The information contained in this section should be read in conjunction with the Selected Financial and Other Data and our Consolidated Financial Statements and notes thereto appearing elsewhere in this report. Some of the statements in this report constitute forward-looking statements, which relate to future events or our future performance or financial condition. The forward-looking statements contained herein involve risks and uncertainties, including statements as to: • our future operating results, including our ability to achieve objectives as a result of the current COVID-19 pandemic;
• our business prospects and the prospects of our portfolio companies;
• the impact of investments that we expect to make; • our contractual arrangements and relationships with third parties; • the dependence of our future success on the general economy and its impact on the industries in which we invest and the impact of the COVID-19 pandemic thereon; • the impact of any protracted decline in the liquidity of credit markets on our business and the impact of the COVID-19 pandemic thereon;
• the ability of the companies in our portfolio to achieve their objectives,
including as a result of the current COVID-19 pandemic;
• the valuation of our holdings in portfolio companies, in particular
those having no liquid trading market, and the impact of the COVID-19 pandemic thereon; • market conditions and our ability to access alternative debt markets and additional debt and equity capital, and the impact of the COVID-19 pandemic thereon; • our expected financings and investments; • the adequacy of our cash resources and working capital; • the timing of cash flows, if any, from the operations of our portfolio companies and the impact of the COVID-19 pandemic thereon; and
• the ability of our investment advisor to locate suitable investments
for us and to monitor and administer our investments and the impacts of the COVID-19 pandemic thereon.
• changes in political conditions and relations between the United States
Russia, Ukraineand other nations. 77
These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements, including without limitation: • an economic downturn, including as a result of the current COVID-19pandemic, could impair our portfolio companies'
continue to operate, which could lead to the loss of some or all of our investments in such portfolio companies;
• a contraction in available credit and/or an inability to access the
equity markets, including as a result of the current COVID-19 pandemic, could impair our lending and investment activities; • interest rate volatility could adversely affect our results, particularly because we use leverage as part of our investment strategy; • currency fluctuations could adversely affect the results of our investments in foreign companies, particularly to the extent that we receive payments denominated in foreign currency rather than
• the ability of the parties to complete the Mergers within the expected timeframes
timeline, or at all; • the ability to realize the anticipated benefits of the Mergers; • the effects of disruption on our business from the proposed Mergers; • the combined company's plans, expectations, objectives and intentions
as a result of the Mergers; • any potential termination of the Merger Agreement; • the actions of our stockholders or the stockholders of SLRC with respect to the proposals submitted for their approval in
with the Mergers; and
• the risks, uncertainties and other factors that we identify in Item 1A. –
Risk Factors contained in this Annual Report on Form 10-K for
December 31, 2021and in our other filings with the SEC. We generally use words such as "anticipates," "believes," "expects," "intends" and similar expressions to identify forward-looking statements. Our actual results could differ materially from those projected in the forward-looking statements for any reason, including any factors set forth in "Risk Factors" and elsewhere in this report. We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the SEC, including any annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. Overview
SLR Investment Corp.(the "Company", "SLRC", "we" or "our") f/k/a Solar Capital, Ltd., a Marylandcorporation formed in November 2007, is a closed-end, externally managed, non-diversified management investment company that has elected to be regulated as a business development company ("BDC") under the Investment Company Act of 1940, as amended (the "1940 Act"). Furthermore, as the Company is an investment company, it continues to apply the guidance in the Financial Accounting Standards Board("FASB") Accounting Standards Codification ("ASC") Topic 946. In addition, for U.Sfederal income tax purposes, the Company has elected to be treated as a regulated investment company ("RIC") under Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). 78
February 9, 2010, we priced our initial public offering, selling 5.68 million shares of our common stock. Concurrent with our initial public offering, Michael S. Gross, our Chairman, Co-Chief Executive Officer and President, and Bruce Spohler, our Co-Chief Executive Officer and Chief Operating Officer, collectively purchased an additional 0.6 million shares of our common stock through a private placement transaction exempt from registration under the Securities Act. We invest primarily in privately held U.S.middle-market companies, where we believe the supply of primary capital is limited and the investment opportunities are most attractive. Our investment objective is to generate both current income and capital appreciation through debt and equity investments. We invest primarily in leveraged middle-market companies in the form of senior secured loans, financing leases and to a lesser extent, unsecured loans and equity securities. From time to time, we may also invest in public companies that are thinly traded. Our business is focused primarily on the direct origination of investments through portfolio companies or their financial sponsors. Our investments generally range between $5 millionand $100 millioneach, although we expect that this investment size will vary proportionately with the size of our capital base and/or with strategic initiatives. Our investment activities are managed by SLR Capital Partners, LLC(the "Investment Adviser") and supervised by the Board, a majority of whom are non-interested, as such term is defined in the 1940 Act. SLR Capital Management, LLC(the "Administrator") provides the administrative services necessary for us to operate. In addition, we may invest a portion of our portfolio in other types of investments, which we refer to as opportunistic investments, which are not our primary focus but are intended to enhance our overall returns. These investments may include, but are not limited to, direct investments in public companies that are not thinly traded and securities of leveraged companies located in select countries outside of the United States. As of December 31, 2021, the Investment Adviser has directly invested approximately $12.5 billionin more than 450 different portfolio companies since 2006. Over the same period, the Investment Adviser completed transactions with over 200 different financial sponsors.
