase new collateral under the direction of the Company in its capacity as portfolio manager of the 2019‑1 Issuer and in accordance with the 2019‑1 Issuer investment strategy and the terms of the indenture and loan agreement, as applicable.
The Company has agreed to hold on an ongoing basis the Membership Interests with an aggregate dollar purchase price at least equal to 5% of the aggregate amount of all obligations issued by the 2019‑1 Co-Issuers for so long as the 2019‑1 Debt remains outstanding.
The 2019‑1 Issuer pays ongoing administrative expenses to the trustee, independent accountants, legal counsel, rating agencies and independent managers in connection with developing and maintaining reports, and providing required services in connection with the administration of the 2019‑1 Issuer.
As of June 30, 2023, there were 52 first lien and second lien senior secured loans with a total fair value of approximately $479.9 million and cash of $26.2 million securing the 2019-1 Debt. As of December 31, 2022, there were 49 first lien and second lien senior secured loans with a total fair value of approximately $447.4 million and cash of $56.0 million securing the 2019-1 Debt. Assets that are pledged as collateral for the 2019-1 Debt are not directly available to the creditors of the Company to satisfy any obligations of the Company other than the Company’s obligations under the indenture and loan agreement governing the 2019-1 Debt. The creditors of the 2019-1 Co-Issuers have received security interests in such assets and such assets are not intended to be available to the creditors of the Company (or an affiliate of the Company). The 2019-1 Portfolio must meet certain requirements, including asset mix and concentration, term, agency rating, collateral coverage, minimum coupon, minimum spread and sector diversity requirements in the indenture and loan agreement governing the 2019-1 Debt. As of June 30, 2023, the Company was in compliance with its covenants related to the 2019-1 Debt.
Costs of the offering of $1.5 million were incurred in connection with the 2019‑1 CLO Reset Notes which have been recorded as debt issuance costs and presented as a reduction to the outstanding principal amount of the 2019‑1 Debt on the consolidated statements of assets and liabilities and are being amortized over the life using the effective interest method. The balance of the unamortized debt issuance costs was $1.3 million and $1.4 million as of June 30, 2023 and December 31, 2022, respectively.
For the three months ended June 30, 2023 and 2022, the components of interest expense related to the 2019‑1 Co-Issuers were as follows:
6,062
2,268
6,094
2,300
For the six months ended June 30, 2023 and 2022, the components of interest expense related to the 2019‑1 Co-Issuers were as follows:
11,605
3,892
11,669
3,956
On March 27, 2020, the Company entered into an unsecured revolving loan agreement (the “Revolving Advisor Loan”) with BCSF Advisors, LP, the investment adviser of the Company. The Revolving Advisor Loan had a maximum credit limit of $50.0 million and matured on March 27, 2023. The Revolving Advisor Loan accrued interest at the Applicable Federal Rate from the date of such loan until the loan was repaid in full.
For the three and six months ended June 30, 2023 and 2022, the Revolving Advisor Loan did not incur any interest expense.
2023 Notes
On June 10, 2020, the Company entered into a Master Note Purchase Agreement with institutional investors listed on the Purchaser Schedule thereto (the “Note Purchase Agreement”), in connection with the Company’s issuance of $150.0 million aggregate principal amount of its 8.50% senior unsecured notes due 2023 (the “2023 Notes”). The sale of the 2023 Notes generated net proceeds of approximately $146.4 million, including an offering discount of $1.5 million and debt issuance costs in connection with the transaction, including fees and commissions, of $2.1 million.
The 2023 Notes were scheduled to mature on June 10, 2023 and could be redeemed in whole or in part at the Company’s option at any time or from time to time at the redemption prices set forth in the Note Purchase Agreement. The 2023 Notes bore interest at a rate of 8.50% per year payable semi-annually on June 10 and December 10 of each year, commencing on December 10, 2020.
On July 16, 2021 the Company repurchased $37.5 million of the 2023 Notes at a total cost of $39.5 million. This resulted in a realized loss on the extinguishment of debt of $2.5 million, which included a premium paid of $2.0 million and acceleration of unamortized debt issuance costs and original issue discount of $0.5 million.
On August 24, 2022, the Company issued a notice to the noteholders of the 2023 Notes, indicating its intention to prepay the total aggregate principal amount committed of $150,000,000, including the principal amount outstanding of $112,500,000, under the 2023 Notes pursuant to the terms of the Note Purchase Agreement governing the 2023 Notes. The Notes were prepaid at 100% of their principal amount, plus accrued and unpaid interest thereon, on September 6, 2022. This resulted in a realized loss on the extinguishment of debt of $0.7 million, which included acceleration of unamortized debt issuance costs and original issue discount of $0.7 million.
For the three months ended June 30, 2023 and 2022, the components of interest expense related to the 2023 Notes were as follows:
2,344
Amortization of debt issuance cost
Accretion of original issue discount
2,572
For the six months ended June 30, 2023 and 2022, the components of interest expense related to the 2023 Notes were as follows:
4,594
272
181
5,047
On March 10, 2021, the Company and U.S. Bank National Association (the “Trustee”), entered into an Indenture (the “Base Indenture”) and First Supplemental Indenture (the “First Supplemental Indenture,” and together with the Base Indenture, the “Indenture”) between the Company and the Trustee. The First Supplemental Indenture relates to the Company’s issuance of $300.0 million aggregate principal amount of its 2.95% notes due 2026 (the “March 2026 Notes”).
The March 2026 Notes will mature on March 10, 2026 and may be redeemed in whole or in part at the Company’s option at any time or from time to time at the redemption prices set forth in the Indenture. The March 2026 Notes bear interest at a rate of 2.95% per year payable semi-annually on March 10th and September 10th of each year, commencing on September 10, 2021. The March 2026 Notes are general unsecured obligations of the Company that rank senior in right of payment to all of the Company’s existing and future indebtedness that is expressly subordinated in right of payment to the March 2026 Notes, rank pari passu with all existing and future unsecured unsubordinated indebtedness issued by the Company, rank effectively junior to any of the Company’s secured indebtedness (including unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness, and rank structurally junior to all existing and future indebtedness (including trade payables) incurred by the Company’s subsidiaries, financing vehicles or similar facilities.
The net proceeds to the Company were approximately $294.3 million, after deducting the underwriting discounts and commissions of $4.4 million and offering expenses of $1.3 million.
As of June 30, 2023 and December 31, 2022 the components of the carrying value of the March 2026 Notes were as follows:
June 30,
Principal amount of debt
Unamortized debt issuance cost
(1,748
(2,069
Original issue discount, net of accretion
(1,300
(1,539
Carrying value of 2026 Notes
For the three months ended June 30, 2023 and 2022, the components of interest expense related to the March 2026 Notes were as follows:
2,212
2,213
162
2,494
2,495
For the six months ended June 30, 2023 and 2022, the components of interest expense related to the March 2026 Notes were as follows:
4,425
4,426
322
321
239
4,986
On October 13, 2021, the Company and the Trustee entered into a Second Supplemental Indenture (the “Second Supplemental Indenture”) to the Indenture between the Company and the Trustee. The Second Supplemental Indenture relates to the Company’s issuance of $300.0 million aggregate principal amount of its 2.55% notes due 2026 (the “October 2026 Notes,” and together with the March 2026 Notes, the “2026 Notes”).
The October 2026 Notes will mature on October 13, 2026 and may be redeemed in whole or in part at the Company’s option at any time or from time to time at the redemption prices set forth in the Indenture. The October 2026 Notes bear interest at a rate of 2.55% per year payable semi-annually on April 13 and October 13 of each year, commencing on April 13, 2022. The October 2026 Notes are general unsecured obligations of the Company that rank senior in right of payment to all of the Company’s existing and future indebtedness that is expressly subordinated in right of payment to the October 2026 Notes, rank pari passu with all existing and future unsecured unsubordinated indebtedness issued by the Company, rank effectively junior to any of the Company’s secured indebtedness (including unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness, and rank structurally junior to all existing and future indebtedness (including trade payables) incurred by the Company’s subsidiaries, financing vehicles or similar facilities.
The net proceeds to the Company were approximately $293.1 million, after deducting the underwriting discounts and commissions of $6.2 million and offering expenses of $0.7 million.
As of June 30, 2023 and December 31, 2022 the components of the carrying value of the October 2026 Notes were as follows:
(2,403
(2,765
(2,105
(2,423
For the three months ended June 30, 2023 and 2022, the components of interest expense related to the October 2026 Notes were as follows:
1,912
1,913
182
159
2,253
2,254
For the six months ended June 30, 2023 and 2022, the components of interest expense related to the October 2026 Notes were as follows:
362
317
4,504
On December 24, 2021, the Company entered into a senior secured revolving credit agreement (the “Sumitomo Credit Agreement” or the “Sumitomo Credit Facility”) as Borrower, with Sumitomo Mitsui Banking Corporation, as Administrative Agent and Sole Book Runner, and with Sumitomo Mitsui Banking Corporation and MUFG Union Bank, N.A., as Joint Lead Arrangers. The Credit Agreement is effective as of December 24, 2021.
The facility amount under the Sumitomo Credit Agreement is $300.0 million with an accordion provision to permit increases to the total facility amount up to $1.0 billion. Proceeds of the loans under the Sumitomo Credit Agreement may be used for general corporate purposes of the Company, including, without limitation, repaying outstanding indebtedness, making distributions, contributions and investments, and acquisition and funding, and such other uses as permitted under the Sumitomo Credit Agreement. The maturity date is December 24, 2026.
On July 6, 2022, the Company entered into the First Amendment to the Sumitomo Credit Agreement. The First Amendment provides for an upsize in the total commitments from lenders under the revolving credit facility governed by the Sumitomo Credit Agreement from $300.0 million to $385.0 million. The First Amendment also replaced the LIBOR benchmark provisions under the Sumitomo Credit Agreement with SOFR benchmark provisions, including applicable credit spread adjustments.
On July 22, 2022, the Company entered into the Increasing Lender/Joinder Lender Agreement (the “Joinder Agreement”), dated as of July 22, 2022, pursuant to Section 2.08(e) of the Sumitomo Credit Agreement. The Joinder Agreement provides for, among other things, an upsize in the total commitments from lenders under the revolving credit facility governed by the Sumitomo Credit Agreement from $385.0 million to $485.0 million.
On August 24, 2022, the Company entered into the Second Amendment, which provides for, among other things, an upsize in the total commitments from lenders under the Sumitomo Credit Agreement from $485.0 million to $635.0 million.
On December 14, 2022, the Company entered into a second Increasing Lender/Joinder Lender Agreement (the “Second Joinder Agreement”), dated as of December 14, 2022, pursuant to Section 2.08(e) of the Sumitomo Credit Agreement. The Second Joinder Agreement provides for, among other things, an upsize in the total commitments from lenders under the revolving credit facility governed by the Sumitomo Credit Agreement from $635.0 million to $665.0 million.
