05/10/2024 | Press release | Distributed by Public on 05/10/2024 10:20
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
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Maryland
|
93-2305832
|
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(State or Other Jurisdiction of
Incorporation or Organization)
|
(I.R.S. Employer
Identification No.)
|
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600 Madison Avenue, 26
th
Floor
New York,
NY
|
10022
|
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(Address of Principal Executive Offices)
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(Zip Code)
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Title of each class
|
Trading
Symbol
|
Name of each exchange
on which registered
|
||
None
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None
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None
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Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-Accelerated
filer
|
☒ | Smaller reporting company | ☐ | |||
Emerging Growth Company | ☒ |
26NORTH BDC, INC.
QUARTERLY REPORT ON FORM 10-QFOR THE QUARTER ENDED MARCH 31, 2024
TABLE OF CONTENTS
Part I. Financial Information | ||||||
Item 1. |
Financial Statements |
|||||
Consolidated Statements of Assets and Liabilities as of March 31, 2024 (Unaudited) and December 31, 2023 |
3 | |||||
Consolidated Statement of Operations for the three months ended March 31, 2024 (Unaudited) |
4 | |||||
Consolidated Statement of Changes in Net Assets for the three months ended March 31, 2024 (Unaudited) |
5 | |||||
Consolidated Statement of Cash Flows for the three months ended March 31, 2024 (Unaudited) |
6 | |||||
Consolidated Schedules of Investments as of March 31, 2024 (Unaudited) and December 31, 2023 |
7 | |||||
Notes to Consolidated Financial Statements (Unaudited) |
9 | |||||
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
24 | ||||
Item 3. |
Quantitative and Qualitative Disclosure About Market Risk |
33 | ||||
Item 4. |
Controls and Procedures |
34 | ||||
Part II. Other Information | ||||||
Item 1. |
Legal Proceedings |
35 | ||||
Item 1A. |
Risk Factors |
35 | ||||
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
35 | ||||
Item 3. |
Defaults Upon Senior Securities |
35 | ||||
Item 4. |
Mine Safety Disclosures |
35 | ||||
Item 5. |
Other Information |
35 | ||||
Item 6. |
Exhibits |
35 | ||||
SIGNATURES |
37 |
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q(this "Report") contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by the use of forward-looking terminology such as "may," "will," "should," "expect," "anticipate," "project," "target," "estimate," "intend," "continue" or "believe" or the negatives of, or other variations on, these terms or comparable terminology. You should read statements that contain these words carefully because they discuss our plans, strategies, prospects and expectations concerning our business, operating results, financial condition and other similar matters. We believe that it is important to communicate our future expectations to our investors. Our forward-looking statements include information in this Report regarding general domestic and global economic conditions, our future financing plans, our ability to operate as a business development company ("BDC") and the expected performance of, and the yield on, our portfolio companies. There may be events in the future, however, that we are not able to predict accurately or control. The factors listed under "Risk Factors" in our annual report on Form 10-Kfor the period ended December 31, 2023 (the "Annual Report") and in this Report, as well as any cautionary language in this Report, provide examples of risks, uncertainties and events that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. The occurrence of the events described in these risk factors and elsewhere in this Report could have a material adverse effect on our business, results of operations and financial position.
• |
our future operating results; |
• |
our ability to source investment opportunities; |
• |
our inability to control the business operations of our portfolio companies, and potential inability to dispose of our interests in our portfolio companies; |
• |
our use of borrowed money to finance a portion of our investments; |
• |
provisions of a credit facility or other borrowings that may limit discretion in operating our business; |
• |
the impact of high rates of inflation; |
• |
changes in the general interest rate environment; |
• |
our use of total return swaps and related risks similar to those associated with the use of leverage; |
• |
the discontinuation of the London Interbank Offered Rate and use of alternative reference rates; |
• |
the valuation of our investments in portfolio companies, particularly those having no liquid trading market; |
• |
our ability to recover unrealized losses; |
• |
the impact of competition for investment opportunities; |
• |
the outcome and impact of any litigation or regulatory proceeding; |
• |
our dependence on our and third parties' communications and information systems; |
• |
the impact of cybersecurity risks, cyber incidents, corruption of confidential information on us or our portfolio companies; |
• |
our ability to comply with legal requirements, contractual obligations and industry standards relating to security, data protection and privacy; |
• |
our ability to manage the impact of any changes to current operating policies, investment criteria or strategies; |
• |
any changes to the anticipated timing or manner of liquidity events; |
• |
the ability of the Adviser to manage and support our investment process; |
• |
actual and potential conflicts of interest with the Adviser; |
• |
our access to confidential information which may restrict our ability to take action with respect to some investments; |
• |
restrictions on our ability to enter into transactions with our affiliates; |
• |
our ability to make investments that could give rise to a conflict of interest; |
• |
the risks associated with indemnity provisions in some of our agreements; |
• |
actual and potential conflicts associated with investments by 26North employees in us; |
• |
the Adviser's compliance with pay-to-playlaws, regulations and policies; |
• |
our ability to find or replace our administrator or sub-administrator(s)in the event of a resignation; |
1
• |
our ability to qualify and maintain our qualification as a BDC and as a regulated investment company ("RIC") under the Internal Revenue Code of 1986, as amended (the "Code"); |
• |
regulations governing our operations as a BDC and RIC which impact our ability to raise capital or borrow for investment purposes; |
• |
the impact on our business of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, as amended, and the rules and regulations issued thereunder; |
• |
our ability to manage risks associated with leverage and investing in middle-market companies and common or preferred equity securities; |
• |
the effect of changes to tax legislation and our tax position; |
• |
the tax status of the enterprises in which we may invest; |
• |
our ability and the ability of our portfolio companies to manage risks associated with an economic downturn and the time period required for robust economic recovery therefrom; |
• |
a contraction of available credit and/or an inability to access capital markets or additional sources of liquidity; |
• |
risks associated with possible disruption in our or our portfolio companies' operations due to wars and other forms of conflict, terrorist acts, security operations and catastrophic events or natural disasters, such as fires, floods, earthquakes, tornadoes, hurricanes and global health epidemics; |
• |
changes in political, economic or industry conditions, the interest rate environment, inflationary concerns, financial and capital markets, and other external factors, including pandemic-related or other widespread health crises, inflation, supply chain disruptions and geopolitical conflicts; and |
• |
other risks, uncertainties and other factors previously identified in our other filings with the Securities and Exchange Commission (the "SEC") that we make from time to time. |
Any forward-looking statement made by us in this Report speaks only as of the date of this Report. Factors or events that could cause our actual results to differ from our forward-looking statements may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. You are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the SEC, including annual reports on Form 10-K,quarterly reports on Form 10-Qand current reports on Form 8-K.The safe harbor provisions of Section 21E of the Securities Exchange Act of 1934, as amended (the "1934 Act"), which preclude civil liability for certain forward-looking statements, do not apply to the forward-looking statements in this Report because we are an investment company.