December 1, 2021, we entered into the Merger Agreement, which provides that, subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into SUNS, with SUNS continuing as the surviving company and as our wholly-owned subsidiary and, immediately thereafter, SUNS will merge with and into us, with us continuing as the surviving company. Both the Board and SUNS's board of directors, including all of the respective independent directors, in each case, on the recommendation of a special committee comprised solely of the independent directors of us and SUNS, as applicable, have approved the Merger Agreement and the transactions contemplated thereby. At the effective time of the Merger ("Effective Time"), each share of our common stock issued and outstanding immediately prior to the Effective Time (other than shares owned by us or any of our controlled subsidiaries (the "Cancelled Shares")) will be converted into the right to receive a number of shares of our common stock equal to the Exchange Ratio (as defined below) (cash may be paid in lieu of fractional shares). As of a mutually agreed date no earlier than 48 hours (excluding Sundays and holidays) prior to the Effective Time (such date, the "Determination Date"), each of us and SUNS will deliver to the other a calculation of its NAV as of such date, in each case using a pre-agreedset of assumptions, methodologies and adjustments. We refer to such calculation with respect to us as the "Closing SLRC Net Asset Value" and with respect to SUNS as the "Closing SUNS Net Asset Value". Based on such calculations, the parties will calculate the "SLRC Per Share NAV", which will be equal to (i) the Closing SLRC Net Asset Value divided by (ii) the number of shares of our common stock issued and outstanding as of the Determination Date (excluding any Cancelled Shares), and the "SUNS Per Share NAV", which will be equal to (A) the Closing SUNS Net Asset Value divided by (B) the number of shares of SUNS Common Stock issued and outstanding as of the Determination Date. The "Exchange Ratio" will be equal to the quotient (rounded to four decimal places) of (i) the SUNS Per Share NAV divided by (ii) the SLRC Per Share NAV. 79
We and SUNS will update and redeliver the Closing SLRC Net Asset Value or the Closing SUNS Net Asset Value, respectively, in the event of a material change to such calculation between the Determination Date and the closing of the Mergers and if needed to ensure that the calculation is determined within 48 hours (excluding Sundays and holidays) prior to the Effective Time. The Merger Agreement contains customary representations and warranties by each of us,
SUNS and SLR Capital Partners. The Merger Agreement also contains customary covenants, including, among others, covenants relating to the operation of each of our and SUNS's businesses during the period prior to the closing of the Mergers. Consummation of the Mergers, which is currently anticipated to occur during the first half of calendar year 2022, is subject to certain closing conditions, including requisite approvals of our and SUNS's stockholders and certain other closing conditions. The Merger Agreement also contains certain termination rights in favor of us and SUNS, including if the Mergers are not completed on or before December 1, 2022or if the requisite approvals of our or SUNS's stockholders are not obtained. The Merger Agreement provides that, upon the termination of the Merger Agreement under certain circumstances, a third party acquiring SUNS may be required to pay us a termination fee of approximately $7.6 million. The Merger Agreement provides that, upon the termination of the Merger Agreement under certain circumstances, a third party acquiring us may be required to pay to SUNS a termination fee of approximately $25.6 million. Effective upon the closing of the Mergers, SLR Capital Partnershas voluntarily agreed to a permanent reduction of the annual base management fee rate by 25 basis points, resulting in an annual base management fee rate payable by us to SLR Capital Partnersof 1.50% on gross assets up to 200% of our total net assets as of the immediately preceding quarter end. We will retain the contractual annual base management fee rate payable by us to SLR Capital Partnersof 1.00% on gross assets that exceed 200% of our total net assets as of the immediately preceding quarter end. The foregoing description of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full text of the Merger Agreement, which is incorporated by reference as Exhibit 2.1 to this Annual Report on Form 10-K and incorporated by reference herein. The representations, warranties, covenants and agreements contained in the Merger Agreement were made only for purposes of the Merger Agreement and as of specific dates; were solely for the benefit of the parties to the Merger Agreement (except as may be expressly set forth in the Merger Agreement); may be subject to limitations agreed upon by the parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk between the parties to the Merger Agreement instead of establishing these matters as facts; and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors and security holders should not rely on such representations, warranties, covenants or agreements, or any descriptions thereof, as characterizations of the actual state of facts or condition of any of the parties to the Merger Agreement or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of the representations, warranties, covenants and agreements may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in public disclosures by the parties to the Merger Agreement.
January 6, 2022, the Company closed a private offering of $135 millionof the 2027 Series F Unsecured Notes with a fixed interest rate of 3.33% and a maturity date of January 6, 2027. Interest on the 2027 Series F Unsecured Notes is due semi-annually on January 6and July 6. The 2027 Series F Unsecured Notes were issued in a private placement only to qualified institutional buyers. 80
The global outbreak of the COVID-19 pandemic, and the related effect on the
U.S.and global economies, has continued to have adverse consequences for the business operations of some of the Company's portfolio companies and, as a result, has had adverse effects on the Company's operations. The ultimate economic fallout from the pandemic, and the long-term impact on economies, markets, industries and individual issuers, including the Company, remain uncertain. The operational and financial performance of the issuers of securities in which the Company invests depends on future developments, including the duration and spread of the outbreak, and such uncertainty may in turn adversely affect the value and liquidity of the Company's investments and negatively impact the Company's performance.
Our level of investment activity can and does 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 general economic environment and the competitive environment for the types of investments we make. As a BDC, we must 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." The definition of "eligible portfolio company" includes certain public companies that do not have any securities listed on a national securities exchange and companies whose securities are listed on a national securities exchange but whose market capitalization is less than
We generate revenue primarily in the form of interest and dividend income from the securities we hold and capital gains, if any, on investment securities that we may sell. Our debt investments generally have a stated term of three to seven years and typically bear interest at a floating rate usually determined on the basis of a benchmark
Londoninterbank offered rate ("LIBOR"), commercial paper rate, or the prime rate. Interest on our debt investments is generally payable monthly or quarterly but may be bi-monthly or semi-annually. In addition, our investments may provide payment-in-kind ("PIK") income. Such amounts of accrued PIK income are added to the cost of the investment on the respective capitalization dates and generally become due at maturity of the investment or upon the investment being called by the issuer. We may also generate revenue in the form of commitment, origination, structuring fees, fees for providing managerial assistance and, if applicable, consulting fees, etc.
All investment professionals of the investment adviser and their respective staffs, when and to the extent engaged in providing investment advisory and management services, and the compensation and routine overhead expenses of such personnel allocable to such services, are provided and paid for by
SLR Capital Partners. We bear all other costs and expenses of our operations and transactions, including (without limitation): • the cost of our organization and public offerings; • the cost of calculating our net asset value, including the cost of any third-party valuation services; • the cost of effecting sales and repurchases of our shares and other securities; • interest payable on debt, if any, to finance our investments; • fees payable to third parties relating to, or associated with, making
investments, including fees and expenses associated with the execution
diligence reviews of prospective investments and advisory fees; 81
Table of Contents • transfer agent and custodial fees; • fees and expenses associated with marketing efforts; • federal and state registration fees, any stock exchange listing fees; • federal, state and local taxes; • independent directors' fees and expenses; • brokerage commissions;
• fidelity bond, liability in the event of errors and omissions of directors and managers
insurance and other insurance premiums;
• direct administration costs and expenses, including printing, mailing,
long distance telephone and staff;
• fees and expenses associated with independent audits and external legal services
• costs associated with our reporting and compliance obligations under the
1940 Act and applicable federal and state securities laws; and • all other expenses incurred by either
SLR Capital Managementor us in
in connection with the administration of our business, including payments under the
administration agreement which will be based on our attributable share of
overhead and other costs incurred by
perform its obligations under the Administration Agreement, including
rent, fees and expenses associated with compliance
duties, and our attributable share of compensation costs and
related expenses of our Chief Compliance Officer and Chief Financial Officer
officer and their respective staffs.
We expect our general and administrative operating expenses related to our ongoing operations to increase moderately in dollar terms. During periods of asset growth, we generally expect our general and administrative operating expenses to decline as a percentage of our total assets and increase during periods of asset declines. Incentive fees, interest expense and costs relating to future offerings of securities, among others, may also increase or reduce overall operating expenses based on portfolio performance, interest rate benchmarks, and offerings of our securities relative to comparative periods, among other factors.
Portfolio and investment activity
During the year ended
December 31, 2021, we invested approximately $596 millionacross 52 portfolio companies. This compares to investing approximately $427 millionin 40 portfolio companies for the year ended December 31, 2020. Investments sold, prepaid or repaid during the year ended December 31, 2021totaled approximately $468 millionversus approximately $363 millionfor the year ended December 31, 2020. At December 31, 2021, our portfolio consisted of 106 portfolio companies and was invested 26.7% in cash flow senior secured loans, 27.0% in asset-based senior secured loans / SLR Credit Solutions ("SLR Credit"), 13.5% in Kingsbridge Holdings LLC("KBH"), 16.4% in equipment senior secured financings / SLR Equipment Finance ("SLR Equipment"), and 16.4% in life science senior secured loans, in each case, measured at fair value, versus 105 portfolio companies invested 18.8% in cash flow senior secured loans, 27.0% in asset-based senior secured loans / SLR Credit, 14.2% in KBH, 18.6% in equipment senior secured financings / SLR Equipment, and 21.4% in life science senior secured loans, in each case, measured at fair value, at December 31, 2020. At December 31, 2021, 79.4% or $1.20 billionof our income producing investment portfolio* is floating rate and 20.6% or $313.4 millionis fixed rate, measured at fair value. At December 31, 2020, 72.1% or $1.10 billionof our income producing investment portfolio* is floating rate and 27.9% or $425.4 millionis fixed rate, measured at fair value. As of December 31, 2021and 2020, we had one and zero issuers on non-accrual status, respectively. 82
Since inception through
December 31, 2021, SLRC and its predecessor companies have invested approximately $7.3 billionin more than 320 portfolio companies. Over the same period, SLRC has completed transactions with more than 150 different financial sponsors.