Interest under the Sumitomo Credit Agreement for (i) loans for which the Company elects the base rate option, (A) if the borrowing base is equal to or greater than the product of 1.60 and the revolving credit exposure, is payable at an “alternate base rate” (which is the greater of zero and the highest of (a) the prime rate as published in the print edition of The Wall Street Journal, Money
Rates Section, (b) the federal funds effective rate plus 0.5% and (c) the one-month Eurocurrency rate plus 1% per annum) plus 0.75% per annum and (B) if the borrowing base is less than the product of 1.60 and the revolving credit exposure, the alternate base rate plus 0.875% per annum; (ii) loans for which the Company elects the Eurocurrency option, (A) if the borrowing base is equal to or greater than the product of 1.60 and the revolving credit exposure, is payable at a rate equal to the Eurocurrency rate plus 1.75% per annum and (B) if the borrowing base is less than the product of 1.60 and the revolving credit exposure, is payable at a rate equal to the Eurocurrency rate plus 1.875% per annum; and (iii) loans for which the Company elects the risk-free-rate option, (A) if the borrowing base is equal to or greater than the product of 1.60 and the revolving credit exposure, is payable at a rate equal to risk-free-rate plus 1.8693% per annum and (B) if the borrowing base is less than the product of 1.60 and the revolving credit exposure, is payable at a rate equal to risk-free-rate plus 1.9943% per annum. The Company pays a used commitment fee of 37.5 basis points (0.375%) on the average daily unused amount of the dollar commitment.
The Sumitomo Credit Agreement includes customary affirmative and negative covenants, including certain limitations on the incurrence of additional indebtedness and liens, as well as usual and customary events of default for revolving credit facilities of this nature. As of June 30, 2023, the Company was in compliance with its covenants related to the Sumitomo Credit Facility.
As of June 30, 2023 and December 31, 2022, there were $546.0 million and $443.0 million of borrowings under the Sumitomo Credit Facility.
For the three months ended June 30, 2023 and 2022, the components of interest expense related to the Sumitomo Credit Facility were as follows:
9,244
1,160
Unused facility fee
234
109
9,618
1,406
For the six months ended June 30, 2023 and 2022, the components of interest expense related to the Sumitomo Credit Facility were as follows:
18,119
265
429
466
217
18,850
1,850
Note 7. Derivatives
The Company is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. The value of foreign investments held by the Company may be significantly affected by changes in foreign currency exchange rates. The dollar value of a foreign security generally decreases when the value of the dollar rises against the foreign currency in which the security is denominated and tends to increase when the value of the dollar declines against such foreign currency.
The Company may enter into forward currency exchange contracts to reduce the Company’s exposure to foreign currency exchange rate fluctuations in the value of foreign currencies, as described in Note 2. The fair value of derivative contracts open as of June 30, 2023 and December 31, 2022 is included on the consolidated schedules of investments by contract. The Company had collateral receivable of $7.5 million for June 30, 2023 and collateral receivable of $9.6 million for December 31, 2022 with the counterparties on foreign currency exchange contracts. Collateral amounts posted are included in collateral on forward currency exchange contracts on the consolidated statements of assets and liabilities. Collateral payable is included in collateral payable on forward currency exchange contracts on the consolidated statements of assets and liabilities.
For the three and six months ended June 30, 2023, the Company’s average U.S. dollar notional exposure to forward currency exchange contracts were $213.6 million and $194.7 million, respectively. For the three and six months ended June 30, 2022, the Company’s average U.S. dollar notional exposure to forward currency exchange contracts were $130.1 million and $116.9 million, respectively.
By using derivative instruments, the Company is exposed to the counterparty’s credit risk—the risk that derivative counterparties may not perform in accordance with the contractual provisions offset by the value of any collateral received. The Company’s exposure to credit risk associated with counterparty non-performance is limited to collateral posted and the unrealized gains inherent in such transactions that are recognized in the consolidated statements of assets and liabilities. The Company minimizes counterparty credit risk through credit monitoring procedures, executing master netting arrangements and managing margin and collateral requirements, as appropriate.
The Company presents forward currency exchange contracts on a net basis by counterparty on the consolidated statements of assets and liabilities. The Company has elected not to offset assets and liabilities in the consolidated statements of assets and liabilities that may be received or paid as part of collateral arrangements, even when an enforceable master netting arrangement or other arrangement is in place that provides the Company, in the event of counterparty default, the right to liquidate collateral and the right to offset a counterparty’s rights and obligations.
The following table presents both gross and net information about derivative instruments eligible for offset in the consolidated statements of assets and liabilities as of June 30, 2023:
Net amount of
Gross amount of
assets or
(liabilities)
assets on the
on the
presented on the
Account in the
consolidated
statements of
Cash Collateral
statements of assets
assets and
paid
Net
and liabilities
liabilities
(received) (1)
Amounts (2)
Bank of New York
3,148
(3,093
Unrealized depreciation on forward currency contracts
(1,796
The following table presents both gross and net information about derivative instruments eligible for offset in the consolidated statements of assets and liabilities as of December 31, 2022:
3,488
(3,459
(216
The effect of transactions in derivative instruments to the consolidated statements of operations during the three months ended June 30, 2023 and 2022 was as follows:
Net realized gain on forward currency exchange contracts
Total net realized and unrealized gains (losses) on forward currency exchange contracts
10,142
Included in total net gains (losses) on the consolidated statements of operations is net gains (losses) of $2.6 million and ($9.0) million related to realized and unrealized gains and losses on investments, foreign currency holdings and non-investment assets and liabilities attributable to the changes in foreign currency exchange rates for the three months ended June 30, 2023 and 2022, respectively. Including the total net realized and unrealized gains (losses) on forward currency exchange contracts of ($1.5) million and $10.1 million, respectively, included in the above table, the net impact of foreign currency on total net gains on the consolidated statements of operations is $1.1 million and $1.1 million for the three months ended June 30, 2023 and 2022, respectively.
104
The effect of transactions in derivative instruments to the consolidated statements of operations during the six months ended June 30, 2023 and 2022 was as follows:
(3,700
13,036
Included in total net gains (losses) on the consolidated statements of operations is net gains (losses) of $4.7 million and ($12.2) million related to realized and unrealized gains and losses on investments, foreign currency holdings and non-investment assets and liabilities attributable to the changes in foreign currency exchange rates for the six months ended June 30, 2023 and 2022, respectively. Including the total net realized and unrealized gains (losses) on forward currency exchange contracts of ($3.7) million and $13.0 million, respectively, included in the above table, the net impact of foreign currency on total net gains on the consolidated statements of operations is $1.0 million and $0.9 million for the six months ended June 30, 2023 and 2022, respectively.
Note 8. Distributions
The Company’s distributions are recorded on the record date. The following table summarizes distributions declared during the six months ended June 30, 2023:
Date Declared
Record Date
Payment Date
Per Share
February 28, 2023
March 31, 2023
April 28, 2023
0.38
May 9, 2023
July 31, 2023
Total distributions declared
0.76
49,068
The distributions declared during the six months ended June 30, 2023 were derived from investment company taxable income and net capital gain, if any.
The Company’s distributions are recorded on the record date. The following table summarizes distributions declared during the six months ended June 30, 2022:
Amount Per
Share
February 23, 2022
March 31, 2022
April 29, 2022
0.34
21,951
May 5, 2022
July 29, 2022
0.68
43,902
The distributions declared during the six months ended June 30, 2022 were derived from investment company taxable income and net capital gain, if any.
The federal income tax characterization of distributions declared and paid for the fiscal year will be determined at fiscal year-end based upon the Company’s investment company taxable income for the full fiscal year and distributions paid during the full year.
Note 9. Common Stock/Capital
The Company has authorized 100,000,000,000 shares of its common stock with a par value of $0.001 per share. The Company has authorized 10,000,000,000 shares of its preferred stock with a par value of $0.001 per share. Shares of preferred stock have not been issued.
Prior to the IPO, the Company had issued 43,982,137.46 shares in the private placement of the Company’s common shares (the “Private Offering”). Each investor had entered into a separate subscription agreement relating to the Company’s common stock (the “Subscription Agreements”). Each investor had made a capital commitment to purchase shares of the Company’s common stock pursuant to the Subscription Agreements. Investors were required to make capital contributions to purchase shares of the Company’s common stock each time the Company delivered a drawdown notice, which were delivered at least 10 business days prior to the required funding date in an aggregate amount not to exceed their respective capital commitments. The number of shares to be issued to a
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stockholder was determined by dividing the total dollar amount of the contribution by a stockholder by the net asset value per share of the common stock as of the last day of the Company’s fiscal quarter or such other date and price per share as determined by the Board in accordance with the requirements of the 1940 Act. As of December 31, 2018, aggregate commitments relating to the Private Offering were $1.3 billion. All outstanding commitments related to these Subscription Agreements were cancelled due to the completion of the IPO on November 15, 2018. As of June 30, 2023 and December 31, 2022, BCSF Advisors, LP contributed in aggregate $8.9 million and $8.9 million to the Company and received 488,212.35 and 488,212.35 shares of the Company, respectively. At June 30, 2023 and December 31, 2022, BCSF Advisors, LP owned 0.70% and 0.74%, respectively, of the outstanding common stock of the Company.
On November 19, 2018, the Company closed its initial public offering (the “IPO”) issuing 7,500,000 shares of its common stock at a public offering price of $20.25 per share. Shares of common stock of the Company began trading on the New York Stock Exchange under the symbol “BCSF” on November 15, 2018. The offering generated proceeds, before expenses, of $147.3 million. All outstanding commitments were cancelled due to the completion of the initial public offering.
For the three months ended June 30, 2023 and 2022, there were no shares issued pursuant to the dividend reinvestment plan. For the six months ended June 30, 2023 and 2022, there were no shares issued pursuant to the dividend reinvestment plan.
BCSF Investments, LLC and certain individuals, including Michael A. Ewald, the Company’s Chief Executive Officer and a Managing Director of Bain Capital Credit; Jonathan S. Lavine, Co-Managing Partner of Bain Capital, LP and Founder and Chief Investment Officer of Bain Capital Credit; John Connaughton, Co-Managing Partner of Bain Capital, LP; Jeffrey B. Hawkins, Chairman of the Company’s Board of Directors and a Managing Director of Bain Capital Credit; and Michael J. Boyle, the Company’s President and a Managing Director of Bain Capital Credit, adopted the 10b5‑1 Plan in accordance with Rules 10b5‑1 and 10b‑18 under the Exchange Act, under which such parties would buy up to $20 million in the aggregate of the Company’s common stock in the open market during the period beginning after four full calendar weeks after the closing of the IPO and ending on the earlier of the date on which the capital committed to the 10b5‑1 has been exhausted or one year after the closing of the IPO.
On May 7, 2019, the Company’s Board of Directors authorized the Company to repurchase up to $50 million of its outstanding common stock in accordance with safe harbor rules under the Securities Exchange Act of 1934. Any such repurchases will depend upon market conditions and there is no guarantee that the Company will repurchase any particular number of shares or any shares at all. As of June 30, 2023, there have been no repurchases of common stock.