Unless indicated otherwise in this Report or the context so requires, references to "Company," "we," "us," and "our" mean 26North BDC, Inc. The terms "26N" and "26North" refer collectively to 26North Partners LP and its subsidiaries and affiliated entities. The terms "Adviser" and our "investment adviser" refer to 26North Direct Lending LP, our investment adviser. The terms "Administrator" and our "administrator" refer to 26North Direct Lending Administration LLC, our administrator.
2
ITEM 1.
|
FINANCIAL STATEMENTS
|
March 31,
2024 (Unaudited) |
December 31,
2023 |
|||||||
Assets
|
||||||||
Non-controlled/non-affiliated
investments at fair value (amortized cost $115,130 and $52,628, respectively)
|
$ | 114,847 | $ | 52,566 | ||||
Cash and cash equivalents
|
102,982 | 67,664 | ||||||
Expense reimbursement receivable
|
7,890 | 6,434 | ||||||
Deferred financing costs
|
3,907 | 4,121 | ||||||
Subscription receivable
|
3,481 | - | ||||||
Interest and other income receivable from
non-controlled/non-affiliated
investments
|
950 | 522 | ||||||
Deferred offering costs
|
801 | 1,194 | ||||||
Prepaid assets
|
114 | 168 | ||||||
Total Assets
|
$
|
234,972
|
$
|
132,669
|
||||
Liabilities
|
||||||||
Debt
|
77,730 | 52,250 | ||||||
Other liabilities and accrued expenses
|
4,918 | 4,443 | ||||||
Accrued organizational costs
|
2,812 | 2,842 | ||||||
Accrued administrative services expense payable
|
2,524 | 2,012 | ||||||
Interest payable
|
556 | 468 | ||||||
Due to affiliate
|
407 | 273 | ||||||
Management fees payable
|
170 | 90 | ||||||
Total Liabilities
|
$
|
89,117
|
$
|
62,378
|
||||
Commitments and contingencies (Note 7)
|
||||||||
Net Assets
|
||||||||
Common stock, $0.001 par value (1,000,000,000 shares authorized, 5,800,895 and 2,811,638 shares issued and outstanding, respectively)
|
$
|
6 |
$
|
3 | ||||
Additional
paid-in
capital
|
145,016 | 70,288 | ||||||
Distributable earnings (loss)
|
833 | - | ||||||
Total Net Assets
|
$
|
145,855
|
$
|
70,291
|
||||
Total Liabilities and Net Assets
|
$
|
234,972
|
$
|
132,669
|
||||
Net asset value per share
|
$ | 25.14 | $ | 25.00 |
For the
Three Months Ended
March 31, 2024
|
||||
Investment Income
|
||||
From
non-controlled/non-affiliated
investments:
|
||||
Interest income
|
$ | 2,655 | ||
Other income
|
196 | |||
Total Investment Income
|
2,851
|
|||
Expenses
|
||||
Interest and other debt expenses
|
976 | |||
Professional fees
|
890 | |||
Administrative service expenses
|
512 | |||
Offering costs
|
393 | |||
Other general and administrative expenses
|
312 | |||
Management fees
|
170 | |||
Total expenses
|
$
|
3,253
|
||
Less: Expense support (Note 3)
|
(1,456 | ) | ||
Net expenses
|
1,797
|
|||
Net investment income before excise tax
|
1,054
|
|||
Excise tax expense
|
- | |||
Net investment income after excise tax
|
1,054
|
|||
Realized and unrealized gain (loss):
|
||||
Net change in unrealized appreciation (depreciation):
|
||||
Non-controlled/non-affiliated
investments
|
(221
|
) | ||
Net change in unrealized appreciation (depreciation)
|
(221 | ) | ||
Net realized and unrealized gain (loss)
|
(221
|
)
|
||
Net Increase (Decrease) in Net Assets Resulting from Operations
|
$ | 833 | ||
Per share information - basic and diluted
|
||||
Net investment income (loss) per share (basic and diluted)
|
$ | 0.35 | ||
Earnings (loss) per share (basic and diluted)
|
$ | 0.27 | ||
Weighted average shares of common stock outstanding (basic and diluted)
|
3,041,581 |
Common Shares
|
Additional Paid-in
Capital |
Distributable
Earnings (Loss) |
Total Net
Assets |
|||||||||||||||||
Shares
|
Par Value
|
|||||||||||||||||||
Balance, December 31, 2023
|
2,811,638 | $ | 3 | $ | 70,288 | $ | - | $ | 70,291 | |||||||||||
Operations:
|
||||||||||||||||||||
Net investment income
|
- | - | - | 1,054 | 1,054 | |||||||||||||||
Net realized gain (loss) on investments
|
- | - | - | - | - | |||||||||||||||
Net unrealized appreciation (depreciation)
|
- | - | - | (221 | ) | (221 | ) | |||||||||||||
Net increase (decrease) in net assets resulting from operations
|
- | - | - | 833 | 833 | |||||||||||||||
Capital Share Transactions:
|
||||||||||||||||||||
Common shares issued from reinvestment of distributions
|
- | - | - | - | - | |||||||||||||||
Issuance of shares
|
2,989,257 | 3 | 74,728 | - | 74,731 | |||||||||||||||
Tax reclassification of stockholders' equity in accordance with U.S. GAAP
|
- | - | - | - | - | |||||||||||||||
Net increase (decrease) for the period
|
2,989,257 | 3 | 74,728 | - | 74,731 | |||||||||||||||
Balance, March 31, 2024
|
5,800,895 | $ | 6 | $ | 145,016 | $ | 833 | $ | 145,855 | |||||||||||
For the Three
Months Ended
March 31, 2024
|
||||
Cash Flows From Operating Activities:
|
||||