* We have included SLR Credit Solutions,
SLR Credit Solutions
December 28, 2012, we acquired an equity interest in Crystal Capital Financial Holdings LLC("Crystal Financial") for $275 millionin cash. Crystal Financial owned approximately 98% of the outstanding ownership interest in SLR Credit Solutions("SLR Credit"), f/k/a Crystal Financial LLC. The remaining financial interest was held by various employees of SLR Credit, through their investment in Crystal Management LP. SLR Credit had a diversified portfolio of 23 loans having a total par value of approximately $400 millionat November 30, 2012and a $275 millioncommitted revolving credit facility. On July 28, 2016, the Company purchased Crystal Management LP'sapproximately 2% equity interest in SLR Credit for approximately $5.7 million. Upon the closing of this transaction, the Company holds 100% of the equity interest in SLR Credit. On September 30, 2016, Crystal Capital Financial Holdings LLCwas dissolved. As of December 31, 2021, total commitments to the revolving credit facility are $200 million. As of December 31, 2021, SLR Credit had 22 funded commitments to 19 different issuers with total funded loans of approximately $287.4 millionon total assets of $347.8 million. As of December 31, 2020, SLR Credit had 30 funded commitments to 24 different issuers with total funded loans of approximately $404.1 millionon total assets of $433.9 million. As of December 31, 2021and December 31, 2020, the largest loan outstanding totaled $35.0 millionand $45.0 million, respectively. For the same periods, the average exposure per issuer was $15.1 millionand $16.8 million, respectively. SLR Credit's credit facility, which is non-recourse to the Company, had approximately $100.7 millionand $183.9 millionof borrowings outstanding at December 31, 2021and December 31, 2020, respectively. For the years ended December 31, 2021and 2020, SLR Credit had net income of $14.2 millionand $23.3 million, respectively, on gross income of $34.0 millionand $45.3 million, respectively. Due to timing and non-cash items, there may be material differences between GAAP net income and cash available for distributions. As such, and subject to fluctuations in SLR Credit's funded commitments, the timing of originations, and the repayments of financings, the Company cannot guarantee that SLR Credit will be able to maintain consistent dividend payments to us. SLR Credit's consolidated financial statements for the fiscal years ended December 31, 2021and December 31, 2020are attached as an exhibit to this annual report on Form 10-K.
SLR Equipment Financing
July 31, 2017, we acquired a 100% equity interest in NEF Holdings, LLC, which conducts its business through its wholly-owned subsidiary Nations Equipment Finance, LLC. Effective February 25, 2021, Nations Equipment Finance, LLCand its related companies is doing business as SLR Equipment Finance ("SLR Equipment"). SLR Equipment is an independent equipment finance company that provides senior secured loans and leases primarily to U.S.based companies. We invested $209.9 millionin cash to effect the transaction, of which $145.0 millionwas invested in the equity of SLR Equipment through our wholly-owned consolidated taxable subsidiary NEFCORP LLCand our wholly-owned consolidated subsidiary NEFPASS LLCand $64.9 millionwas used to purchase certain leases and loans held by SLR Equipment through NEFPASS LLC. Concurrent with the transaction, SLR Equipment refinanced its existing senior secured credit facility into a $150.0 millionnon-recourse facility with an accordion feature to expand up to $250.0 million. In September 2019, SLR Equipment amended the facility, increasing commitments to $214.0 millionwith an accordion feature to expand up to $314.0 millionand extended the maturity date of the facility to July 31, 2023. As of December 31, 2021, SLR Equipment had 135 funded equipment-backed leases and loans to 61 different customers with a total net investment in leases and loans of approximately $211.0 millionon total assets 83
$264.0 million. As of December 31, 2020, SLR Equipment had 138 funded equipment-backed leases and loans to 61 different customers with a total net investment in leases and loans of approximately $188.4 millionon total assets of $263.4 million. As of December 31, 2021and December 31, 2020, the largest position outstanding totaled $19.2 millionand $25.1 million, respectively. For the same periods, the average exposure per customer was $3.5 millionand $3.1 million, respectively. SLR Equipment's credit facility, which is non-recourse to the Company, had approximately $118.0 millionand $100.6 millionof borrowings outstanding at December 31, 2021and December 31, 2020, respectively. For the years ended December 31, 2021and 2020, SLR Equipment had net losses of $9.7 millionand $8.9 million, respectively, on gross income of $22.9 millionand $24.5 million, respectively. Due to timing and non-cash items, there may be material differences between GAAP net income and cash available for distributions. As such, and subject to fluctuations in SLR Equipment's funded commitments, the timing of originations, and the repayments of financings, the Company cannot guarantee that SLR Equipment will be able to maintain consistent dividend payments to us. SLR Equipment's consolidated financial statements for the fiscal years ended December 31, 2021and December 31, 2020are attached as an exhibit to this annual report on Form 10-K.
November 3, 2020, the Company acquired 87.5% of Kingsbridge Holdings, LLC("KBH") through KBH Topco LLC("KBHT"), a newly formed Delawarecorporation. KBH is a residual focused independent mid-ticket lessor of equipment primarily to U.S.investment grade companies. The Company invested $216.6 millionto effect the transaction, of which $136.6 millionwas invested to acquire 87.5% of KBHT's equity and $80.0 millionin KBH's debt. The existing management team of KBH committed to continue to lead KBH after the transaction. Post the transaction, the Company owns 87.5% of KBHT equity and the KBH management team owns the remaining 12.5% of KBHT's equity. As of December 31, 2021and 2020, KBHT had total assets of $738.4 millionand $744.7 million, respectively. For the same periods, debt recourse to KBHT totaled $216.9 millionand $219.0 million, respectively, and non-recourse debt totaled $323.8 millionand $335.9 million, respectively. For the year ended December 31, 2021and the period November 3, 2020through December 31, 2020, KBHT had net income of $12.2 millionand $2.2 million, respectively, on gross income of $245.9 millionand $43.6 million, respectively. Due to timing and non-cash items, there may be material differences between GAAP net income and cash available for distributions. As such, and subject to fluctuations in KBHT's funded commitments, the timing of originations, and the repayments of financings, the Company cannot guarantee that KBHT will be able to maintain consistent dividend payments to us. KBHT's consolidated financial statements for the year ended December 31, 2021and the period November 3, 2020to December 31, 2020are attached as an exhibit to this annual report on Form 10-K.