On May 4, 2020, the Company’s Board of Directors approved a transferable subscription rights offering to our stockholders of record as of May 13, 2020. The rights entitled record stockholders to subscribe for up to an aggregate of 12,912,453 shares of our common stock. Record stockholders received one right for each share of common stock owned on the record date. The rights entitled the holders to purchase one new share of common stock for every four rights held, and record stockholders who fully exercised their rights were entitled to subscribe, subject to certain limitations and allotment rules, for additional shares that remain unsubscribed as a result of any unexercised rights. The rights were transferable and on the New York Stock Exchange under the symbol “BCSF RT”. The rights offering expired June 5, 2020. Based on the terms of the offering and the market price of the stock during the applicable period, holders of rights participating in the offering were entitled to purchase one new share of common stock for every four rights held at a subscription price of $10.2163 per share. On June 16, 2020, the Company closed its transferrable rights offering and issued 12,912,453 shares. The offering generated net proceeds, before expenses, of $129.6 million, including the underwriting discount and commissions of $2.3 million.
Note 10. Commitments and Contingencies
Commitments
The Company’s investment portfolio may contain debt investments that are in the form of lines of credit and unfunded delayed draw commitments, which require the Company to provide funding when requested by portfolio companies in accordance with the terms of the underlying loan agreements.
As of June 30, 2023, the Company had $276.0 million of unfunded commitments under loan and financing agreements as follows:
Portfolio Company & Investment
Expiration Date(1)
Unfunded Commitments(2)
9 Story Media Group Inc. - Revolver
508
A&R Logistics, Inc. - Revolver
5,851
Abracon Group Holding, LLC. - Delayed Draw
3,552
Abracon Group Holding, LLC. - Revolver
Access - Delayed Draw
1,507
Allworth Financial Group, L.P. - Revolver
Amspec Services, Inc. - Revolver
2,756
Apollo Intelligence - Delayed Draw
9,611
Apollo Intelligence - Revolver
Applitools - Revolver
3,430
Appriss Holdings, Inc. - Revolver
753
Aramsco, Inc. - Revolver
Arctic Glacier U.S.A., Inc. - Revolver
829
ASP-r-pac Acquisition Co LLC - Revolver
Avalon Acquiror, Inc. - Revolver
5,042
Caribou Bidco Limited - Delayed Draw
CB Nike IntermediateCo Ltd - Revolver
Concert Golf Partners Holdco LLC - Delayed Draw
1,884
Concert Golf Partners Holdco LLC - Revolver
Congress Buyer DD T/L - Delayed Draw
1,654
Congress Buyer R/C - Revolver
1,102
CPS Group Holdings, Inc. - Revolver
3,157
Darcy Partners - Revolver
349
Datix Bidco Limited - Revolver
Direct Travel, Inc. - Delayed Draw
2,175
Efficient Collaborative Retail Marketing Company, LLC - Revolver
992
Element Buyer, Inc. - Revolver
4,250
Eleven Software - Revolver
397
Gills Point S - Delayed Draw
1,262
Gills Point S - Revolver
518
Grammer Purchaser, Inc. - Revolver
GSP Holdings, LLC - Revolver
2,267
Gulf Winds International - Revolver
ImageTrend - Revolver
4,000
Intoxalock - Revolver
JHCC Holdings, LLC - Revolver
Kellstrom Commercial Aerospace, Inc. - Revolver
3,196
Mach Acquisition R/C - Revolver
2,511
Margaux Acquisition Inc. - Revolver
735
Margaux UK Finance Limited - Revolver
Meriplex Communications, Ltd. - Delayed Draw
Meriplex Communications, Ltd. - Revolver
2,824
Morrow Sodali - Delayed Draw
269
Morrow Sodali - Revolver
1,365
MRHT - Delayed Draw
5,529
MRI Software LLC - Revolver
1,782
MZR Buyer, LLC - Revolver
3,473
NearMap - Revolver
4,652
New Look (Delaware) Corporation - Delayed Draw
New Look Vision Group - Revolver
OGH Bidco Limited - Delayed Draw
Omni Intermediate - Revolver
732
Parcel2Go - Delayed Draw
Premier Imaging, LLC - Delayed Draw
4,816
Pyramid Global Hospitality - Revolver
3,482
Reconomy - Delayed Draw
8,357
Refine Intermediate, Inc. - Revolver
5,340
Revalize, Inc. - Revolver
1,340
RoadOne - Delayed Draw
3,931
RoadOne - Revolver
4,119
RoC Opco LLC - Revolver
10,241
Saturn Purchaser Corp. - Revolver
Service Master - Revolver
9,628
Simplicity - Delayed Draw
5,470
Simplicity - Revolver
1,454
Smartronix - Revolver
6,321
Solaray, LLC - Delayed Draw
Solaray, LLC - Revolver
Spring Finco BV - Delayed Draw
4,060
Sunmed Group Holdings, LLC - Revolver
1,229
Superna Inc. - Delayed Draw
Superna Inc. - Revolver
SureWerx - Delayed Draw
2,013
SureWerx - Revolver
885
Swoogo LLC - Revolver
1,243
Taoglas - Delayed Draw
3,636
Taoglas - Revolver
TEI Holdings Inc. - Revolver
4,226
Titan Cloud Software, Inc - Delayed Draw
10,572
Titan Cloud Software, Inc - Revolver
5,714
TLC Purchaser, Inc. - Revolver
4,113
V Global Holdings LLC - Revolver
7,293
Ventiv Holdco, Inc. - Revolver
1,686
Walker Edison - Delayed Draw
WCI Gigawatt Purchaser - Revolver
1,931
Whitcraft-Paradigm - Revolver
2,194
World Insurance - Revolver
931
WSP - Revolver
449
WU Holdco, Inc. - Revolver
2,367
YLG Holdings, Inc. - Revolver
276,008
As of December 31, 2022, the Company had $303.7 million of unfunded commitments under loan and financing agreements as follows:
Expiration Date (1)
Unfunded Commitments (2)
497
5,735
5,046
Access - First Lien Senior Secured Loan
2,642
Allworth Financial Group, L.P. - Delayed Draw
4,463
Ansira Holdings New DD T/L(2) - First Lien Senior Secured Loan
1,508
Ansira Holdings, Inc. - Revolver
7,208
2,709
7,353
Batteries Plus Holding Corporation - Revolver
Caribou Bidco Limited - First Lien Senior Secured Loan
Cloud Technology Solutions (CTS) - Revolver
7/3/2029
2,340
4,933
Darcy Partners R/C - First Lien Senior Secured Loan
DC Blox Inc. - First Lien Senior Secured Loan
1,915
2,625
1,339
Great Expressions Dental Center PC - Revolver
3,087
JHCC Holdings, LLC - Delayed Draw
1,088
3,092
6,026
603
masLabor - Revolver
8,931
2,542
1,345
1,312
MRH Trowe Beteiligungsgesellschaft MBH - First Lien Senior Secured Loan
7,888
5,210
New Look Vision Group - Delayed Draw
571
7,440
Omni Intermediate - Delayed Draw
504
Omni Intermediate R/C - First Lien Senior Secured Loan
Paisley Bidco Limited - Revolver
Parcel2Go - First Lien Senior Secured Loan
Reconomy - First Lien Senior Secured Loan
7,949
5,666
3,388
7,510
Saltoun - Delayed Draw
14,358
7,470
6,800
Spring Finco DD T/L - First Lien Senior Secured Loan
1,259
SunMed Group Holdings, LLC - Revolver
639
4,221
11,429
TGI Sport Bidco Pty Ltd - Delayed Draw
1,828
9,690
1,704
Whitcraft LLC - Revolver
326
WSP Initial Term Loan - Delayed Draw
1,797
WSP Revolving Loan - Revolver
2,705
8,545
303,665
Contingencies
In the normal course of business, the Company may enter into certain contracts that provide a variety of indemnities. The Company’s maximum exposure under these indemnities is unknown as it would involve future claims that may be made against the Company. Currently, the Company is not aware of any such claims and no such claims are expected to occur. As such, the Company does not consider it necessary to record a liability in this regard.
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Note 11. Financial Highlights
The following is a schedule of financial highlights for the six months ended June 30, 2023 and 2022:
Per share data:
Net asset value at beginning of period
17.04
Net investment income (1)
Net realized gain (loss) (1)(7)
(0.27
0.08
Net change in unrealized appreciation (1)(2)(8)
(0.04
Net increase in net assets resulting from operations (1)(9)(10)
Shareholder distributions from income (3)
(0.76
(0.68
Net asset value at end of period
Shares outstanding at end of period
64,562,265.27
Per share market value at end of period
13.51
13.61
Total return based on market value (12)
20.44
(6.28
Total return based on net asset value (4)
4.65
Ratios:
Ratio of net investment income to average net assets (5)(11)(13)
14.34
9.51
Ratio of total expenses to average net assets (5)(11)(13)
12.78
8.43
Supplemental data:
Ratio of interest and debt financing expenses to average net assets (5)(13)
7.21
3.95
Ratio of expenses (without incentive fees) to average net assets (5)(11)(13)
7.76
Ratio of incentive fees and management fees, net of contractual and voluntary waivers, to average net assets (5)(11)(13)
4.60
3.73
Average principal debt outstanding
1,476,709
1,267,665
Portfolio turnover (6)
21.10
18.66
Note 12. Subsequent Events
The Company’s management has evaluated the events and transactions that have occurred through August 8, 2023, the issuance date of the consolidated financial statements, and noted no items requiring disclosure in this Form 10-Q or adjustment of the consolidated financial statements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and other parts of this report contain forward-looking information that involves risks and uncertainties. The discussion and analysis contained in this section refers to our financial condition, results of operations and cash flows. The information contained in this section should be read in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this report. Please see “Forward-Looking Statements” for a discussion of the uncertainties, risks and assumptions associated with this discussion and analysis. Our actual results could differ materially from those anticipated by such forward-looking information due to factors discussed under “Forward-Looking Statements” appearing elsewhere in this report.
Overview
Bain Capital Specialty Finance, Inc. (the “Company”, “we”, “our” and “us”) is an externally managed specialty finance company focused on lending to middle market companies. We have elected to be regulated as a business development company (a “BDC”) under the Investment Company Act of 1940, as amended (together with the rules and regulations promulgated thereunder, the “1940 Act”). We are managed by BCSF Advisors, LP (our “Advisor” or “BCSF Advisors”), a subsidiary of Bain Capital Credit, LP (“Bain Capital Credit”). Our Advisor is registered as an investment adviser with the SEC under the Investment Advisers Act of 1940, as amended (the “Advisers Act”). Our Advisor also provides the administrative services necessary for us to operate (in such capacity, our “Administrator” or “BCSF Advisors”). Since we commenced operations on October 13, 2016 through June 30, 2023, we have invested approximately $6,794.3 million in aggregate principal amount of debt and equity investments prior to any subsequent exits or repayments. We seek to generate current income and, to a lesser extent, capital appreciation through direct originations of secured debt, including first lien, first lien/last-out, unitranche and second lien debt, investments in strategic joint ventures, equity investments and, to a lesser extent, corporate bonds.
On November 19, 2018, we closed our initial public offering (the “IPO”) issuing 7,500,000 shares of our common stock at a public offering price of $20.25 per share. Shares of common stock of the Company began trading on the New York Stock Exchange under the symbol “BCSF” on November 15, 2018.