Net increase (decrease) in net assets resulting from operations
|
$ | 833 | ||
Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash provided by (used for) operating activities:
|
||||
Purchases of investments
|
(62,453 | ) | ||
Net change in unrealized (appreciation) depreciation on investments
|
221 | |||
Net accretion of discount
|
(49 | ) | ||
Amortization of deferred financing costs
|
214 | |||
Amortization of deferred offering costs
|
393 | |||
Changes in operating assets and liabilities:
|
||||
Expense reimbursement receivable
|
(1,456 | ) | ||
Interest and other income receivable from
non-controlled/non-affiliated
investments
|
(428 | ) | ||
Subscription receivable
|
(3,481 | ) | ||
Prepaid assets
|
54 | |||
Accrued organizational costs
|
(30 | ) | ||
Accrued administrative services expense payable
|
512 | |||
Other liabilities and accrued expenses
|
475 | |||
Interest payable
|
88 | |||
Due to affiliate
|
134 | |||
Management fees payable
|
80 | |||
Net cash provided by (used for) operating activities
|
(64,893
|
)
|
||
Cash Flows From Financing Activities:
|
||||
Proceeds from issuance of common shares
|
74,731 | |||
Borrowings on debt
|
77,730 | |||
Payment of debt
|
(52,250 | ) | ||
Net cash provided by (used for) financing activities
|
100,211
|
|||
Net increase (decrease) in cash and cash equivalents
|
35,318 | |||
Cash and cash equivalents, beginning of period
|
67,664 | |||
Cash and cash equivalents, end of period
|
$ | 102,982 | ||
Supplemental disclosure of cash flow and
non-cash
activities:
|
||||
Interest paid during the period
|
$ | 674 |
Portfolio Company
(1)(6)
|
Investment
Type
|
Industry
|
Reference
Rate Spread
(4)
|
Interest
Rate |
Maturity
Date |
Par Amount/
Shares |
Amortized
Cost
(5)
|
Fair
Value |
Percentage
of Net Assets |
|||||||||||||||||||
Debt Investments
|
||||||||||||||||||||||||||||
Azurite Intermediate Holdings,
Inc
.(2)
|
First Lien Senior Secured Term Loan | IT Services |
SOFR + 6.500%
|
11.826
|
%
|
03/19/2031
|
$
|
5,708
|
$
|
5,623
|
$
|
5,623
|
3.85
|
%
|
||||||||||||||
Azurite Intermediate Holdings, Inc.
(2)(3)(7)
|
First Lien Senior Secured Delayed Draw Term Loan | IT Services |
SOFR + 6.500%
|
03/19/2031
|
-
|
(97
|
)
|
(195
|
)
|
(0.13
|
)%
|
|||||||||||||||||
Azurite Intermediate Holdings, Inc.
(2)(3)(7)
|
First Lien Senior Secured Revolving Loan | IT Services |
SOFR + 6.500%
|
03/19/2031
|
-
|
(31
|
)
|
(31
|
)
|
(0.02
|
)%
|
|||||||||||||||||
CPEX Purchaser, LLC
(2)
|
First Lien Senior Secured Term Loan | Software |
SOFR + 6.000%
|
11.331
|
%
|
03/01/2030
|
33,042
|
32,389
|
32,382
|
22.20
|
%
|
|||||||||||||||||
CPEX Purchaser, LLC
(2)(3)
|
First Lien Senior Secured Delayed Draw Term Loan | Software |
SOFR + 6.000%
|
03/01/2030
|
-
|
(194
|
)
|
(196
|
)
|
(0.13
|
)%
|
|||||||||||||||||
CPEX Purchaser, LLC
(2)(3
)
(7)
|
First Lien Senior Secured Revolving Loan | Software |
SOFR + 6.000%
|
03/01/2030
|
-
|
-
|
(75
|
)
|
(0.05
|
)%
|
||||||||||||||||||
Icefall Parent, Inc.
(2)
|
First Lien Senior Secured Term Loan | Diversified Financial Services |
SOFR + 6.500%
|
11.802
|
%
|
01/25/2030
|
24,937
|
24,454
|
24,438
|
16.76
|
%
|
|||||||||||||||||
Icefall Parent, Inc.
(2)(3)(7)
|
First Lien Senior Secured Revolving Loan | Diversified Financial Services |
SOFR + 6.500%
|
01/25/2030
|
-
|
(46
|
)
|
(47
|
)
|
(0.03
|
)%
|
|||||||||||||||||
Penn TRGRP Holdings
LLC
(2)
|
First Lien Senior Secured Term Loan | Diversified Financial Services |
SOFR + 7.750%
|
13.059
|
%
|
09/27/2030
|
25,225
|
24,737
|
24,720
|
16.95
|
%
|
|||||||||||||||||
Penn TRGRP Holdings LLC
(2)(3)
|
First Lien Senior Secured Delayed Draw Term Loan | Diversified Financial Services |
SOFR + 7.750%
|
13.059
|
%
|
09/27/2030
|
677
|
677
|
646
|
0.44
|
%
|
|||||||||||||||||
Penn TRGRP Holdings LLC
(2)(3)(7)
|
First Lien Senior Secured Revolving Loan | Diversified Financial Services |
SOFR + 6.750%
|
09/27/2030
|
-
|
(72
|
)
|
(78
|
)
|
(0.05
|
)%
|
|||||||||||||||||
Serrano Parent, LLC
(2)
|
First Lien Senior Secured Term Loan | IT Services |
SOFR + 6.500%
|
11.810
|
%
|
05/13/2030
|
28,297
|
27,690
|
27,660
|
18.96
|
%
|
|||||||||||||||||
Total Investments
|
$
|
115,130
|
$
|
114,847
|
78.75
|
%
|
||||||||||||||||||||||
(1)
|
All investments are pledged as collateral under the JPM Facility. See Note 6. Borrowings in the Notes to the Consolidated Financial Statements.
|
(2)
|
These investments were valued using unobservable inputs and are considered Level 3 investments. Fair value was determined in good faith by the Adviser, as the Company's valuation designee, in accordance with the Company's valuation policy. See Note 2. Significant Accounting Policies and Note 5. Fair Value Measurements in the Notes to the Consolidated Financial Statements.