Critical accounting policies
The preparation of consolidated financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following items as critical accounting policies. Within the context of these critical accounting policies and disclosed subsequent events herein, we are not currently aware of any other reasonably likely events or circumstances that would result in materially different amounts being reported.
Valuation of portfolio investments
We conduct the valuation of our assets, pursuant to which our net asset value is determined, at all times consistent with GAAP, and the 1940 Act. Our valuation procedures are set forth in more detail in Note 2(b) to the Company's Consolidated Financial Statements. 84
The determination of fair value involves subjective judgments and estimates. Accordingly, the notes to our consolidated financial statements express uncertainty as to the possible effect of such assessments, and any changes in such assessments, on our consolidated financial statements.
2022 Unsecured Notes Valuation
The Company has made an election to apply the fair value option of accounting to the 2022 Unsecured Notes, in accordance with ASC 825-10. We believe accounting for the 2022 Unsecured Notes at fair value better aligns the measurement methodologies of assets and liabilities, which may mitigate certain earnings volatility. Revenue Recognition The Company records dividend income and interest, adjusted for amortization of premium and accretion of discount, on an accrual basis. Investments that are expected to pay regularly scheduled interest and/or dividends in cash are generally placed on non-accrual status when principal or interest/dividend cash payments are past due 30 days or more (90 days or more for equipment financing) and/or when it is no longer probable that principal or interest/dividend cash payments will be collected. Such non-accrual investments are restored to accrual status if past due principal and interest or dividends are paid in cash, and in management's judgment, are likely to continue timely payment of their remaining interest or dividend obligations. Interest or dividend cash payments received on investments may be recognized as income or applied to principal depending upon management's judgment. Some of our investments may have contractual PIK income. PIK income computed at the contractual rate, as applicable, is accrued and reflected as a receivable up to the capitalization date. PIK investments offer issuers the option at each payment date of making payments in cash or in additional securities. When additional securities are received, they typically have the same terms, including maturity dates and interest rates as the original securities issued. On these payment dates, the Company capitalizes the accrued interest or dividends receivable (reflecting such amounts as the basis in the additional securities received). PIK generally becomes due at the maturity of the investment or upon the investment being called by the issuer. At the point the Company believes PIK is not expected to be realized, the PIK investment will be placed on non-accrual status. When a PIK investment is placed on non-accrual status, the accrued, uncapitalized interest or dividends is reversed from the related receivable through interest or dividend income, respectively. The Company does not reverse previously capitalized PIK income. Upon capitalization, PIK is subject to the fair value estimates associated with their related investments. PIK investments on non-accrual status are restored to accrual status if the Company again believes that PIK is expected to be realized. Loan origination fees, original issue discount, and market discounts are capitalized and amortized into income using the effective interest method. Upon the prepayment of a loan, any unamortized loan origination fees are recorded as interest income. We record prepayment premiums on loans and other investments as interest income when we receive such amounts. Capital structuring fees are recorded as other income when earned. The typically higher yields and interest rates on PIK securities, to the extent we invested, reflects the payment deferral and increased credit risk associated with such instruments and that such investments may represent a significantly higher credit risk than coupon loans. PIK securities may have unreliable valuations because their continuing accruals require continuing judgments about the collectability of the deferred payments and the value of any associated collateral. PIK income has the effect of generating investment income and increasing the incentive fees payable at a compounding rate. In addition, the deferral of PIK income also increases the loan-to-value ratio at a compounding rate. PIK securities create the risk that incentive fees will be paid to the Investment Adviser based on non-cash accruals that ultimately may not be realized, but the Investment Adviser will be under no obligation to reimburse the Company for these fees. For the fiscal years ended
December 31, 2021and 2020, capitalized PIK income totaled $7.6 millionand $5.4 million, respectively.
Net realized gain or loss and net change in unrealized gain or loss
We generally measure the realized gain or loss as the difference between the net redemption or sale proceeds and the amortized cost of the investment, excluding any unrealized appreciation or depreciation.
previously recognized, but considering unamortized origination or commitment fees and prepayment penalties. The net change in unrealized gain or loss reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized gain or loss, when gains or losses are realized. Gains or losses on investments are calculated by using the specific identification method.
U.S.corporation, has elected to be treated, and intends to qualify annually, as a RIC under Subchapter M of the Code. In order to qualify for U.S.federal income taxation as a RIC, the Company is required, among other things, to timely distribute to its stockholders at least 90% of investment company taxable income, as defined by the Code, for each year. Depending on the level of taxable income earned in a given tax year, we may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a nondeductible 4% U.S.federal excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year distributions, the Company accrues an estimated excise tax, if any, on estimated excess taxable income.
Recent accounting pronouncements
March 2020, the FASB issued Accounting Standards Update No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The guidance provides optional expedients and exceptions for applying GAAP to contract modifications, hedging relationships and other transactions, subject to meeting certain criteria, that reference LIBOR or another reference rate expected to be discontinued because of the reference rate reform. ASU 2020-04 is effective for all entities as of March 12, 2020through December 31, 2022. The Company is evaluating the potential impact that the adoption of this guidance will have on the Company's financial statements. RESULTS OF OPERATIONS Results comparisons are for the fiscal years ended December 31, 2021and December 31, 2020. Results for the fiscal year ended December 31, 2019can be found in Item 7 of the Company's report on Form 10-K filed on February 24, 2021, which is incorporated by reference herein.
For the fiscal years ended
December 31, 2021and 2020, gross investment income totaled $139.4 millionand $121.7 million, respectively. The increase in gross investment income for the year over year periods was primarily due to growth in the size of the income producing portfolio.
$78.4 millionand $62.5 million, respectively, for the fiscal years ended December 31, 2021and 2020, of which $38.6 millionand $27.2 million, respectively, were base management fees and performance-based incentive fees and $29.9 millionand $27.2 million, respectively, were interest and other credit facility expenses. Administrative services and other general and administrative expenses totaled $9.9 millionand $8.2 million, respectively, for the fiscal years ended December 31, 2021and 2020. Expenses generally consist of management and performance-based incentive fees, interest and other credit facility expenses, administrative services fees, insurance expenses, legal fees, directors' fees, transfer agency fees, printing and proxy expenses, audit and tax services expenses, and other general and administrative expenses. Interest and other credit facility expenses generally consist of interest, unused fees, agency fees and loan origination fees, if any, among others. The increase in expenses from 2020 to 2021 was primarily driven by a larger income producing investment portfolio, which resulted in higher management and incentive fees as well as higher interest costs. Additionally, higher general and administrative expenses resulted from expenses related to the potential merger with SLR Senior Investment Corp. 86
Net investment income
The Company's net investment income totaled
$60.9 millionand $59.2 million, or $1.44and $1.40, per average share, respectively, for the fiscal years ended December 31, 2021and 2020. Net Realized Gain (Loss) The Company had investment sales and prepayments totaling approximately $468 millionand $363 million, respectively, for the fiscal years ended December 31, 2021and 2020. Net realized gain (loss) over the same periods were $0.03 millionand ($26.6) million, respectively. Net realized gain for fiscal year 2021 was de minimis. Net realized loss for fiscal year 2020 was primarily related to the exit of our investment in IHS Intermediate, Inc.