Our primary focus is capitalizing on opportunities within our Senior Direct Lending strategy, which seeks to provide risk-adjusted returns and current income to our stockholders by investing primarily in middle-market companies with between $10.0 million and $150.0 million in annual earnings before interest, taxes, depreciation and amortization (“EBITDA”). However, we may, from time to time, invest in larger or smaller companies. We generally seek to retain effective voting control in respect of the loans or particular classes of securities in which we invest through maintaining affirmative voting positions or negotiating consent rights that allow us to retain a blocking position. We focus on senior investments with a first or second lien on collateral and strong structures and documentation intended to protect the lender. We may also invest in mezzanine debt and other junior securities, including common and preferred equity, on an opportunistic basis, and in secondary purchases of assets or portfolios but such investments are not the principal focus of our investment strategy. In addition, we may invest, from time to time, in distressed debt, debtor-in-possession loans, structured products, structurally subordinate loans, investments with deferred interest features, zero-coupon securities and defaulted securities.
We generate revenues primarily through receipt of interest income from the investments we hold. In addition, we generate income from various loan origination and other fees, dividends on direct equity investments and capital gains on the sales of investments. The companies in which we invest use our capital for a variety of reasons, including to support organic growth, to fund changes of control, to fund acquisitions, to make capital investments and for refinancing and recapitalizations.
Our level of investment activity may vary substantially from period to period depending on many factors, including the amount of debt and equity capital available to middle-market companies, the level of merger and acquisition activity for such companies, the level of investment and capital expenditures of such companies, the general economic environment, the amount of capital we have available to us and the competitive environment for the type of investments we make.
As a BDC, we may not acquire any assets other than “qualifying assets” specified in the 1940 Act, unless, at the time the acquisition is made, at least 70% of our total assets are qualifying assets (with certain limited exceptions). Qualifying assets include investments in “eligible portfolio companies.” Pursuant to rules adopted by the SEC, “eligible portfolio companies” include certain companies that do not have any securities listed on a national securities exchange and public companies whose securities are listed on a national securities exchange but whose market capitalization is less than $250 million.
As a BDC, we may also invest up to 30% of our portfolio opportunistically in “non-qualifying” portfolio investments, such as investments in non-U.S. companies.
Revenues
We primarily generate revenue in the form of interest income on debt investments and distributions on equity investments and, to a lesser extent, capital gains, if any, on equity securities that we may acquire in portfolio companies. Some of our investments may provide for deferred interest payments or payment-in-kind (“PIK”) interest. The principal amount of the debt investments and any accrued but unpaid interest generally becomes due at the maturity date. In addition, we may generate revenue in the form of commitment, origination, structuring or diligence fees, fees for providing managerial assistance and consulting fees. Loan origination fees, original issue discount and market discount or premium are capitalized, and we accrete or amortize such amounts into or against income over the life of the loan. We record contractual prepayment premiums on loans and debt securities as interest income.
Our debt investment portfolio consists of primarily floating rate loans. As of June 30, 2023 and December 31, 2022, 94.1% and 94.5%, respectively, of our debt investments, based on fair value, bore interest at floating rates, which may be subject to interest rate floors. Variable-rate investments subject to a floor generally reset periodically to the applicable floor, only if the floor exceeds the index. Trends in base interest rates, such as SOFR, may affect our net investment income over the long term. In addition, our results may vary from period to period depending on the interest rates of new investments made during the period compared to investments that were sold or repaid during the period; these results reflect the characteristics of the particular portfolio companies that we invested in or exited during the period and not necessarily any trends in our business or macroeconomic trends.
Dividend income on preferred equity investments is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity investments is recorded on the record date for private portfolio companies and on the ex-dividend date for publicly traded portfolio companies.
Our primary operating expenses include the payment of fees to our Advisor under the Amended Advisory Agreement, our allocable portion of overhead expenses under the administration agreement (the “Administration Agreement”) and other operating costs, including those described below. The Base Management Fee and Incentive Fee compensate our Advisor for its work in identifying, evaluating, negotiating, closing and monitoring our investments. We bear all other out-of-pocket costs and expenses of our operations and transactions, including:
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To the extent that expenses to be borne by us are paid by BCSF Advisors, we will generally reimburse BCSF Advisors for such expenses. To the extent the Administrator outsources any of its functions, the Company will pay the fees associated with such functions on a direct basis without profit to the Administrator. We will also reimburse the Administrator for its costs and expenses and our allocable portion of overhead incurred by it in performing its obligations under the Administration Agreement, including certain rent and compensation paid to or compensatory distributions received by our officers (including our Chief Compliance Officer and Chief Financial Officer) and any of their respective staff who provide services to us, operations staff who provide services to us, internal audit staff, if any, to the extent internal audit performs a role in our Sarbanes-Oxley internal control assessment and fees paid to third-party providers for goods or services. Our allocable portion of overhead will be determined by the Administrator, which expects to use various methodologies such as allocation based on the percentage of time certain individuals devote, on an estimated basis, to our business and affairs, and will be subject to oversight by our Board of Directors (our “Board”). We incurred expenses related to the Administrator of $0.2 million and $0.0 million for the three months ended June 30, 2023 and 2022, respectively, which is included in other general and administrative expenses on the consolidated statements of operations. We incurred expenses related to the Administrator of $0.4 million and $0.0 million for the six months ended June 30, 2023 and 2022, respectively, which is included in other general and administrative expenses on the consolidated statements of operations. The sub-administrator is paid its compensation for performing its sub-administrative services under the sub-administration agreement. We incurred expenses related to the sub-administrator of $0.2 million and $0.1 million for the three months ended June 30, 2023 and 2022, respectively, which is included in other general and administrative expenses on the consolidated statements of operations. The sub-administrator is paid its compensation for performing its sub-administrative services under the sub-administration agreement. We incurred expenses related to the sub-administrator of $0.3 million and $0.3 million for the six months ended June 30, 2023 and 2022, respectively, which is included in other general and administrative expenses on the consolidated statements of operations. BCSF Advisors will not be reimbursed to the extent that such reimbursements would cause any distributions to our stockholders to constitute a return of capital. All of the foregoing expenses are ultimately borne by our stockholders.
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Leverage
We may borrow money from time to time. However, our ability to incur indebtedness (including by issuing preferred stock), is limited by applicable regulations such that our asset coverage, as defined in the 1940 Act, must equal at least 150%. In determining whether to borrow money, we will analyze the maturity, covenant package and rate structure of the proposed borrowings as well as the risks of such borrowings compared to our investment outlook. As of June 30, 2023, the Company’s asset coverage was 175.1%.
Investment Decision Process
The Advisor’s investment process can be broken into four processes: (1) Sourcing and Idea Generation, (2) Investment Diligence & Recommendation, (3) Credit Committee Approval and Portfolio Construction and (4) Portfolio & Risk Management.
Sourcing and Idea Generation
The investment decision-making process begins with sourcing ideas. Bain Capital Credit’s Private Credit Group interacts with a broad and deep set of global contacts, enabling the group to generate middle market investment opportunities. Our Advisor also seeks to leverage the contacts of Bain Capital Credit’s industry groups, Trading Desk, and Special Situations team, including private equity firms, banks and a variety of advisors and other intermediaries.
Investment Diligence & Recommendation
Our Advisor utilizes Bain Capital Credit’s bottom-up approach to investing, and it starts with the due diligence performed by its Private Credit Group. The group works with the close support of Bain Capital Credit’s industry groups. This diligence process typically begins with a detailed review of an offering memorandum as well as Bain Capital Credit’s own independent diligence efforts, including in-house materials and expertise, third-party independent research and interviews, and hands-on field checks where appropriate. For deals that progress beyond an initial stage, the team will usually schedule one or more meetings with company management, facilities visits and also meetings with the sponsor in order to ask more detailed questions and to better understand the sponsor’s view of the business and plans for it going forward. The team’s diligence work is summarized in investment memoranda and accompanying credit packs. Work product also includes full models and covenant analysis.
Credit Committee Approval and Portfolio Construction
If the reviewing team deems an investment worthy of serious consideration, it generally must be presented to the credit committee, which is comprised of at least three experienced credit professionals, who are selected based on strategy and geography. A portfolio manager leads the decision making process for each investment and engages the credit committee throughout the investment process in order to prioritize and direct the underwriting of each potential investment opportunity. For middle market holdings, the path to exit an investment is often discussed at credit committee meetings, including restructurings, acquisitions and sale to strategic buyers. Since most middle market investments are illiquid, exits are driven by a sale of the portfolio company or a refinancing of the portfolio company’s debt.
Portfolio & Risk Management
Our Advisor utilizes Bain Capital Credit’s Private Credit Group for the daily monitoring of its respective credits after an investment has been made. Our Advisor believes that the ongoing monitoring of financial performance and market developments of portfolio investments is critical to successful investment management. Accordingly, our Advisor is actively involved in an on-going portfolio review process and attends board meetings. To the extent a portfolio investment is not meeting our Advisor’s expectations, our Advisor takes corrective action when it deems appropriate, which may include raising interest rates, gaining a more influential role on its board, taking warrants and, where appropriate, restructuring the balance sheet to take control of the company. Our Advisor will utilize the Bain Capital Credit Risk and Oversight Committee. The Risk and Oversight Committee is responsible for monitoring and reviewing risk management, including portfolio risk, counterparty risk and firm-wide risk issues. In addition to the methods noted above, there are a number of proprietary methods and tools used through all levels of Bain Capital Credit to manage portfolio risk.
Environmental, Social and Governance
Our Advisor believes that environmental, social, and governance ("ESG") management helps to create lasting impact for all of its stakeholder groups, including investors, portfolio companies, employees and communities. ESG risks can have a negative impact on
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an issuer’s ability to meet its financial obligations. Therefore, strong ESG management aligns with our Advisor’s goal to seek and generate attractive risk-adjusted returns with the capital it invests. Our Advisor considers ESG factors throughout its investment decision-making process. These factors include, but are not limited to, applying a negative screen to avoid investing in companies with outsized ESG risks; examining the impact a company has on society and the environment during the diligence process; seeking to consider ESG factors from a company-specific and sector-wide perspective; and engaging companies via corporate actions and board seats, where applicable.
Portfolio and Investment Activity
During the three months ended June 30, 2023, we invested $204.4 million, including PIK, in 60 portfolio companies, and had $227.9 million in aggregate amount of principal repayments and sales, resulting in a net decrease in investments of $23.5 million for the period. Of the $204.4 million invested during the three months ended June 30, 2023, $35.4 million was related to drawdowns on delayed draw term loans and revolvers of our portfolio companies.
During the three months ended June 30, 2022, we invested $484.3 million, including PIK, in 59 portfolio companies, and had $332.4 million in aggregate amount of principal repayments and sales, resulting in a net increase in investments of $151.9 million for the period. Of the $484.3 million invested during the three months ended June 30, 2022, $44.1 million was related to drawdowns on delayed draw term loans and revolvers of our portfolio companies.
During the six months ended June 30, 2023, we invested $516.6 million, including PIK, in 85 portfolio companies, and had $513.4 million in aggregate amount of principal repayments and sales, resulting in a net increase in investments of $3.2 million for the period. Of the $516.6 million invested during the six months ended June 30, 2023, $112.9 million was related to drawdowns on delayed draw term loans and revolvers of our portfolio companies.