|
(3)
|
Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion, although the investment may be subject to an unused commitment fee. Negative cost and fair value results from unamortized fees, which are capitalized to the investment cost. The unfunded loan commitment may be subject to a commitment termination date that may expire prior to the maturity date stated. See Note 7. Commitments and Contingencies in the Notes to the Consolidated Financial Statements.
|
(4)
|
Unless otherwise indicated, the interest rate on the principal balance outstanding for all floating rate loans is indexed to the Term Secured Overnight Financing Rate ("SOFR"), which typically resets semiannually, quarterly, or monthly at the borrower's option. The applicable base rate may be subject to a floor. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, we have provided the applicable margin over the reference rate based on each respective credit agreement. As of March 31, 2024, the reference rates for the floating rate loans were the 1 Month SOFR of 5.32%, 3 Month SOFR of 5.35% and 6 Month SOFR of 5.39%.
|
(5)
|
The cost represents the original cost adjusted for the amortization of discounts and premiums, as applicable, on debt investments using the effective interest method.
|
(6)
|
Under Section 55(a) of the Investment Company Act, the Company may not acquire any
non-qualifying
asset unless, at the time of acquisition, qualifying assets represent at least 70% of the Company's total assets. As of March 31, 2024, the Company had no
non-qualifying
assets.
|
(7)
|
Unfunded loan commitment is subject to a 0.50% unused commitment fee.
|
Portfolio Company
(1)(6)
|
Investment
Type
|
Industry
|
Reference
Rate Spread
(4)
|
Interest
Rate |
Maturity
Date |
Par Amount/
Shares |
Amortized
Cost
(5)
|
Fair
Value |
Percentage
of Net Assets |
|||||||||||||||||||
Debt Investments
|
||||||||||||||||||||||||||||
Penn TRGRP
Holdings LLC
(2)
|
First Lien Senior Secured Term Loan | Diversified Financial Services | SOFR + 7.750% | 13.098 | % | 09/27/2030 | $ | 25,225 | $ | 24,737 | $ | 24,720 | 35.17 | % | ||||||||||||||
Penn TRGRP
Holdings LLC
(2)(3)
|
First Lien Senior Secured Delayed Draw Term Loan | Diversified Financial Services | SOFR + 6.750% | 12.098 | % | 09/27/2030 | 294 | 294 | 264 | 0.38 | % | |||||||||||||||||
Penn TRGRP
Holdings LLC
(2)(3)(7)
|
First Lien Senior Secured Revolving Loan | Diversified Financial Services | SOFR + 6.750% | 09/27/2030 | - | (75 | ) | (78 | ) | (0.11 | )% | |||||||||||||||||
Serrano Parent,
LLC
(2)
|
First Lien Senior Secured Term Loan | IT Services | SOFR + 6.500% | 11.880 | % | 5/12/2030 | 28,297 | 27,672 | 27,660 | 39.35 | % | |||||||||||||||||
Total Investments
|
$ | 52,628 | $ | 52,566 | 74.79 | % |
(1)
|
All investments are pledged as collateral under the JPM Facility. See Note 6. Borrowings in the Notes to the Consolidated Financial Statements.
|
(2)
|
These investments were valued using unobservable inputs and are considered Level 3 investments. Fair value was determined in good faith by the Adviser, as the Company's valuation designee, in accordance with the Company's valuation policy. See Note 2. Significant Accounting Policies and Note 5. Fair Value Measurements in the Notes to the Consolidated Financial Statements.
|
(3)
|
Position or portion thereof is an unfunded loan commitment, and no interest is being earned on the unfunded portion, although the investment may be subject to an unused commitment fee. Negative cost and fair value results from unamortized fees, which are capitalized to the investment cost. The unfunded loan commitment may be subject to a commitment termination date that may expire prior to the maturity date stated. See Note 7. Commitments and Contingencies in the Notes to the Consolidated Financial Statements.
|
(4)
|
Unless otherwise indicated, the interest rate on the principal balance outstanding for all floating rate loans is indexed to the Term Secured Overnight Financing Rate ("SOFR"), which typically resets semiannually, quarterly, or monthly at the borrower's option. The applicable base rate may be subject to a floor. The borrower may also elect to have multiple interest reset periods for each loan. For each of these loans, we have provided the applicable margin over the reference rate based on each respective credit agreement. As of December 31, 2023, the reference rates for the floating rate loans were the 1 Month SOFR of 5.35%, 3 Month SOFR of 5.33% and 6 Month SOFR of 5.16%.
|
(5)
|
The cost represents the original cost adjusted for the amortization of discounts and premiums, as applicable, on debt investments using the effective interest method.
|
(6)
|
Under Section 55(a) of the Investment Company Act, the Company may not acquire any
non-qualifying
asset unless, at the time of acquisition, qualifying assets represent at least 70% of the Company's total assets. As of December 31, 2023, the Company had no
non-qualifying
assets.
|
(7)
|
Unfunded loan commitment is subject to a 0.50% unused commitment fee.
|
•
|
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity can access at the measurement date. An active market is defined as a market in which transactions for the financial instrument occur with sufficient pricing information on an ongoing basis. Equity securities, including preferred stock, that are traded on major securities exchanges and publicly traded equity options are generally valued using Level 1 inputs.
|
•
|
Level 2: Quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active, or other observable inputs other than quoted prices. Level 2 inputs include: (i) quoted prices for similar instruments in active markets; (ii) quoted prices for identical or similar instruments in markets that are not active; (iii) inputs that are derived principally from or corroborated by observable market data by correlation or other means (market-corroborated inputs); and (iv) inputs other than quoted prices that are observable for the instrument. Loans and debt securities where there is an observable secondary trading market and through which pricing inputs are available through pricing services or broker quotes generally are valued using Level 2 inputs. Instruments valued using Level 2 inputs will be priced based on
bid-ask
prices that can be observed in the marketplace. It is not required that fair value always be a predetermined point in the
bid-ask
range. The policy is to allow for
mid-market
pricing and adjusting to the point within the
bid-ask
range that meets the best estimate of fair value.