Net change in unrealized loss
For the fiscal years ended
December 31, 2021and 2020, net change in unrealized loss on the Company's assets and liabilities totaled $1.4 millionand $17.1 million, respectively. Net unrealized loss for the fiscal year ended December 31, 2021is primarily due to depreciation in the value of our investments in American Teleconferencing Services, Ltd., Rug Doctor and SOAGG LLC, among others, partially offset by appreciation in the value of our investments in KBH Topco, LLC, SLR Credit Solutionsand PhyMed Management LLC, among others. Net unrealized loss for the fiscal year ended December 31, 2020is primarily due to depreciation in the value of our investments in NEF Holdings LLC, Rug Doctor, PhyMed Management LLC, SOINT, LLCand SOAGG LLC, among others, partially offset by the reversal of previously recognized unrealized depreciation in the value of our investment in IHS Intermediate, Inc.and unrealized appreciation in the value of our investments in Crystal Financial LLCand B. Riley Financial Inc., among others.
Net increase in net operating assets
For the fiscal years ended
December 31, 2021and 2020, the Company had a net increase in net assets resulting from operations of $59.6 millionand $15.5 million, respectively. For the fiscal years ended December 31, 2021and 2020, earnings per average share were $1.41and $0.37, respectively.
CASH AND CAPITAL RESOURCES
The Company's liquidity and capital resources are generated and generally available through its Credit Facility (as defined below), the 2022 Unsecured Notes, the 2022 Tranche C Notes, the 2023 Unsecured Notes, the 2024 Unsecured Notes, the 2026 Unsecured Notes and the 2027 Unsecured Notes, through cash flows from operations, investment sales, prepayments of senior and subordinated loans, income earned on investments and cash equivalents, and periodic follow-on equity and/or debt offerings. As of
December 31, 2021, we had a total of $377.5 millionof unused borrowing capacity under the Credit Facility, subject to borrowing base limits. We may from time to time issue equity and/or debt securities in either public or private offerings. The issuance of such securities will depend on future market conditions, funding needs and other factors and there can be no assurance that any such issuance will occur or be successful. The primary uses of existing funds and any funds raised in the future is expected to be for investments in portfolio companies, repayment of indebtedness, cash distributions to our stockholders, or for other general corporate purposes. On December 28, 2021, the Company closed on Amendment No. 1 to its August 28, 2019senior secured credit agreement (the "Credit Facility"). Post amendment, the Credit Facility is composed of $600 millionof revolving credit and $100 millionof term loans. Borrowings generally bear interest at a rate per annum equal to the base rate plus a range of 1.75%-2.00% or the alternate base rate plus 0.75%-1.00%. The Credit Facility has a 0% floor and matures in December 2026and includes ratable amortization in the final year. 87
credit facility, dated
September 14, 2021, the Company closed a private offering of $50,000of the 2027 Unsecured Notes with a fixed interest rate of 2.95% and a maturity date of March 14, 2027. Interest on the 2027 Unsecured Notes is due semi-annually on March 14and September 14. The 2027 Unsecured Notes were issued in a private placement only to qualified institutional buyers. On February 12, 2020, a new lender to the Company executed a commitment increase to the Credit Facility providing for an additional $75.0 millionof revolving credit, bringing the Credit Facility's total revolving credit capacity to $545.0 million. On December 18, 2019, the Company closed a private offering of $125 millionof the 2024 Unsecured Notes with a fixed interest rate of 4.20% and a maturity date of December 15, 2024. Interest on the 2024 Unsecured Notes is due semi-annually on June 15and December 15. The 2024 Unsecured Notes were issued in a private placement only to qualified institutional buyers. On December 18, 2019, the Company closed a private offering of $75 millionof the 2026 Unsecured Notes with a fixed interest rate of 4.375% and a maturity date of December 15, 2026. Interest on the 2026 Unsecured Notes is due semi-annually on June 15and December 15. The 2026 Unsecured Notes were issued in a private placement only to qualified institutional buyers. On December 28, 2017, the Company closed a private offering of $21 millionof the 2022 Tranche C Notes with a fixed interest rate of 4.50% and a maturity date of December 28, 2022. Interest on the 2022 Tranche C Notes is due semi-annually on June 28and December 28. The 2022 Tranche C Notes were issued in a private placement only to qualified institutional buyers. On November 22, 2017, we issued $75 millionin aggregate principal amount of publicly registered 2023 Unsecured Notes for net proceeds of $73.8 million. Interest on the 2023 Unsecured Notes is paid semi-annually on January 20and July 20, at a fixed rate of 4.50% per year, commencing on January 20, 2018. The 2023 Unsecured Notes mature on January 20, 2023. On February 15, 2017, the Company closed a private offering of $100 millionof the 2022 Unsecured Notes with a fixed interest rate of 4.60% and a maturity date of May 8, 2022. Interest on the 2022 Unsecured Notes is due semi-annually on May 8and November 8. The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers. On November 8, 2016, the Company closed a private offering of $50 millionof the 2022 Unsecured Notes with a fixed interest rate of 4.40% and a maturity date of May 8, 2022. Interest on the 2022 Unsecured Notes is due semi-annually on May 8and November 8. The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers. On January 11, 2013, the Company closed its most recent follow-on public equity offering of 6.3 million shares of common stock raising approximately $146.9 millionin net proceeds. The primary uses of the funds raised were for investments in portfolio companies, reductions in revolving debt outstanding and for other general corporate purposes.
We deem certain
U.S. Treasurybills, repurchase agreements and other high-quality, short-term debt securities as cash equivalents. The Company makes purchases that are consistent with its purpose of making investments in securities described in paragraphs 1 through 3 of Section 55(a) of the 1940 Act. From time to 88
time, including at or near the end of each fiscal quarter, we consider using various temporary investment strategies for our business. One strategy includes taking proactive steps by utilizing cash equivalents as temporary assets with the objective of enhancing our investment flexibility pursuant to Section 55 of the 1940 Act. More specifically, from time-to-time we may purchase
U.S. Treasurybills or other high-quality, short-term debt securities at or near the end of the quarter and typically close out the position on a net cash basis subsequent to quarter end. We may also utilize repurchase agreements or other balance sheet transactions, including drawing down on the Credit Facility, as deemed appropriate. The amount of these transactions or such drawn cash for this purpose is excluded from total assets for purposes of computing the asset base upon which the management fee is determined. We held approximately $320 millionin cash equivalents as of December 31, 2021.