During the six months ended June 30, 2022, we invested $859.2 million, including PIK, in 79 portfolio companies, and had $853.4 million in aggregate amount of principal repayments and sales, resulting in a net increase in investments of $5.8 million for the period. Of the $859.2 million invested during the six months ended June 30, 2022, $69.9 million was related to drawdowns on delayed draw term loans and revolvers of our portfolio companies.
The following table shows the composition of the investment portfolio and associated yield data as of June 30, 2023 (dollars in thousands):
Weighted Average
Yield (1)
at
Percentage of
Amortized
Total Portfolio
12.0
14.5
11.6
27.1
28.2
N/A
Subordinated Notes in Investment Vehicles (2)
Preferred Equity Interests in Investment Vehicles (2)
Equity Interests in Investment Vehicles (2)
26.1
12.8
13.0
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The following table shows the composition of the investment portfolio and associated yield data as of December 31, 2022 (dollars in thousands):
19.8
20.9
11.4
17.9
The following table presents certain selected information regarding our investment portfolio as of June 30, 2023:
Number of portfolio companies
Percentage of debt bearing a floating rate (1)
94.1
Percentage of debt bearing a fixed rate (1)
The following table presents certain selected information regarding our investment portfolio as of December 31, 2022:
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94.5
The following table shows the amortized cost and fair value of our performing and non-accrual investments as of June 30, 2023 (dollars in thousands):
Percentage at Amortized Cost
Percentage at Fair Value
Performing
2,364,922
97.9
2,385,221
Non-accrual
50,705
The following table shows the amortized cost and fair value of our performing and non-accrual investments as of December 31, 2022 (dollars in thousands):
Percentage at
2,348,395
97.0
2,348,571
98.4
71,543
38,406
Loans or debt securities are placed on non-accrual status when there is reasonable doubt that principal or interest will be collected. Accrued interest generally is reversed when a loan or debt security is placed on non-accrual status. Interest payments received on non-accrual loans or debt securities may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans and debt securities are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current. We may make exceptions to this treatment if the loan has sufficient collateral value and is in the process of collection. As of June 30, 2023, there were four loans from two issuers placed on non-accrual in the Company’s portfolio. As of December 31, 2022, there were five loans from three issuers placed on non-accrual in the Company’s portfolio.
The following table shows the amortized cost and fair value of the investment portfolio, cash and cash equivalents and foreign cash as of June 30, 2023 (dollars in thousands):
Percentage of Total
63.7
61.0
4.0
9.1
Equity Interest in Investment Vehicles (1)
Foreign Cash
5,203
2,544,800
2,513,854
The following table shows the amortized cost and fair value of the investment portfolio, cash and cash equivalents and foreign cash as of December 31, 2022 (dollars in thousands):
66.9
65.0
7.4
34,528
2,550,621
2,512,707
Our Advisor monitors our portfolio companies on an ongoing basis. It monitors the financial trends of each portfolio company to determine if they are meeting their respective business plans and to assess the appropriate course of action for each company. The Advisor has several methods of evaluating and monitoring the performance and fair value of our investments, which may include the following:
Our Advisor rates the investments in our portfolio at least quarterly and it is possible that the rating of a portfolio investment may be reduced or increased over time. For investments rated 3 or 4, our Advisor enhances its level of scrutiny over the monitoring of such portfolio company. Our internal performance ratings do not constitute any rating of investments by a nationally recognized statistical rating organization or represent or reflect any third-party assessment of any of our investments.
The following table shows the composition of our portfolio on the 1 to 4 rating scale as of June 30, 2023 (dollars in thousands):
Investment Performance Rating
Number of Companies (1)
2,423
2,180,766
91.4
88.7
202,032
8.5
The following table shows the composition of our portfolio on the 1 to 4 rating scale as of December 31, 2022 (dollars in thousands):
Number of
Companies(1)
2,499
2,163,990
90.7
88.6
182,082
Results of Operations
Our operating results for the three months ended June 30, 2023 and 2022 were as follows (dollars in thousands):
Less: Income taxes, including excise tax
Our operating results for the six months ended June 30, 2023 and 2022 were as follows (dollars in thousands):
Net increase in net assets resulting from operations can vary from period to period as a result of various factors, including additional financing, new investment commitments, the recognition of realized gains and losses and changes in unrealized appreciation and depreciation on the investment portfolio. Due to these factors, comparisons may not be meaningful.
The composition of our investment income for the three months ended June 30, 2023 and 2022 was as follows (dollars in thousands):
Interest income
58,188
35,884
8,728
6,370
6,877
2,420
Interest income from investments, which includes interest and accretion of discounts and fees, increased to $58.2 million for the three months ended June 30, 2023 from $35.9 million for the three months ended June 30, 2022, primarily due to the increase in portfolio size and rising interest rates. Our investment portfolio at amortized cost increased to $2,415.6 million as of June 30, 2023 compared to $2,319.7 million as of June 30, 2022. Dividend income increased to $8.7 million for the three months ended June 30, 2023 from $6.4 million for the three months ended June 30, 2022, primarily due to an increase in dividend income from our equity interests in ISLP, SLP, and 2018-1 Issuer. Other income decreased to approximately $1.9 million for the three months ended June 30, 2023 from $7.7 million for the three months ended June 30, 2022, primarily due to a decrease in commitment and syndication fees earned on certain investments. As of June 30, 2023, the weighted average yield of our investment portfolio increased to 12.8% from 8.4% as of June 30, 2022, at amortized cost.
The composition of our investment income for the six months ended June 30, 2023 and 2022 was as follows (dollars in thousands):
115,050
73,917
17,121
9,971
11,111
6,332
Interest income from investments, which includes interest and accretion of discounts and fees, increased to $115.1 million for the six months ended June 30, 2023 from $73.9 million for the six months ended June 30, 2022, primarily due to the increase in portfolio size and rising interest rates. Our investment portfolio at amortized cost increased to $2,415.6 million as of June 30, 2023 compared to $2,319.7 million as of June 30, 2022. Dividend income increased to $17.1 million for the six months ended June 30, 2023 from $10.0 million for the six months ended June 30, 2022, primarily due to an increase in dividend income from our equity interests in ISLP, SLP,
and 2018-1 Issuer. Other income decreased to approximately $7.2 million for the six months ended June 30, 2023 from $8.2 million for the six months ended June 30, 2022, primarily due to a decrease in commitment and syndication fees earned on certain investments.
Operating Expenses
The composition of our operating expenses for the three months ended June 30, 2023 and 2022 were as follows (dollars in thousands):
The composition of our operating expenses for the six months ended June 30, 2023 and 2022 were as follows (dollars in thousands):
Interest and Debt Financing Expenses
Interest and debt financing expenses on our borrowings totaled approximately $20.5 million and $11.0 million for the three months ended June 30, 2023 and 2022, respectively. Interest and debt financing expense for the three months ended June 30, 2023 as compared to June 30, 2022 increased primarily due to a rise in base rates of the variable rate debt and the increased usage of our Sumitomo Credit Facility. Interest and debt financing expenses on our borrowings totaled approximately $40.0 million and $21.7 million for the six months ended June 30, 2023 and 2022, respectively. Interest and debt financing expense for the six months ended June 30, 2023 as compared to June 30, 2022 increased primarily due to a increase in total principal debt outstanding, and a rise in base rates of the variable rate debt. The weighted average principal debt balance outstanding for the three months ended June 30, 2023 was $1,471.8 million compared to $1,220.9 million for the three months ended June 30, 2022. The weighted average principal debt balance outstanding for the six months ended June 30, 2023 was $1,477.2 million compared to $1,267.7 million for the six months ended June 30, 2022.
Management Fee
Management fee (net of waivers) increased to $9.1 million for the three months ended June 30, 2023 from $8.5 million for the three months ended June 30, 2022. Management fee (gross of waivers) increased to $9.1 million for the three months ended June 30, 2023 from $8.5 million for the three months ended June 30, 2022, primarily due to an increase in total assets throughout the three months ended June 30, 2023 compared to the three months ended June 30, 2022. Management fee waived for the three months ended June 30, 2023 and 2022, were $0.0 million and $0.0 million, respectively.
Management fees (net of waivers) increased to $18.0 million for the six months ended June 30, 2023 from $16.8 million for the six months ended June 30, 2022. Management fees (gross of waivers) increased to $18.0 million for the six months ended June 30, 2023 compared to $16.8 million for the six months ended June 30, 2022. Management fees waived for the six months ended June 30, 2023 and 2022 were $0.0 million and $0.0 million, respectively.
Incentive fee (net of waivers) decreased to $4.0 million for the three months ended June 30, 2023 from $4.1 million for the three months ended June 30, 2022. Incentive fee waivers related to pre-incentive fee net investment income consisted of voluntary waivers of $0.0 million for the three months ended June 30, 2023 and $0.0 million for the three months ended June 30, 2022. For the three months ended June 30, 2023 there were no incentive fees related to the GAAP Incentive Fee. Incentive fee (net of waivers) increased to $15.1 million for the six months ended June 30, 2023 from $7.4 million for the six months ended June 30, 2022. Incentive fee waivers related to pre-incentive fee net investment income consisted of voluntary waivers of $0.0 million for the six months ended June 30, 2023 and $0.0 million for the six months ended June 30, 2022. For the six months ended June 30, 2023 there were no incentive fees related to the GAAP Incentive Fee.
Professional Fees and Other General and Administrative Expenses
Professional fees and other general and administrative expenses were $1.9 million for the three months ended June 30, 2023 compared to $1.9 million for the three months ended June 30, 2022.
Professional fees and other general and administrative expenses increased to $4.2 million for the six months ended June 30, 2023 from $3.7 million for the six months ended June 30, 2022, primarily due to an increase in costs associated with servicing our investment portfolio.
Net Realized and Unrealized Gains and Losses
The following table summarizes our net realized and unrealized gains (losses) for the three months ended June 30, 2023 and 2022 (dollars in thousands):
1,141
1,120
(1,370
(3,696
Net realized gain on foreign currency transactions
Net realized loss on foreign currency transactions
Net realized gains (losses)
Change in unrealized appreciation on investments
23,545
22,376
Change in unrealized depreciation on investments
(31,387
(40,543
(7,842
(18,167
Unrealized appreciation on foreign currency translation
Net change in unrealized appreciation on foreign currency and forward currency exchange contracts
(1,349
For the three months ended June 30, 2023 and 2022, we had net realized losses on investments of ($0.2) million and ($2.6) million, respectively. For the three months ended June 30, 2023 and 2022, we had net realized gains (losses) on foreign currency transactions of ($0.3) million and $3.2 million, respectively. For the three months ended June 30, 2023 and 2022, we had net realized gains on forward currency contracts of $0.0 million and $2.0 million, respectively.
For the three months ended June 30, 2023, we had $23.5 million in unrealized appreciation on 58 portfolio company investments, which was offset by $31.4 million in unrealized depreciation on 83 portfolio company investments. Unrealized appreciation for the three months ended June 30, 2023 resulted from an increase in fair value, primarily due to positive valuation adjustments. Unrealized depreciation for the three months ended June 30, 2023 resulted from a decrease in fair value, primarily due to negative valuation adjustments and widening of credit spread.