|
•
|
Level 3: Unobservable inputs for the asset or liability. The inputs into the determination of fair value are based upon the best information available and may require significant management judgment or estimation. Tightly held bank debt positions, where there are no broker quotes available, would be valued using Level 3 inputs such as internally generated pricing models.
|
• |
No Investment Income Incentive Fee is payable to the Adviser in any calendar quarter in which the
Pre-Incentive
Fee Net Investment Income does not exceed the Hurdle Amount for such calendar quarter;
|
• |
100% of the
Pre-Incentive
Fee Net Investment Income with respect to that portion of such
Pre-Incentive
Fee Net Investment Income, if any, that exceeds the Hurdle Amount but is less than 1.6667% (1.8182% in the event of an Exchange Listing) for that calendar quarter is payable to the Adviser. The Company refers to this portion of its
Pre-Incentive
Fee Net Investment Income as the
"catch-up";
and
|
• |
10% (17.5% in the event of an Exchange Listing) of the Company's
Pre-Incentive
Fee Net Investment Income, if any, that exceeds 1.6667% (1.8182% following an Exchange Listing) in any calendar quarter is payable to the Adviser.
|
March 31, 2024
|
December 31, 2023
|
|||||||||||||||
Amortized Cost
|
Fair Value
|
Amortized Cost
|
Fair Value
|
|||||||||||||
First Lien Senior Secured
|
$ | 115,130 | $ | 114,847 | $ | 52,628 | $ | 52,566 | ||||||||
Total investments
|
$ | 115,130 | $ | 114,847 | $ | 52,628 | $ | 52,566 | ||||||||
March 31, 2024
|
December 31, 2023
|
|||||||
Diversified Financial Services
|
43.2 | % | 47.4 | % | ||||
IT Services
|
28.8 | % | 52.6 | % | ||||
Software
|
28.0 | % | 0.0 | % | ||||
Total
|
100.0 | % | 100.0 | % | ||||
March 31, 2024
|
December 31, 2023
|
|||||||
United States
|
100.0 | % | 100.0 | % | ||||
Total
|
100.0 | % | 100.0 | % | ||||
March 31, 2024
|
||||||||||||||||
Assets
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
First Lien Secured
|
$ | - | $ | - | $ | 114,847 | $ | 114,847 | ||||||||
Cash and Cash Equivalents
|
102,982 | - | - | 102,982 | ||||||||||||
Total Portfolio Investments, Cash and Cash Equivalents
|
$ | 102,982 | $ | - | $ | 114,847 | $ | 217,829 | ||||||||
December 31, 2023
|
||||||||||||||||
Assets
|
Level 1
|
Level 2
|
Level 3
|
Total
|
||||||||||||
First Lien Secured
|
$ | - | $ | - | $ | 52,566 | $ | 52,566 | ||||||||
Cash and Cash Equivalents
|
67,664 | - | - | 67,664 | ||||||||||||
Total Portfolio Investments, Cash and Cash Equivalents
|
$ | 67,664 | $ | - | $ | 52,566 | $ | 120,230 | ||||||||
Three Months Ended March 31, 2024:
|
First Lien Senior Secured
|
Total
|
||||||
Fair value, beginning of period
|
$
|
52,566
|
$
|
52,566
|
||||
Purchase of investments (including PIK, if any)
|
62,453
|
62,453
|
||||||
Proceeds from principal repayments and sales of investments
|
-
|
-
|
||||||
Amortization of premium/accretion of discount, net
|
49
|
49
|
||||||
Net realized gain (loss) on investments
|
-
|
-
|
||||||
Net change in unrealized appreciation (depreciation) on investments
|
(221
|
)
|
(221
|
)
|
||||
Transfers out of Level 3
|
-
|
-
|
||||||
Transfers to Level 3
|
-
|
-
|
||||||
Fair value, end of period
|
$
|
114,847
|
$
|
114,847
|
||||
Net change in unrealized appreciation (depreciation) on
non-controlled/
non-affiliated
company investments still held at March 31, 2024
|
$
|
(221
|
)
|
$
|
(221
|
)
|
||
Period Ended December 31, 2023:
|
First Lien Senior Secured
|
Total
|
||||||
Fair value, beginning of period
|
$
|
-
|
$
|
-
|
||||
Purchase of investments (including PIK, if any)
|
52,597
|
52,597
|
||||||
Proceeds from principal repayments and sales of investments
|
-
|
-
|
||||||
Amortization of premium/accretion of discount, net
|
31
|
31
|
||||||
Net realized gain (loss) on investments
|
-
|
-
|
||||||
Net change in unrealized appreciation (depreciation) on investments
|
(62
|
)
|
(62
|
)
|
||||
Transfers out of Level 3
|
-
|
-
|
||||||
Transfers to Level 3
|
-
|
-
|
||||||
Fair value, end of period
|
$
|
52,566
|
$
|
52,566
|
||||
Net change in unrealized appreciation (depreciation) on
non-controlled/
non-affiliated
company investments still held at December 31, 2023
|
$
|
(62
|
)
|
$
|
(62
|
)
|
||
Asset Class
|
Fair Value
as of
3/31/24
|
Valuation
Techniques
|
Significant
Unobservable Inputs
|
Range of Significant
Unobservable
Inputs
|
Weighted
Average
(1)
|
|||||||||||||||
First Lien Senior Secured
|
$
|
114,847
|
Income Approach
|
Discount Rate
|
11.65% - 12.40%
|
11.88
|
%
|
|||||||||||||
$
|
114,847
|
|||||||||||||||||||
Asset Class
|
Fair Value
as of
12/31/23
|
Valuation
Techniques
|
Significant
Unobservable Inputs
|
Range of Significant
Unobservable
Inputs
|
Weighted
Average
(1)
|
|||||||||||||||
First Lien Senior Secured
|
$
|
52,566
|
Income Approach
|
Discount Rate
|
11.17% - 11.36%
|
11.26
|
%
|
|||||||||||||
$
|
52,566
|
|||||||||||||||||||
(1) |
Weighted average is calculated by weighing the significant unobservable input by the relative fair value of each investment in the category.