September 14, 2021, the Company closed a private offering of $50,000of the 2027 Unsecured Notes with a fixed interest rate of 2.95% and a maturity date of March 14, 2027. Interest on the 2027 Unsecured Notes is due semi-annually on March 14and September 14. The 2027 Unsecured Notes were issued in a private placement only to qualified institutional buyers. On December 18, 2019, the Company closed a private offering of $125 millionof the 2024 Unsecured Notes with a fixed interest rate of 4.20% and a maturity date of December 15, 2024. Interest on the 2024 Unsecured Notes is due semi-annually on June 15and December 15. The 2024 Unsecured Notes were issued in a private placement only to qualified institutional buyers. On December 18, 2019, the Company closed a private offering of $75 millionof the 2026 Unsecured Notes with a fixed interest rate of 4.375% and a maturity date of December 15, 2026. Interest on the 2026 Unsecured Notes is due semi-annually on June 15and December 15. The 2026 Unsecured Notes were issued in a private placement only to qualified institutional buyers. On December 28, 2017, the Company closed a private offering of $21 millionof the 2022 Tranche C Notes with a fixed interest rate of 4.50% and a maturity date of December 28, 2022. Interest on the 2022 Tranche C Notes is due semi-annually on June 28and December 28. The 2022 Tranche C Notes were issued in a private placement only to qualified institutional buyers. On November 22, 2017, we issued $75 millionin aggregate principal amount of publicly registered 2023 Unsecured Notes for net proceeds of $73.8 million. Interest on the 2023 Unsecured Notes is paid semi-annually on January 20and July 20, at a fixed rate of 4.50% per year, commencing on January 20, 2018. The 2023 Unsecured Notes mature on January 20, 2023. On February 15, 2017, the Company closed a private offering of $100 millionof the 2022 Unsecured Notes with a fixed interest rate of 4.60% and a maturity date of May 8, 2022. Interest on the 2022 Unsecured Notes is due semi-annually on May 8and November 8. The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers. On November 8, 2016, the Company closed a private offering of $50 millionof the 2022 Unsecured Notes with a fixed interest rate of 4.40% and a maturity date of May 8, 2022. Interest on the 2022 Unsecured Notes is due semi-annually on May 8and November 8. The 2022 Unsecured Notes were issued in a private placement only to qualified institutional buyers.
Revolving and term loan facilities
December 28, 2021, the Company closed on Amendment No. 1 to its August 28, 2019senior secured credit agreement. Post amendment, the Credit Facility is composed of $600 millionof revolving credit and 89
$100 millionof term loans. Borrowings generally bear interest at a rate per annum equal to the base rate plus a range of 1.75%-2.00% or the alternate base rate plus 0.75%-1.00%. The Credit Facility has a 0% floor and matures in December 2026and includes ratable amortization in the final year. The Credit Facility may be increased up to $800 millionwith additional new lenders or an increase in commitments from current lenders. The Credit Facility contains certain customary affirmative and negative covenants and events of default. In addition, the Credit Facility contains certain financial covenants that among other things, requires the Company to maintain a minimum shareholder's equity and a minimum asset coverage ratio. At December 31, 2021, outstanding USD equivalent borrowings under the Credit Facility totaled $322.5 million, composed of $222.5 millionof revolving credit and $100.0 millionof term loans.
credit facility, dated
Certain covenants on our issued debt may restrict our business activities, including limitations that could hinder our ability to finance additional loans and investments or to make the distributions required to maintain our status as a RIC under Subchapter M of the Code. At
December 31, 2021, the Company was in compliance with all financial and operational covenants required by our credit facilities. Contractual Obligations A summary of our significant contractual payment obligations is as follows as of December 31, 2021: Payments Due by Period (in millions) Less than More Than Total 1 Year 1-3 Years 3-5 Years 5 Years Credit Facility (1) $ 222.5$ - $ - $ 222.5$ - Unsecured senior notes 496.0 171.0 200.0 75.0 50.0 Term Loans 100.0 - - 100.0 -
capacity under the credit facility, subject to borrowing base limits.
Under the provisions of the 1940 Act, we are permitted, as a BDC, to issue senior securities in amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 150% of gross assets less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If the value of our assets declines, we may be unable to satisfy the asset coverage test. If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when such sales may be disadvantageous. Also, any amounts that we use to service our indebtedness would not be available for distributions to our common stockholders. Furthermore, as a result of issuing senior securities, we would also be exposed to typical risks associated with leverage, including an increased risk of loss. We have also entered into two contracts under which we have future commitments: the Advisory Agreement, pursuant to which
SLR Capital Partners, LLChas agreed to serve as our investment adviser, and the Administration Agreement, pursuant to which the Administrator has agreed to furnish us with the facilities and administrative services necessary to conduct our day-to-day operations and provide on our behalf managerial assistance to those portfolio companies to which we are required to provide such assistance. Payments under the Advisory Agreement are equal to (1) a percentage of the value of our average gross assets and (2) a two-part incentive fee. Payments under the Administration Agreement are equal to an amount based upon our allocable portion of the Administrator's overhead in performing its obligations under the Administration Agreement, including rent, technology systems, insurance and our allocable portion of the costs of our chief financial officer and chief compliance officer and their respective staffs. Either party may terminate each of the Advisory Agreement and administration agreement without penalty upon 60 days' written notice to the other. See note 3 to our Consolidated Financial Statements. 90
July 31, 2017, the Company, NEFPASS LLCand NEFCORP LLCentered into a servicing agreement. NEFCORP LLCwas engaged to provide NEFPASS LLCwith administrative services related to the loans and capital leases held by NEFPASS LLC. NEFPASS LLCmay terminate this agreement upon 30 days' written notice to NEFCORP LLC. Senior Securities
Information about our senior securities is presented in the following table (in thousands) for each financial year ended
Involuntary Asset Liquidating Average Total Amount Coverage Preference Market Value Class and Year Outstanding(1) Per Unit(2) Per Unit(3) Per Unit(4)
Revolving Credit Facility Fiscal 2021
$ 222,500$ 552 - N/A Fiscal 2020 126,000 421 - N/A Fiscal 2019 42,900 182 - N/A Fiscal 2018 96,400 593 - N/A Fiscal 2017 245,600 1,225 - N/A Fiscal 2016 115,200 990 - N/A Fiscal 2015 207,900 1,459 - N/A Fiscal 2014 - - - N/A Fiscal 2013 - - - N/A Fiscal 2012 264,452 1,510 - N/A 2022 Unsecured Notes Fiscal 2021 150,000 372 - N/A Fiscal 2020 150,000 501 - N/A Fiscal 2019 150,000 638 - N/A Fiscal 2018 150,000 923 - N/A Fiscal 2017 150,000 748 - N/A Fiscal 2016 50,000 430 - N/A 2022 Tranche C Notes Fiscal 2021 21,000 52 - N/A Fiscal 2020 21,000 70 - N/A Fiscal 2019 21,000 89 - N/A Fiscal 2018 21,000 129 - N/A Fiscal 2017 21,000 105 - N/A 2023 Unsecured Notes Fiscal 2021 75,000 186 - N/A Fiscal 2020 75,000 250 - N/A Fiscal 2019 75,000 319 - N/A Fiscal 2018 75,000 461 - N/A Fiscal 2017 75,000 374 - N/A 2024 Unsecured Notes Fiscal 2021 125,000 309 - N/A Fiscal 2020 125,000 417 - N/A Fiscal 2019 125,000 531 - N/A 2026 Unsecured Notes Fiscal 2021 75,000 186 - N/A Fiscal 2020 75,000 250 - N/A Fiscal 2019 75,000 319 - N/A 91
Table of Contents Involuntary Asset Liquidating Average Total Amount Coverage Preference Market Value Class and Year Outstanding(1) Per Unit(2) Per Unit(3) Per Unit(4) 2027 Unsecured Notes Fiscal 2021 $ 50,000 $ 124 - N/A 2042 Unsecured Notes Fiscal 2017 - - - N/A Fiscal 2016 100,000 859 -
$ 1,002Fiscal 2015 100,000 702 - 982 Fiscal 2014 100,000 2,294 - 943 Fiscal 2013 100,000 2,411 - 934 Fiscal 2012 100,000 571 - 923 Senior Secured Notes Fiscal 2017 - - - N/A Fiscal 2016 75,000 645 - N/A Fiscal 2015 75,000 527 - N/A Fiscal 2014 75,000 1,721 - N/A Fiscal 2013 75,000 1,808 - N/A Fiscal 2012 75,000 428 - N/A Term Loans Fiscal 2021 100,000 248 - N/A Fiscal 2020 75,000 250 - N/A Fiscal 2019 75,000 319 - N/A Fiscal 2018 50,000 308 - N/A Fiscal 2017 50,000 250 - N/A Fiscal 2016 50,000 430 - N/A Fiscal 2015 50,000 351 - N/A Fiscal 2014 50,000 1,147 - N/A Fiscal 2013 50,000 1,206 - N/A Fiscal 2012 50,000 285 - N/A NEFPASS Facility Fiscal 2021 - - - N/A Fiscal 2020 30,000 100 - N/A Fiscal 2019 30,000 128 - N/A Fiscal 2018 30,000 185 - N/A SSLP Facility Fiscal 2019 - - - N/A Fiscal 2018 53,785 331 - N/A Total Senior SecuritiesFiscal 2021 818,500 2,029 - N/A Fiscal 2020 677,000 2,259 - N/A Fiscal 2019 593,900 2,525 - N/A Fiscal 2018 476,185 2,930 - N/A Fiscal 2017 541,600 2,702 - N/A Fiscal 2016 390,200 3,354 - N/A Fiscal 2015 432,900 3,039 - N/A Fiscal 2014 225,000 5,162 - N/A Fiscal 2013 225,000 5,425 - N/A Fiscal 2012 489,452 2,794 - N/A
(1) Total amount of each class of senior securities outstanding (in thousands) at
the end of the period presented. 92
(2) The asset coverage ratio for a class of senior securities representing
Indebtedness is our total consolidated assets less any
liabilities and debts not represented by senior securities, divided by
all senior debt securities. This asset coverage ratio is
multiplied by one thousand to determine the asset coverage per unit. In order
to determine the specific asset coverage per unit for each category of debt, the
total asset coverage per unit is assigned based on the amount outstanding
each category of debt at the end of the period. From
coverage was 202.9%.