For the three months ended June 30, 2022, we had $22.4 million in unrealized appreciation on 22 portfolio company investments, which was offset by $40.5 million in unrealized depreciation on 103 portfolio company investments. Unrealized depreciation for the three months ended June 30, 2022 resulted from a decrease in fair value, primarily due to a widening of credit spreads and negative valuation adjustments. Unrealized appreciation was primarily due to positive valuation adjustments.
For the three months ended June 30, 2023 and 2022, we had unrealized appreciation on forward currency exchange contracts of ($1.5) million and $8.1 million, respectively. For the three months ended June 30, 2023, unrealized depreciation on forward currency exchange contracts was due to EUR, AUD, GBP, CAD and NOK forward contracts.
The following table summarizes our net realized and unrealized gains (losses) for the six months ended June 30, 2023 and 2022 (dollars in thousands):
2,043
4,723
(12,923
(5,882
(488
3,301
Net realized loss on forward currency exchange contracts
(2,504
47,317
40,777
(44,711
(51,135
2,606
(10,358
2,579
For the six months ended June 30, 2023 and 2022, we had net realized losses on investments of ($10.9) million and ($1.2) million, respectively. For the six months ended June 30, 2023 and 2022, we had net realized gains (losses) on foreign currency transactions of ($4.5) million and $2.7 million, respectively. For the six months ended June 30, 2023 and 2022, we had net realized gains (losses) on forward currency contracts of ($2.4) million and $3.3 million, respectively, primarily as a result of settling EUR and GBP forward contracts.
For the six months ended June 30, 2023, we had $47.3 million in unrealized appreciation on 77 portfolio company investments, which was offset by ($44.7) million in unrealized depreciation on 68 portfolio company investments. Unrealized appreciation for the six months ended June 30, 2023 resulted from an increase in fair value, primarily due to positive valuation adjustments. Unrealized depreciation for the six months ended June 30, 2023 resulted from a decrease in fair value, primarily due to negative valuation adjustments and widening of credit spread.
For the six months ended June 30, 2022, we had $40.8 million in unrealized appreciation on 31 portfolio company investments, which was offset by ($51.1) million in unrealized depreciation on 96 portfolio company investments. Unrealized depreciation for the six months ended June 30, 2022 resulted from an decrease in fair value, primarily due to a widening of credit spreads and negative valuation adjustments. Unrealized appreciation was primarily due to positive valuation adjustments.
For the six months ended June 30, 2023 and 2022, we had unrealized appreciation on forward currency exchange contracts of ($1.3) million and $9.8 million, respectively. For the six months ended June 30, 2023, unrealized depreciation on forward currency exchange contracts was due to EUR, AUD, GBP, CAD and NOK forward contracts.
The following table summarizes the impact of foreign currency for the three months ended June 30, 2023 and 2022, (dollars in thousands):
Net change in unrealized appreciation on investments due to foreign currency
(7,731
Net realized gain (loss) on investments due to foreign currency
554
(2,393
(2,053
Foreign currency impact to net increase in net assets resulting from operations
1,131
Included in total net losses on the consolidated statements of operations is gains (losses) of $2.6 million and ($9.0) million related to realized and unrealized gains and losses on investments, foreign currency holdings and non-investment assets and liabilities attributable to the changes in foreign currency exchange rates for the three months ended June 30, 2023 and 2022, respectively. Including the total net realized and unrealized gains (losses) on forward currency exchange contracts of ($1.5) million and $10.1 million, respectively, included in the above table, the net impact of foreign currency on total net gains on the consolidated statements of operations is $1.1 million and $1.1 million for the three months ended June 30, 2023 and 2022, respectively.
The following table summarizes the impact of foreign currency for the six months ended June 30, 2023 and 2022, (dollars in thousands):
(10,607
895
(2,546
(1,707
854
Included in total net losses on the consolidated statements of operations is gains (losses) of $4.7 million and ($12.2) million related to realized and unrealized gains and losses on investments, foreign currency holdings and non-investment assets and liabilities attributable to the changes in foreign currency exchange rates for the six months ended June 30, 2023 and 2022, respectively. Including the total net realized and unrealized gains (losses) on forward currency exchange contracts of ($3.7) million and $13.0 million, respectively, included in the above table, the net impact of foreign currency on total net gains on the consolidated statements of operations is $1.0 million and $0.9 million for the six months ended June 30, 2023 and 2022, respectively.
Net Increase (Decrease) in Net Assets Resulting from Operations
For the three months ended June 30, 2023 and 2022, the net increase in net assets resulting from operations was $29.2 million million and $17.2 million, respectively. Based on the weighted average shares of common stock outstanding for the three months ended June 30, 2023 and 2022, our per share net increase in net assets resulting from operations was $0.45 and $0.27, respectively.
For the six months ended June 30, 2023 and 2022, the net increase in net assets resulting from operations was $58.5 million and $50.9 million, respectively. Based on the weighted average shares of common stock outstanding for the six months ended June 30, 2023 and 2022, our per share net increase in net assets resulting from operations was $0.91 and $0.79, respectively.
Financial Condition, Liquidity and Capital Resources
Our liquidity and capital resources are derived primarily from proceeds from equity issuances, advances from our credit facilities, 2019‑1 Debt, March 2026 Notes, October 2026 Notes, the Sumitomo Credit Facility and cash flows from operations. The
primary uses of our cash are for (1) investments in portfolio companies and other investments and to comply with certain portfolio diversification requirements; (2) the cost of operations (including payments to the Advisor under the Investment Advisory and Administration Agreements); (3) debt service, repayment, and other financing costs; and, (4) cash distributions to the holders of our common shares.
We intend to continue to generate cash primarily from cash flows from operations, future borrowings and future offerings of securities. We may from time to time raise additional equity or debt capital through registered offerings, enter into additional debt facilities, or increase the size of existing facilities or issue debt securities. Any such incurrence or issuance would be subject to prevailing market conditions, our liquidity requirements, contractual and regulatory restrictions and other factors. We are required to meet an asset coverage ratio, defined under the 1940 Act as the ratio of our total assets (less all liabilities and indebtedness not represented by senior securities) to our outstanding senior securities, of at least 150% after each issuance of senior securities. As of June 30, 2023 and December 31, 2022, our asset coverage ratio was 175.1% and 180.0%, respectively.
At June 30, 2023 and December 31, 2022, we had $128.6 million and $125.7 million in cash, foreign cash, restricted cash and cash equivalents, respectively.
At June 30, 2023, we had approximately $104.3 million of availability on our Sumitomo Credit Facility, subject to existing terms and regulatory requirements. At December 31, 2022, we had approximately $222.0 million of availability on our Sumitomo Credit Facility and $50.0 million of availability on our Revolving Advisor Loan, subject to existing terms and regulatory requirements.
For the six months ended June 30, 2023, cash, foreign cash, restricted cash, and cash equivalents increased by $2.9 million. During the six months ended June 30, 2023, we used $51.7 million in cash for operating activities. The increase in cash used for operating activities was primarily related to the purchases of investments of $539.6 million, which was offset by proceeds from principal payments and sales of investments of $435.5 million and a net increase in assets resulting from operations of $58.5 million.
During the six months ended June 30, 2023, we provided $55.2 million for financing activities, primarily due to borrowings and repayments on our Sumitomo Credit Facility and paying our quarterly dividend to shareholders.
For the six months ended June 30, 2022, cash, foreign cash, restricted cash, and cash equivalents decreased by $133.5 million. During the six months ended June 30, 2022, we used $280.2 million in cash for operating activities. The decrease in cash used for operating activities was primarily related to the purchases of investments of $761.8 million, which was offset by proceeds from principal payments and sales of investments of $434.2 million and a net increase in assets resulting from operations of $50.9 million.
During the six months ended June 30, 2022, we provided $146.7 million for financing activities, primarily due to borrowings and repayments on our Sumitomo Credit Facility.
On November 19, 2018, we closed our initial public offering (the “IPO”) issuing 7,500,000 shares of its common stock at a public offering price of $20.25 per share. Shares of common stock of the Company began trading on the New York Stock Exchange under the symbol “BCSF” on November 15, 2018. The offering generated net proceeds, after expenses, of $145.4 million. All outstanding capital commitments from the Company’s Private Offering were cancelled as of the completion of the IPO.
During the six months ended June 30, 2023, we did not issue shares of our common stock to investors who have opted into our dividend reinvestment plan. During the six months ended June 30, 2022, we did not issue shares of our common stock to investors who have opted into our dividend reinvestment plan.
On May 7, 2019, the Company’s Board of Directors authorized the Company to repurchase up to $50 million of its outstanding common stock in accordance with safe harbor rules under the Exchange Act of 1934. Any such repurchases will depend upon market conditions and there is no guarantee that the Company will repurchase any particular number of shares or any shares at all. As of June 30, 2023, there have been no repurchases of common stock.
On May 4, 2020, the Company’s Board of Directors approved a transferable subscription rights offering to our stockholders of record as of May 13, 2020. The rights entitled record stockholders to subscribe for up to an aggregate of 12,912,453 shares of our common stock. Record stockholders received one right for each share of common stock owned on the record date. The rights entitled the holders to purchase one new share of common stock for every four rights held, and record stockholders who fully exercised their
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rights were entitled to subscribe, subject to certain limitations and allotment rules, for additional shares that remain unsubscribed as a result of any unexercised rights. The rights were transferable and listed on the New York Stock Exchange under the symbol “BCSF RT”. The rights offering expired June 5, 2020. Based on the terms of the offering and the market price of the stock during the applicable period, holders of rights participating in the offering were entitled to purchase one new share of common stock for every four rights held at a subscription price of $10.2163 per share. On June 16, 2020, the Company closed its transferrable rights offering and issued 12,912,453 shares. The offering generated net proceeds, before expenses, of $129.6 million, including the underwriting discount and commissions of $2.3 million.
Distribution Policy
The Company’s distributions are recorded on the record date. The following tables summarizes distributions declared during the six months ended June 30, 2023 (dollars in thousands, except per share):
The Company’s distributions are recorded on the record date. The following table summarizes distributions declared during the six months ended June 30, 2022 (dollars in thousands, except per share data):
Distributions to common stockholders are recorded on the record date. To the extent that we have income available, we intend to distribute quarterly distributions to our stockholders. Our quarterly distributions, if any, will be determined by the Board. Any distributions to our stockholders will be declared out of assets legally available for distribution.
We have elected to be treated, and intend to operate in a manner so as to continuously qualify, as a regulated investment company (a “RIC) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”), beginning with our taxable year ended December 31, 2016. To qualify for and maintain RIC tax treatment, among other things, we must distribute dividends to our stockholders in respect of each taxable year of an amount generally at least equal to 90% of the sum of our net ordinary income and net
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short-term capital gains in excess of our net long-term capital losses. In addition, we generally will be required to pay an excise tax equal to 4% on certain undistributed taxable income unless we distribute in a timely manner an amount at least equal to the sum of: (1) 98% of our net ordinary income (taking into account certain deferrals and elections) for such calendar year; (2) 98.2% of our capital gains in excess of capital losses, adjusted for certain ordinary losses, generally for the one-year period ending on October 31 of such calendar year; and (3) the sum of any net ordinary income plus capital gains net income for preceding years that were not distributed during such years and on which we paid no federal income tax. The taxable income on which we pay excise tax is generally distributed to our stockholders in the next tax year. Depending on the level of taxable income earned in a tax year, we may choose to carry forward such taxable income for distribution in the following year, and pay any applicable excise tax. For the three months ended June 30, 2023 and 2022 we recorded an expense of $0.8 million and $0.0 million, respectively for U.S. federal excise tax. For the six months ended June 30, 2023 and 2022 we recorded an expense of $1.3 million and $0.0 million, respectively for U.S. federal excise tax.