|
Aggregated
Principal
Committed
|
Outstanding
Principal
|
Unused
Portion
(1)
|
Maturity Date
|
|||||||||||||
JPM Facility
|
$ | 200,000 | $ | 77,730 | $ | 122,270 | 10/18/2028 | |||||||||
Total
|
$ | 200,000 | $ | 77,730 | $ | 122,270 | ||||||||||
Aggregated
Principal
Committed
|
Outstanding
Principal
|
Unused
Portion
(1)
|
Maturity Date
|
|||||||||||||
JPM Facility
|
$ | 200,000 | $ | 52,250 | $ | 147,750 | 10/18/2028 | |||||||||
Total
|
$ | 200,000 | $ | 52,250 | $ | 147,750 | ||||||||||
(1) |
The unused portion is the amount upon which commitment fees are based, if any.
|
For the Three
Months Ended
March 31, 2024
|
||||
Stated interest expense
|
$ | 521 | ||
Unused/undrawn fees
|
241 | |||
Amortization of deferred financing costs
|
214 | |||
Total interest expense
|
$ | 976 | ||
Average borrowings
|
$ | 25,508 | ||
Weighted average interest rate
(1)
|
11.98 | % | ||
Amortization of deferred financing costs
|
3.36 | % | ||
Total borrowing costs
|
15.34 | % |
(1) |
Calculated as the sum of stated interest expense and unused/undrawn fees divided by the average borrowings during the period. This number represents an annualized amount.
|
March 31, 2024
|
December 31, 2023
|
|||||||||||||||||||||||
Capital
Commitments
|
Unfunded
Capital
Commitments
|
% of Capital
Commitments
Funded
|
Capital
Commitments
|
Unfunded Capital
Commitments
|
% of Capital
Commitments
Funded
|
|||||||||||||||||||
Common Stock
|
$
|
1,443,918
|
$
|
1,298,896
|
10.04
|
%
|
$
|
1,403,018
|
$
|
1,332,727
|
5.01
|
%
|
||||||||||||
Unfunded Commitment Balances
|
||||||||||||||
Commitment Type
|
Commitment
Expiration Date
|
March 31, 2024
|
December 31, 2023
|
|||||||||||
Azurite Intermediate Holdings, Inc.
|
First Lien Senior Secured Delayed Draw Term Loan
|
3/19/2031
|
$
|
12,973
|
$
|
-
|
||||||||
Azurite Intermediate Holdings, Inc.
|
First Lien Senior Secured Revolving Loan
|
3/19/2031
|
2,076
|
-
|
||||||||||
CPEX Purchaser, LLC
|
First Lien Senior Secured
Delayed Draw Term Loan
|
03/01/2030
|
3,727
|
-
|
||||||||||
CPEX Purchaser, LLC
|
First Lien Senior Secured Revolving Loan
|
03/01/2030
|
9,818
|
-
|
||||||||||
Icefall Parent, Inc.
|
First Lien Senior Secured Revolving Loan
|
01/25/2030
|
2,375
|
-
|
||||||||||
Penn TRGRP Holdings LLC
|
First Lien Senior Secured Delayed Draw Term Loan
|
09/27/2024
|
875
|
1,258
|
||||||||||
Penn TRGRP Holdings LLC
|
First Lien Senior Secured Revolving Loan
|
09/27/2030
|
3,881
|
3,881
|
||||||||||
Total
|
$
|
35,725
|
$
|
5,139
|
||||||||||
Common Stock
Issuance Date
|
Number of Shares of
Common Stock Issued
|
Aggregate
Offering Proceeds
|
||||||
March 25, 2024
(1)
|
2,989,257 | $ | 74,731 | |||||
Total
|
2,989,257 | $ | 74,731 | |||||
(1) |
On March 15, 2024, the Company issued a capital call and delivered capital drawdown notices totaling $74.7 million, of which $3.5 million was still outstanding as of March 31, 2024 and recorded as a subscription receivable on the Consolidated Statements of Assets and Liabilities.
|
For the Three
Months Ended
March 31, 2024
|
||||
Net increase (decrease) in net assets resulting from operations
|
$ | 833 | ||
Weighted average shares of common stock outstanding (basic and diluted)
|
3,041,581 | |||
Earnings (loss) per share
|
$ | 0.27 |
For the Three Months
Ended
March 31, 2024
|
||||
Per share data:
|
||||
Net asset value, beginning of period
|
$ | 25.00 | ||
Net investment income (loss)
(1)
|
0.35 | |||
Net realized and unrealized gain (loss)
(2)
|
(0.21 | ) | ||
Net increase (decrease) in net assets from operations
|
0.14 | |||
Distributions declared
(
3
)
|
- | |||
Total increase (decrease) in net assets
|
0.14 | |||
Net asset value, end of period
|
$ | 25.14 | ||
Shares Outstanding, end of period
|
5,800,895 | |||
Total Return
(
4
)
|
0.56 | % | ||
Ratios
|
||||
Ratio of net expenses to average net assets
(
5
)
|
9.48 | % | ||
Ratio of net investment income (loss) to average net assets
(
5
)
|
5.56 | % | ||
Portfolio turnover rate
(
6
)
|
0.00 | % | ||
Supplemental Data
|
||||
Net Assets, end of period
|
$ | 145,855 | ||
Weighted average shares outstanding
|
3,041,581 | |||
Total capital commitments, end of period
|
$ | 1,443,918 | ||
Average debt outstanding
|
$ | 25,508 | ||
Asset coverage ratio
|
287.6 | % | ||
Ratio of total contributed capital to total committed capital, end of period
|
10.04 | % |
(1)
|
The per share data was derived by using the weighted average shares outstanding during the period.
|
(2)
|
For the three months ended March 31, 2024, the amount shown does not correspond with the aggregate amount for the period as it includes the effect of the timing of capital transactions.
|
(3)
|
The per share data for distributions was derived by using the actual shares outstanding at the date of the relevant transactions (refer to Note 8).
|
(4)
|
Total return is calculated as the change in NAV per share during the period, plus distributions per share, if any, divided by the NAV per share at the beginning of the period. Total return is for the period indicated and has not been annualized.
|
(5)
|
Amounts are annualized except for organizational costs and expense support amounts relating to organizational costs. For the three months ended March 31, 2024, the ratio of total operating expenses to average net assets was
15.60%, on an annualized basis, excluding the effect of expense support/(recoupment) by the Adviser which represented 6.12% of average net assets.
|
(6)
|
Portfolio turnover rate is calculated using the lesser of total sales or total purchases over the average of the investments at fair value for the period reported.
|
ITEM 2. |
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The information in this section contains forward-looking statements that involve risks and uncertainties. Please see "Risk Factors" and "Forward-Looking Statements" for a discussion of the uncertainties, risks and assumptions associated with these statements. You should read the following discussion in conjunction with the consolidated financial statements and related notes and other financial information appearing elsewhere in this Report.