(3) The amount to which such class of Senior Securities would be entitled to
involuntary liquidation of the issuer in preference to any security below
(4) Not applicable except for 2042 Unsecured Notes which have been publicly
negotiated. The average market value per unit is calculated by taking the
average closing price during the period and dividing it by twenty-five
dollars per share and multiplying the result by one thousand to determine a
unit price per thousand consistent with asset coverage per unit. The average
the market value for the financial years 2016, 2015, 2014, 2013 and 2012 was
The following is a schedule of financial highlights for the respective years: Year ended Year ended Year ended Year ended Year ended December 31, December 31,
2016 2015 2014 2013 2012 Per Share Data: (a) Net asset value, beginning of year
$ 20.79 $ 22.05 $ 22.50 $ 22.70 $ 22.02Net investment income 1.68 1.52 1.56 1.91 2.20 Net realized and unrealized gain (loss) 0.84 (1.18 ) (0.43 ) (0.22 ) 0.91 Net increase in net assets resulting from operations 2.52 0.34 1.13 1.69 3.11 Distributions to stockholders (see note 8a): From net investment income (1.60 ) (1.60 ) (1.55 ) (1.55 ) (2.27 ) From net realized gains - - - (0.46 ) (0.16 ) From return of capital - - (0.05 ) - - Anti-dilution 0.03 - 0.02 0.12 - Net asset value, end of year $ 21.74 $ 20.79 $ 22.05 $ 22.50 $ 22.70Per share market value, end of year $ 20.82 $ 16.43 $ 18.01 $ 22.55 $ 23.91Total Return(b) 37.49 % (0.29 )% (13.58 )% 2.82 % 20.03 % Net assets, end of year $ 918,507 $ 882,698 $ 936,568 $ 995,637 $ 878,273Shares outstanding, end of year 42,248,525 42,464,762 42,465,162 44,244,195 38,694,060 Ratios to average net assets: Net investment income 7.91 % 6.94 % 6.93 % 8.43 % 9.79 % Operating expenses 6.25 % 3.84 %* 4.24 % 5.82 % 6.25 % Interest and other credit facility expenses** 2.73 % 1.68 % 1.50 % 1.99 % 2.28 % Total expenses 8.98 % 5.52 %* 5.74 % 7.81 % 8.53 % Average debt outstanding $ 495,795 $ 262,341 $ 225,000 $ 318,186 $ 237,859Portfolio turnover ratio 31.0 % 13.0 % 53.7 % 25.6 % 54.7 %
(a) Calculated using the average number of shares outstanding method.
(b) Total return is based on the change in the market price per share during the year
and takes into account distributions, if any, reinvested in accordance with
the dividend reinvestment plan. The total return does not include a selling charge.
* The ratio of operating expenses to average net assets and the ratio of total
expenses in relation to average net assets are presented net of a voluntary incentive fee
derogation (see note 3).
For the year ended
average net assets and total expenses to average net assets would be 4.02%
and 5.70%, respectively, without the voluntary incentive fee waiver.
** Ratios presented without non-recurring costs associated with modifications
and establishment of the Credit Facility and 2022 Unsecured Notes would be 2.39%, 1.68%, 1.50%, 1.74% and 1.41%, respectively for the years shown.
Off-balance sheet arrangements
From time-to-time and in the normal course of business, the Company may make unfunded capital commitments to current or prospective portfolio companies. Typically, the Company may agree to provide delayed-draw term loans or, to a lesser extent, revolving loan or equity commitments. These unfunded capital commitments always take into account the Company's liquidity and cash available for investment, portfolio and issuer diversification, and other considerations. Accordingly, the Company had the following unfunded capital commitments at
December 31, 2021and December 31, 2020, respectively: December 31, December 31, 2021 2020 (in millions) SLR Credit Solutions* $ 44.3 $ 44.3 Arcutis Biotherapeutics, Inc. 43.5 - Glooko, Inc. 25.1 - BridgeBio Pharma, Inc. 23.0 - CC SAG Holdings Corp. (Spectrum Automotive) 18.8 - Inszone Mid, LLC 12.5 - One Touch Direct, LLC 7.2 5.0 Rezolute, Inc. 5.7 - Maurices, Incorporated 5.7 - SLR Equipment Finance 5.0 4.2 NAC Holdings Corporation 4.8 - Ivy Fertility Services, LLC 4.5 - SOC Telemed, Inc. 4.4 - RQM+ Corp. 3.8 - Atria Wealth Solutions, Inc. 3.7 3.5 Kid Distro Holdings, LLC 2.7 - Foundation Consumer Brands, LLC 2.3 - Neuronetics, Inc. 2.2 6.7 MMIT Holdings, LLC 2.0 - Basic Fun, Inc. 1.9 1.1 Pinnacle Treatment Centers, Inc. 1.4 1.4 SunMed Group Holdings, LLC 0.8 - Ultimate Baked Goods Midco LLC 0.8 - American Teleconferencing Services, Ltd. 0.6 - Smile Doctors LLC - 26.7 Soleo Health Holdings, Inc. - 7.4 94
Table of Contents December 31, December 31, 2021 2020 (in millions) Cardiva Medical, Inc. $ - $ 7.3 Kindred Biosciences, Inc. - 6.9 PQ Bypass, Inc. - 5.0 Centrexion Therapeutics, Inc. - 3.8 Sentry Data Systems, Inc. - 1.6 Delphinus Medical Technologies, Inc. - 1.3 Total Commitments
* The Company controls the financing of the SLR Credit Solutions commitment and may
cancel it at its discretion.