We intend to distribute net capital gains (i.e., net long-term capital gains in excess of net short-term capital losses), if any, at least annually out of the assets legally available for such distributions. However, we may decide in the future to retain all or a portion of our net capital gains for investment, incur a corporate-level tax on such capital gains, and elect to treat such capital gains as deemed distributions to our stockholders.
We have adopted a dividend reinvestment plan that provides for the reinvestment of cash dividends and distributions. Prior to the IPO, stockholders who “opted in” to our dividend reinvestment plan had their cash dividends and distributions automatically reinvested in additional shares of our common stock, rather than receiving cash dividends and distributions. Subsequent to the IPO, stockholders who do not “opt out” of our dividend reinvestment plan will have their cash dividends and distributions automatically reinvested in additional shares of our common stock, rather than receiving cash dividends and distributions. Stockholders could elect to “opt in” or “opt out” of our dividend reinvestment plan in their subscription agreements, through the private offering. The elections of stockholders prior to the IPO shall remain effective after the IPO.
The U.S. federal income tax characterization of distributions declared and paid for the fiscal year will be determined at fiscal year-end based upon our investment company taxable income for the full fiscal year and distributions paid during the full year.
Commitments and 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 fund investments and 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 on the statements of assets and liabilities.
Significant Accounting Estimates and Critical Accounting Policies
The Company’s unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). The Company’s unaudited consolidated financial statements and related financial information have been prepared pursuant to the requirements for reporting on Form 10‑Q and Articles 1, 6, 10 and 12 of Regulation S-X. These consolidated financial statements reflect adjustments that in the opinion of the Company are necessary for the fair statement of the financial position and results of operations for the periods presented herein and are not necessarily indicative of the full fiscal year. We have determined we meet the definition of an investment company and follow the accounting and reporting guidance in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 — Financial Services — Investment Companies (“ASC 946”). Our financial currency is U.S. dollars and these consolidated financial statements have been prepared in that currency.
The preparation of the consolidated financial statements in conformity with US GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates and such differences could be material.
Revenue Recognition
We record our investment transactions on a trade date basis. We record realized gains and losses based on the specific identification method. We record interest income, adjusted for amortization of premium and accretion of discount, on an accrual basis. Discount and premium to par value on investments acquired are accreted and amortized, respectively, into interest income over the life of the respective investment using the effective interest method. Loan origination fees, original issue discount and market discount or premium are capitalized and amortized into or against interest income using the effective interest method or straight-line method, as applicable. We record any prepayment premiums, unamortized upfront loan origination fees and unamortized discounts received upon prepayment of a loan or debt security as interest income.
Dividend income on preferred equity investments is recorded on an accrual basis to the extent that such amounts are payable by the portfolio company and are expected to be collected. Dividend income on common equity investments is recorded on the record date for such distributions in the case of private portfolio companies, and on the ex-dividend date for publicly traded portfolio companies. Distributions received from a limited liability company or limited partnership investment are evaluated to determine if the distribution should be recorded as dividend income or a return of capital.
Certain investments may have contractual PIK interest or dividends. PIK represents accrued interest or accumulated dividends that are added to the loan principal of the investment on the respective interest or dividend payment dates rather than being paid in cash and generally becomes due at maturity or upon being called by the issuer. We record PIK as interest or dividend income, as applicable. If at any point we believe PIK may not be realized, we place the investment generating PIK on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends are generally reversed through interest or dividend income, as applicable.
Certain structuring fees and amendment fees are recorded as other income when earned. We record administrative agent fees received as other income when the services are rendered.
With respect to unquoted portfolio investments, the Company will value each investment considering, among other measures, discounted cash flow models, comparisons of financial ratios of peer companies that are public, and other factors. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Company will use the pricing indicated by the external event to corroborate and/or assist us in our 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 differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.
Contractual Obligations
We have entered into the Amended Advisory Agreement with our Advisor (which supersedes the Prior Investment Advisory Agreement dated November 14, 2018 we had previously entered into). Our Advisor has agreed to serve as our investment adviser in accordance with the terms of the Amended Advisory Agreement. Under the Amended Advisory Agreement, we have agreed to pay an annual base management fee as well as an incentive fee based on our investment performance.
On November 28, 2018, our Board, including a majority of our Independent Directors, approved the Amended Advisory Agreement. On February 1, 2019 the Company’s stockholders approved the Amended Advisory Agreement. Pursuant to this Agreement, effective February 1, 2019, the base management fee of 1.5% (0.375% per quarter) of the average value of the Company’s gross assets (excluding cash and cash equivalents, but including assets purchased with borrowed amounts) will continue to apply to assets held at an asset coverage ratio of 200%, but a lower base management fee of 1.0% (0.25% per quarter) of the average value of the Company’s gross assets (excluding cash and cash equivalents, but including assets purchased with borrowed amounts) will apply to any amount of assets attributable to leverage decreasing the Company’s asset coverage ratio below 200%. The Amended Advisory Agreement incorporates (i) a three-year lookback provision and (ii) a cap on quarterly income incentive fee payments based on net realized or unrealized capital loss, if any, during the applicable three-year lookback period.
We have entered into an Administration Agreement with the Administrator pursuant to which the Administrator will furnish us with administrative services necessary to conduct our day-to-day operations. We reimburse the Administrator for its costs and expenses and our allocable portion of overhead incurred by it in performing its obligations under the Administration Agreement, including certain compensation paid to or compensatory distributions received by our officers (including our Chief Compliance Officer and Chief Financial Officer) and any of their respective staff who provide services to us, operations staff who provide services to us, and internal audit staff, if any, to the extent internal audit performs a role in our Sarbanes-Oxley internal control assessment.
If any of our contractual obligations discussed above are terminated, our costs may increase under any new agreements that we enter into as replacements. We would also likely incur expenses in locating alternative parties to provide the services we expect to receive under our Amended Advisory Agreement and Administration Agreement.
The following table shows the contractual maturities of our debt obligations as of June 30, 2023 (dollars in thousands):
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are subject to financial market risks, including changes in interest rates. We will generally invest in illiquid loans and securities including debt and equity securities of middle-market companies. Because we expect that there will not be a readily available market for many of the investments in our portfolio, we expect to value many of our portfolio investments at fair value as determined in good faith by the Board using a documented valuation policy and a consistently applied valuation process. 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 differ significantly from the values that would have been used had a readily available market value existed for such investments, and the differences could be material.
Assuming that the statement of financial condition as of June 30, 2023 were to remain constant and that we took no actions to alter our existing interest rate sensitivity, the following table shows the annualized impact of hypothetical base rate changes in interest rates (dollars in thousands):
Net Increase
Increase
(Decrease) in Net
(Decrease) in
Change in Interest Rates
Interest Expense
Down 100 basis points
(19,036
(8,985
(10,051
Down 200 basis points
(38,072
(17,970
(20,102
Down 300 basis points
(56,899
(26,955
(29,944
Up 100 basis points
19,036
8,985
10,051
Up 200 basis points
38,072
17,970
20,102
Up 300 basis points
57,107
26,955
30,152
From time to time, we may make investments that are denominated in a foreign currency. These investments are translated into U.S. dollars at the balance sheet date, exposing us to movements in foreign exchange rates. We may employ hedging techniques to minimize these risks, but we cannot assure you that such strategies will be effective or without risk to us. We may seek to utilize instruments such as, but not limited to, forward contracts to seek to hedge against fluctuations in the relative values of our portfolio positions from changes in currency exchange rates.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of June 30, 2023 (the end of the period covered by this report), our management has carried out an evaluation, under the supervision of and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a‑15 and 15d‑15(e) under the Exchange Act). Based on that evaluation our Chief Executive Officer and Chief Financial Officer have concluded that our current disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our Chief Executive Officer and Chief Financial Officer as appropriate to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Changes in Internal Controls Over Financial Reporting
There have been no changes in our internal control over financial reporting, as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act, that occurred during our most recently completed fiscal quarter ended June 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. 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 loans to or other contracts with our portfolio companies.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors described below and discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, which could materially affect our business, financial condition and/or operating results. The risks described below and in our Annual Report on Form 10-K are not the only risks we face. Additional risks and uncertainties are not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Our business is dependent on bank relationships and recent strain on the banking system may adversely impact us.
The financial markets recently have encountered volatility associated with concerns about the banking industry, especially small and regional banks who may have significant losses associated with investments that make it difficult to fund demands to withdraw deposits and other liquidity needs. Although the federal government has announced measures to assist these banks and protect depositors, some banks have already been impacted, including suffering bank failures, and others may be materially and adversely impacted. Our business is dependent on bank relationships and we are proactively monitoring the financial health of such bank relationships. Continued strain on the banking system may adversely impact our business, financial condition and results of operations.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Default Upon Senior Securities
Not applicable.
Item 4. Mine Safety Disclosures
Item 5. Other Information
Rule 10b5-1 Trading Plans
During the fiscal quarter ended June 30, 2023, none of our directors or executive officers adopted or terminated any contract, instruction or written plan for the purchase or sale of our securities to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”
Item 6. Exhibits, Financial Statement Schedules
The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the three months ended June 30, 2023 (and are numbered in accordance with Item 601 of Regulation S-K under the Securities Act).
ExhibitNumber
Description of Document
Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Registration Statement on Form 10 (File No. 000‑55528) filed on October 6, 2016).
Bylaws (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form 10 (File No. 000‑55528) filed on October 6, 2016).
Dividend Reinvestment Plan (incorporated by reference to Exhibit 10.5 to the Company’s Registration Statement on Form 10 (File No. 000‑55528) filed on October 6, 2016).
Second Amended and Restated Investment Advisory Agreement, dated November 28, 2018, by and between the Company and the Advisor (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8‑K (File No. 814‑01175), filed on February 1, 2019).
10.2
Administration Agreement, dated October 6, 2016, by and between the Company and the Administrator (incorporated by reference to Exhibit 10.2 to the Company’s Registration Statement on Form 10 (File No. 000‑55528) filed on October 6, 2016).
Form of Advisory Fee Waiver Agreement by and between the Company and the Advisor (incorporated by reference to Exhibit 10.3 to the Company’s Registration Statement on Form 10 (File No. 000‑55528) filed on October 6, 2016).
10.4
Form of Custodian Agreement by and between the Company and U.S. Bank National Association (incorporated by reference to Exhibit 10.6 to the Company’s Registration Statement on Form 10 (File No. 000‑55528) filed on October 6, 2016).
Indenture, dated as of September 28, 2018, between BCC Middle Market CLO 2018‑1, LLC, as issuer, and Wells Fargo Bank, National Association, as trustee (incorporated by reference to Exhibit 10.9 to the Company’s Quarterly Report on Form 10‑Q (File No. 814‑01175), filed on October 17, 2018).