The following discussion is designed to provide a better understanding of our financial statements, including a brief discussion of our business, key factors that impacted our performance and a summary of our operating results. The following discussion should be read in conjunction with the consolidated financial statements and the notes thereto included or incorporated by reference in Item 6 of this Report. Historical results and percentage relationships among any amounts in the financial statements are not necessarily indicative of trends in operating results for any future periods.
Overview of Our Business
We were formed on October 13, 2022 as a Maryland corporation. On October 11, 2023, we commenced operations and on October 18, 2023, we made our first portfolio company investment. We are externally managed by our Adviser, 26North Direct Lending LP, an investment adviser that is registered with the SEC under the Advisers Act. As an externally managed BDC, we do not have any employees, and our investment and management functions are provided by an outside investment adviser and administrator under an advisory agreement and administration agreement. Instead of directly compensating employees, we pay the Adviser for investment and management services pursuant to the terms of the Investment Advisory Agreement. 26North Direct Lending Administration LLC serves as our Administrator. The Administrator provides the administrative services necessary for us to operate pursuant to the Administration Agreement. The Administrator has entered into a sub-administrationagreement with SEI pursuant to which SEI receives compensation for its services.
Our investment objective is to generate current income and, to a lesser extent, capital appreciation. We invest primarily in directly originated senior secured loans to middle market companies domiciled in the United States. The Company's portfolio consists primarily of direct originations of (i) first lien senior secured debt and unitranche debt (including last out portions of such loans) and, to a lesser extent, (ii) second lien senior secured debt and unsecured debt, including mezzanine debt. In connection with its debt investments, the Company is permitted to receive equity warrants or make select equity co-investments.We generally consider middle market companies to consist of companies with between $25 million and $100 million of annual EBITDA, although the Company may from time to time invest in larger or smaller companies.
Although we invest primarily in middle market companies domiciled in the United States, we also may from time to time invest, to a lesser extent, in companies domiciled outside of the United States (subject to compliance with BDC requirements to invest at least 70% of our assets in United States companies).
As of March 31, 2024 and December 31, 2023, the weighted average yield on the principal amount of our outstanding debt investments was approximately 11.9% and 12.5%, respectively.
Portfolio Composition
The total value of our investment portfolio was $114.8 million as of March 31, 2024, as compared to $52.6 million as of December 31, 2023. As of March 31, 2024, we had investments in five portfolio companies with an aggregate cost of $115.1 million. As of December 31, 2023, we had investments in two portfolio companies with an aggregate cost of $52.6 million. As of March 31, 2024 and December 31, 2024, the number of our portfolio companies that represented greater than 10% of the total fair value of our investment portfolio was four and two, respectively.
As of March 31, 2024, our investment portfolio consisted of the following investments (amounts in thousands):
Amortized Cost |
Percentage of Total Portfolio |
Fair Value |
Percentage of Total Portfolio |
|||||||||||||
Senior debt and 1st lien notes |
$ | 115,130 | 100 | % | $ | 114,847 | 100 | % | ||||||||
$ | 115,130 | 100 | % | $ | 114,847 | 100 | % | |||||||||
24
As of December 31, 2023, our investment portfolio consisted of the following investments (amounts in thousands):
Amortized Cost |
Percentage of Total Portfolio |
Fair Value |
Percentage of Total Portfolio |
|||||||||||||
Senior debt and 1st lien notes |
$ | 52,628 | 100 | % | $ | 52,566 | 100 | % | ||||||||
$ | 52,628 | 100 | % | $ | 52,566 | 100 | % | |||||||||
Investment Activity
During the three months ended March 31, 2024, we made three new investments totaling $62.1 million and made investments in existing portfolio companies of $0.4 million. During the three months ended March 31, 2024, we had no investment realization activity.
Total portfolio investment activity for the three months ended March 31, 2024 was as follows (amounts in thousands):
Senior Debt and 1st Lien Notes | Total | |||||||
Fair value, beginning of period |
$ | 52,566 | $ | 52,566 | ||||
New investments |
62,453 | 62,453 | ||||||
Accretion of loan premium/discount net |
49 | 49 | ||||||
Unrealized appreciation (depreciation) |
(221 | ) | (221 | ) | ||||
Fair value, end of period |
$ | 114,847 | $ | 114,847 | ||||
Our Adviser monitors on an ongoing basis, the financial trends of each portfolio company to determine if it is meeting its respective business plan and to assess the appropriate course of action for each company. Our Adviser has several methods of evaluating and monitoring the performance and fair value of our investments, which may include the following: (i) assessment of success in adhering to the portfolio company's business plan and compliance with covenants; (ii) periodic or regular contact with portfolio company management and, if appropriate, the financial or strategic sponsor to discuss financial position, requirements and accomplishments; (iii) comparisons to our other portfolio companies in the industry, if any; (iv) attendance at and participation in board meetings or presentations by portfolio companies; and (v) review of monthly and quarterly financial statements and financial projections of portfolio companies.