The credit agreements of the above loan commitments contain customary lending provisions and/or are subject to the portfolio company's achievement of certain milestones that allow relief to the Company from funding obligations for previously made commitments in instances where the underlying company experiences materially adverse events that affect the financial condition or business outlook for the company. Since these commitments may expire without being drawn upon, unfunded commitments do not necessarily represent future cash requirements or future earning assets for the Company. As of
December 31, 2021and December 31, 2020, the Company had sufficient cash available and/or liquid securities available to fund its commitments and had reviewed them for any appropriate fair value adjustment. In the normal course of its business, we invest or trade in various financial instruments and may enter into various investment activities with off-balance sheet risk, which may include forward foreign currency contracts. Generally, these financial instruments represent future commitments to purchase or sell other financial instruments at specific terms at future dates. These financial instruments contain varying degrees of off-balance sheet risk whereby changes in the market value or our satisfaction of the obligations may exceed the amount recognized in our Consolidated Statements of Assets and Liabilities. Distributions The following table reflects the cash distributions per share on our common stock for the two most recent fiscal years and the current fiscal year to date: Date Declared Record Date Payment Date Amount Fiscal 2022 March 1, 2022 March 18, 2022 April 1, 2022 $ 0.41Fiscal 2021 November 3, 2021 December 16, 2021 January 5, 2022 $ 0.41August 3, 2021 September 23, 2021 October 5, 2021 0.41 May 5, 2021 June 23, 2021 July 2, 2021 0.41 February 24, 2021 March 18, 2021 April 2, 2021 0.41 Total 2021 $ 1.64Fiscal 2020 November 5, 2020 December 17, 2020 January 5, 2021 $ 0.41August 4, 2020 September 17, 2020 October 2, 2020 0.41 May 7, 2020 June 18, 2020 July 2, 2020 0.41 February 20, 2020 March 19, 2020 April 3, 2020 0.41 Total 2020 $ 1.6495
Tax characteristics of all distributions will be reported to stockholders on Form 1099 after the end of the calendar year. Future quarterly distributions, if any, will be determined by our Board. We expect that our distributions to stockholders will generally be from accumulated net investment income, from net realized capital gains or non-taxable return of capital, if any, as applicable. We have elected to be taxed as a RIC under Subchapter M of the Code. To maintain our RIC tax treatment, we must distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. In addition, although we currently intend to distribute realized net capital gains (i.e., net long-term capital gains in excess of short-term capital losses), if any, at least annually, out of the assets legally available for such distributions, we may in the future decide to retain such capital gains for investment. We maintain an "opt out" dividend reinvestment plan for our common stockholders. As a result, if we declare a distribution, then stockholders' cash distributions will be automatically reinvested in additional shares of our common stock, unless they specifically "opt out" of the dividend reinvestment plan so as to receive cash distributions. We may not be able to achieve operating results that will allow us to make distributions at a specific level or to increase the amount of these distributions from time to time. In addition, due to the asset coverage test applicable to us as a business development company, we may in the future be limited in our ability to make distributions. Also, the Credit Facility may limit our ability to declare distributions if we default under certain provisions. If we do not distribute a certain percentage of our income annually, we will suffer adverse tax consequences, including possible loss of the tax benefits available to us as a regulated investment company. In addition, in accordance with GAAP and tax regulations, we include in income certain amounts that we have not yet received in cash, such as contractual payment-in-kind income, which represents contractual income added to the loan balance that becomes due at the end of the loan term, or the accrual of original issue or market discount. Since we may recognize income before or without receiving cash representing such income, we may have difficulty meeting the requirement to distribute at least 90% of our investment company taxable income to obtain tax benefits as a regulated investment company.
With respect to distributions to shareholders, income from origination, structuring, closing and certain other up-front costs associated with holding company investments is treated as taxable income and therefore distributed to shareholders.
We have established a number of business relationships with affiliated or related parties, including the following:
• We have concluded the consulting contract with
member of the Board of Directors, are senior management and investment professionals
of, and hold financial and controlling interests in, the investment
To advise. Besides,
and the secretary serves as the chief financial officer for
Partners. • The Administrator provides us with the office facilities and
the administrative services necessary for the conduct of day-to-day operations
in accordance with our administration agreement. We reimburse the administrator
for the allocable portion of overhead and other expenses incurred by it in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing
compliance functions, and the compensation of our compliance officer
officer, our chief financial officer and their respective staffs. 96
• We have entered into a license agreement with the Investment Adviser,
under which the Investment Advisor has granted us a non-exclusive right,
royalty-free license to use the “SOLAR” and “SLR” licensed trademarks.
The Investment Adviser may also manage other funds in the future that may have investment mandates that are similar, in whole and in part, with ours. For example, the Investment Adviser presently serves as investment adviser to SLR Senior Investment Corp., a publicly traded BDC, which focuses on investing in senior secured loans, including first lien and second lien debt instruments, as well as
SCP Private Credit Income BDC LLC, an unlisted BDC that focuses on investing primarily in senior secured loans, including non-traditional asset-based loans and first lien loans and SLR HC BDC LLC, an unlisted BDC whose principal focus is to invest directly and indirectly in senior secured loans and other debt instruments typically to middle market companies within the healthcare industry. In addition, Michael S. Gross, our Chairman, Co-Chief Executive Officer and President, Bruce Spohler, our Co-Chief Executive Officer and Chief Operating Officer, and Richard L. Peteka, our Chief Financial Officer, serve in similar capacities for SLR Senior Investment Corp., SCP Private Credit Income BDC LLCand SLR HC BDC LLC. The Investment Adviser and certain investment advisory affiliates may determine that an investment is appropriate for us and for one or more of those other funds. In such event, depending on the availability of such investment and other appropriate factors, the Investment Adviser or its affiliates may determine that we should invest side-by-side with one or more other funds. Any such investments will be made only to the extent permitted by applicable law and interpretive positions of the SECand its staff, and consistent with the Investment Adviser's allocation procedures. On June 13, 2017, the Adviser received an exemptive order that permits the Company to participate in negotiated co-investment transactions with certain affiliates, in a manner consistent with the Company's investment objective, positions, policies, strategies and restrictions as well as regulatory requirements and other pertinent factors, and pursuant to various conditions (the "Order"). If the Company is unable to rely on the Order for a particular opportunity, such opportunity will be allocated first to the entity whose investment strategy is the most consistent with the opportunity being allocated, and second, if the terms of the opportunity are consistent with more than one entity's investment strategy, on an alternating basis. Although the Adviser's investment professionals will endeavor to allocate investment opportunities in a fair and equitable manner, the Company and its stockholders could be adversely affected to the extent investment opportunities are allocated among us and other investment vehicles managed or sponsored by, or affiliated with, our executive officers, directors and members of the Adviser.
Transactions with related parties may take place between
In addition, we have adopted a formal code of ethics that governs the conduct of our officers and directors. Our officers and directors also remain subject to the duties imposed by both the 1940 Act and the
Maryland General CorporationLaw.
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