Portfolio Management Agreement, dated as of September 28, 2018, by and between BCC Middle Market CLO 2018‑1, LLC, as issuer, and Bain Capital Specialty Finance, Inc., as portfolio manager (incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10‑Q (File No. 814‑01175), filed on October 17, 2018).
Loan Sale Agreement, dated as of September 28, 2018, by and between BCC Middle Market CLO 2018‑1, LLC, as issuer, and Bain Capital Specialty Finance, Inc., as the transferor (incorporated by reference to Exhibit 10.11 to the Company’s Quarterly Report on Form 10‑Q (File No. 814‑01175), filed on October 17, 2018).
10.8
Collateral Administration Agreement, dated as of September 28, 2018, by and between BCC Middle Market CLO 2018‑1, LLC, as issuer, Bain Capital Specialty Finance, Inc., as portfolio manager, and Wells Fargo Bank, National Association, as collateral administrator (incorporated by reference to Exhibit 10.12 to the Company’s Quarterly Report on Form 10‑Q (File No. 814‑01175), filed on October 17, 2018).
Master Participation Agreement, dated as of September 28, 2018, by and between BCSF I, LLC, as financing subsidiary, and BCC Middle Market CLO 2018‑1, LLC, as issuer (incorporated by reference to Exhibit 10.13 to the Company’s Quarterly Report on Form 10‑Q (File No. 814‑01175), filed on October 17, 2018).
10.10
Amended and Restated Indenture, dated as of November 30, 2021, between BCC Middle Market CLO 2019-1, LLC, as issuer, BCC Middle Market CLO 2019-1 Co-Issuer, LLC, as co-issuer and Wells Fargo Bank, National Association, as trustee. (incorporated by reference to Exhibit 10.10 to the Company’s Quarterly Report on Form 10-Q (File No. 814-01175), filed on May 5, 2022).
10.11
First Supplemental Indenture, dated as of August 2, 2022, between BCC Middle Market CLO 2019-1, LTD. (f/k/a BCC Middle Market CLO 2019-1, LLC), as Issuer, and Bain Capital Specialty Finance, in its capacity as Portfolio Manager under the Agreement on behalf of the Issuer, and together with its successors in such capacity, the “Portfolio Manager”. (incorporated by reference to Exhibit 10.11 to the Company’s Annual Report on Form 10-K (File No. 814-01175) filed on February 28, 2023).
10.12
Amended and Restated Portfolio Management Agreement, dated as of November 30, 2021, by and between BCC Middle Market CLO 2019-1, LLC, as issuer, and Bain Capital Specialty Finance, Inc., as portfolio manager. (incorporated by reference to Exhibit 10.11 to the Company’s Quarterly Report on Form 10-Q (File No. 814-01175), filed on May 5, 2022).
First Amendment to Amended and Restated Portfolio Management Agreement, dated as of August 2, 2022, between BCC Middle Market CLO 2019-1, LTD. (f/k/a BCC Middle Market CLO 2019-1, LLC), as Issuer, BCC Middle Market CLO 2019-1 Co-Issuer, LLC, as Co-Issuer, and Wells Fargo Bank, National Association, as Trustee. (incorporated by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K (File No. 814-01175) filed on February 28, 2023).
10.14
Loan Sale Agreement, dated as of August 28, 2019, by and between BCC Middle Market CLO 2019‑1, LLC, as issuer, and Bain Capital Specialty Finance, Inc., as the transferor (incorporated by reference to Exhibit 10.18 to the Company’s Quarterly Report on Form 10‑Q (File No. 814‑01175), filed on November 6, 2019).
Collateral Administration Agreement, dated as of August 28, 2019, by and between BCC Middle Market CLO 2019‑1, LLC, as issuer, Bain Capital Specialty Finance, Inc., as portfolio manager, and Wells Fargo Bank, National Association, as collateral administrator (incorporated by reference to Exhibit 10.19 to the Company’s Quarterly Report on Form 10‑Q (File No. 814‑01175), filed on November 6, 2019).
Master Participation Agreement, dated as of August 28, 2019, by and between BCSF I, LLC, as financing subsidiary, and BCC Middle Market CLO 2019‑1, LLC, as issuer (incorporated by reference to Exhibit 10.20 to the Company’s Quarterly Report on Form 10‑Q (File No. 814‑01175), filed on November 6, 2019).
Master Participation Agreement, dated as of August 28, 2019, by and between BCSF II-C, LLC, as financing subsidiary, and BCC Middle Market CLO 2019‑1, LLC, as issuer (incorporated by reference to Exhibit 10.21 to the Company’s Quarterly Report on Form 10‑Q (File No. 814‑01175), filed on November 6, 2019).
Revolving Loan Agreement, dated March 27, 2020, by and between the Company, as Borrower, and BCSF Advisors, LP, as Lender (incorporated by reference to Exhibit 10.26 to the Company’s Quarterly Report on Form 10‑Q (File No. 814‑01175), filed on May 4, 2020).
10.19
Amended and Restated Limited Liability Company Agreement, dated February 9, 2021, of International Senior Loan Program, LLC, by and among the Company, Pantheon Private Debt Program SCSp SICAV—RAIF—Pantheon Senior Debt Secondaries II (USD), Pantheon Private Debt Program SCSp SICAV—RAIF—Tubera Credit 2020, Solutio Premium Private Debt I SCSp and Solutio Premium Private Debt II Master SCSp (incorporated by reference to Exhibit 10.31 to the Company’s Annual Report on Form 10-K (File No. 814-01175) filed on February 24, 2021).
Underwriting Agreement, dated March 3, 2021, by and among Bain Capital Specialty Finance, Inc., BCSF Advisors, LP and Goldman Sachs & Co. LLC, as the representative of the underwriters (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K (File No. 814-01175), filed on March 5, 2021).
Indenture, dated as of March 10, 2021, by and between the Company and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K (File No. 814-01175), filed on March 10, 2021).
First Supplemental Indenture, dated as of March 10, 2021, relating to the 2.950% Notes due 2026, by and between the Company and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K (File No. 814-01175), filed on March 10, 2021).
Form of 2.950% Notes due 2026 (incorporated by reference to Exhibit 99.2 to the Company’s Current Report on Form 8-K (File No. 814-01175), filed on March 10, 2021).
Underwriting Agreement, dated October 5, 2021, by and among Bain Capital Specialty Finance, Inc., BCSF Advisors, LP, and Goldman Sachs & Co. LLC and SMBC Nikko Securities America Inc., as the representative of the underwriters (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K (File No. 814-01175), filed on October 6, 2021).
10.25
Second Supplemental Indenture, dated as of October 13, 2021, relating to the 2.550% Notes due 2026, by and between the Company and U.S. Bank National Association, as trustee (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K (File No. 814-01175), filed on October 13, 2021).
10.26
Form of 2.550% Notes due 2026 (incorporated by reference to Exhibit 99.1 to the Company’s Current Report on Form 8-K (File No. 814-01175), filed on October 13, 2021).
10.27
Revolving Credit Agreement, dated as of December 24, 2021, by and among the Company as Borrower, with Sumitomo Mitsui Banking Corporation, as Administrative Agent and Sole Book Runner, and with Sumitomo Mitsui Banking Corporation and MUFG Union Bank, N.A., as Joint Lead Arrangers (incorporated by reference to Exhibit 10.41 to the Company’s Annual Report on Form 10-K (File No. 814-01175) filed on February 23, 2022).
First Amendment dated as of July 6, 2022 to Revolving Credit Agreement, dated as of December 24, 2021, by and among the Company as Borrower, with Sumitomo Mitsui Banking Corporation, as Administrative Agent and Sole Book Runner, and with Sumitomo Mitsui Banking Corporation and MUFG Union Bank, N.A., as Joint Lead Arrangers. (incorporated by reference to Exhibit 10.26 to the Company’s Quarterly Report on Form 10-Q (File No.814-01175) filed on November 9, 2022).
10.29
Increasing Lender/Joinder Lender Agreement, dated as of December 14, 2022, between the Company, the Lenders and Issuing Banks from time to time party thereto and Sumitomo Mitsui Banking Corporation, as Administrative Agent (in such capacity, the “Administrative Agent”); and (b) the Notice of Commitment Increase Request, dated as of December 14, 2022, provided by the Company to the Administrative Agent (the “Notice”). (incorporated by reference to Exhibit 10.29 to the Company’s Annual Report on Form 10-K (File No. 814-01175) filed on February 28, 2023).
10.30
Increasing Lender/Joinder Lender Agreement dated as of July 22, 2022, pursuant to Section 2.08(e) of the Revolving Credit Agreement, dated as of December 24, 2021, by and among the Company as Borrower, with Sumitomo Mitsui Banking Corporation, as Administrative Agent and Sole Book Runner, and with Sumitomo Mitsui Banking Corporation and MUFG Union Bank, N.A., as Joint Lead Arrangers. (Incorporated by reference to Exhibit 10.28 to the Company’s Quarterly Report on Form 10 Q (File No. 814 01175), filed on August 3, 2022).
10.31
Second Amendment dated as of August 24, 2022 to Revolving Credit Agreement, dated as of December 24, 2021, by and among the Company as Borrower, with Sumitomo Mitsui Banking Corporation, as Administrative Agent and Sole Book Runner, and with Sumitomo Mitsui Banking Corporation and MUFG Union Bank, N.A., as Joint Lead Arrangers. (incorporated by reference to Exhibit 10.28 to the Company’s Quarterly Report on Form 10-Q (File No.814-01175) filed on November 9, 2022).
Amended and Restated Limited Liability Company Agreement, dated December 27, 2021, of Bain Capital Senior Loan Program, LLC. (incorporated by reference to Exhibit 10.42 to the Company’s Annual Report on Form 10-K (File No. 814-01175) filed on February 23, 2022).
10.33*
First Supplemental Indenture dated as of June 15, 2023 among BCC Middle Market CLO 2018-1, LLC, as issuer, and Wells Fargo Bank, National Association, as trustee.
10.34*
Second Supplemental Indenture dated as of June 15, 2023 among BCC Middle Market CLO 2019-1, Ltd., as issuer, BCC Middle Market CLO 2019-1 Co-Issuer, LLC, as co-issuer, and Wells Fargo Bank, National Association, as trustee.
Consent of Independent Registered Public Accounting Firm (incorporated by reference to Exhibit 23.1 to the Company’s Annual Report on Form 10-K (File No. 814-01175) filed on February 28, 2023).
24.1*
Powers of Attorney
31.1*
Certification of Chief Executive Officer pursuant to Rule 13a‑14 under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.
31.2*
Certification of Chief Financial Officer pursuant to Rule 13a‑14 under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended.
32*
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended.
101.INS*
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH*
Inline XBRL Taxonomy Extension Schema Document
101.CAL*
Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*
Inline XBRL Taxonomy Extension Defition Linkbase Document
101.LAB*
Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*
Inline XBRL Taxonomy Presentation Label Linkbase Document
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* Filed herewith.
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.
Date: August 8, 2023
By:
/s/ Michael A. Ewald
Name:
Michael A. Ewald
Title:
Chief Executive Officer
/s/ Sally F. Dornaus
Sally F. Dornaus
Chief Financial Officer