As part of the monitoring process, our Adviser also employs an investment rating system to categorize our investments. In addition to various risk management and monitoring tools, our Adviser grades the credit risk of all investments on a scale of 1 to 4 no less frequently than quarterly. This system is intended primarily to reflect the underlying risk of a portfolio investment relative to our initial cost basis in respect of such portfolio investment (i.e., at the time of origination or acquisition), although it may also take into account in certain circumstances the performance of the portfolio company's business, the collateral coverage of the investment and other relevant factors. The grading system for our investments is as follows:
• |
Grade 1 investments involve the least amount of risk to our initial cost basis. The trends and risk factors for this investment since origination or acquisition are generally favorable, which may include the performance of the portfolio company or a potential exit; |
• |
Grade 2 investments involve a level of risk to our initial cost basis that is similar to the risk to our initial cost basis at the time of origination or acquisition. This portfolio company is generally performing as expected and the risk factors to our ability to ultimately recoup the cost of our investment are neutral to favorable. All investments or acquired investments in new portfolio companies are initially assessed a grade of 2; |
• |
Grade 3 investments indicate that the risk to our ability to recoup the initial cost basis of such investment has increased materially since origination or acquisition, including as a result of factors such as declining performance and non-compliancewith debt covenants; however, payments are generally not significantly past due; and |
• |
Grade 4 investments indicate that the risk to our ability to recoup the initial cost basis of such investment has substantially increased since origination or acquisition, and the portfolio company likely has materially declining performance. For debt investments with an investment grade of 4, in most cases, most or all of the debt covenants are out of compliance and payments are substantially delinquent. For investments graded 4, it is anticipated that we will not recoup our initial cost basis and may realize a substantial loss of our initial cost basis upon exit. |
25
Our Adviser grades the investments in our portfolio at least each quarter and it is possible that the grade of a portfolio investment may be reduced or increased over time. For investments with a grade of 3 or 4, the Adviser enhances its level of scrutiny over the monitoring of such portfolio company. The following table shows the composition of our portfolio (excluding investments in money market funds, if any) on the 1 to 4 grading scale as of March 31, 2024 and December 31, 2023 (amounts in thousands).
March 31, 2024 | December 31, 2023 | |||||||||||||||
Investment Performance Rating |
Fair Value |
Percentage of Total |
Fair Value |
Percentage of Total |
||||||||||||
Grade 1 |
$ | - | 0.0 | % | $ | - | 0.0 | % | ||||||||
Grade 2 |
114,847 | 100.0 | % | 52,566 | 100.0 | % | ||||||||||
Grade 3 |
- | 0.0 | % | - | 0.0 | % | ||||||||||
Grade 4 |
- | 0.0 | % | - | 0.0 | % | ||||||||||
Total Investments |
$ | 114,847 | 100.0 | % | $ | 52,566 | 100.0 | % | ||||||||
Non-AccrualAssets
Generally, when interest and/or principal payments on a loan become past due, or if we otherwise do not expect the borrower to be able to service its debt and other obligations, we will place the loan on non-accrualstatus and will generally cease recognizing interest income on that loan for financial reporting purposes until all principal and interest have been brought current through payment or due to a restructuring such that the interest income is deemed to be collectible. As of March 31, 2024, and December 31, 2023 we had no non-accrualassets.
Results of Operations
For the three months ended March 31, 2024
Comparative financial statements are not presented as we had yet to be capitalized as of March 31, 2023 and had neither incurred expenses nor generated revenues for the three months ended March 31, 2023. We were initially capitalized on September 7, 2023 and commenced our operations on October 11, 2023. The following table represents the operating results for the three months ended March 31, 2024 (amounts in thousands):
Total investment income |
$ | 2,851 | ||
Net operating expenses |
1,797 | |||
Net investment income before excise tax |
1,054 | |||
Excise tax expense |
- | |||
Net investment income after excise tax |
1,054 | |||
Net unrealized appreciation / (depreciation) |
(221 | ) | ||
Net increase in net assets resulting from operations |
$ | 833 | ||
Net increases in net assets resulting from operations can vary substantially from period to period due to various factors, including recognition of realized gains and losses and unrealized appreciation and depreciation. As a result, comparisons of net changes in net assets resulting from operations may not be meaningful (amounts in thousands).
Investment Income
For the Three Months Ended March 31, 2024 |
||||
Total interest income |
$ | 2,655 | ||
Total other income |
196 | |||
Total investment income |
$ | 2,851 | ||
26
Investment income for the three months ended March 31, 2024 was driven by our deployment of capital and an increasing invested balance.
Operating Expenses (amounts in thousands)
For the Three Months Ended March 31, 2024 |
||||
Interest and other debt expenses |
$ | 976 | ||
Professional fees |
890 | |||
Administrative service expenses |
512 | |||
Offering costs |
393 | |||
Other general and administrative expenses |
312 | |||
Management fees |
170 | |||
Total expenses |
$ | 3,253 | ||
Less: Expense support |
(1,456 | ) | ||
Net expenses |
$ | 1,797 | ||
Professional Fees
Professional fees include legal, audit, tax, valuation, technology and other professional fees incurred related to the management of the Company. For the three months ended March 31, 2024, the Company incurred $0.9 million in professional fees.
Administrative Service Expenses
Administrative service expenses represent fees paid to the Administrator for our allocable portion of overhead and other expenses incurred by the Administrator in performing its obligations under the administration agreement, including our allocable portion of the cost of certain of our executive officers and other non-investmentprofessionals that perform duties for us. See Note 3. Significant Agreements and Related Party Transactions to our Consolidated Financial Statements for additional information regarding the Administration Agreement and the administrative fees thereunder. For the three months ended March 31, 2024, the Company incurred $0.5 million of administrative service expenses.
Interest and Other Debt Expenses
Interest and other financing fees for the three months ended March 31, 2024 were attributable to borrowings under the JPM Facility (as discussed below under "Liquidity and Capital Resources"). For the three months ended March 31, 2024, the Company incurred $1.0 million in interest and other debt expenses.
Offering Costs
Costs associated with the offering of common shares of the Company are capitalized as deferred offering costs and included on the Consolidated Statement of Assets and Liabilities and amortized over a twelve-month period. For the three months ended March 31, 2024, the Company incurred $0.4 million in offering costs.
Other General and Administrative Expenses
Other general and administrative expenses include director fees, insurance, filing, research, our sub-administrator,subscriptions and other costs. For the three months ended March 31, 2024, the Company incurred $0.3 million in other general and administrative expenses.
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Compensation of the Adviser
We pay the Adviser an investment advisory fee for its services under the Investment Advisory Agreement consisting of two components: a Management Fee and an Incentive Fee. The cost of both the Management Fee and the Incentive Fee is ultimately borne by the Stockholders.
Management Fee
The Management Fee is payable quarterly in arrears. The Management Fee is payable at an annual rate of 0.75% (1.00% in the event of an Exchange Listing) of the average value of our gross assets at the end of each of our two most recently completed calendar quarters. For purposes of calculating the Management Fee, "gross assets" means the total assets of the Company determined on a consolidated basis in accordance with GAAP, excluding cash and cash equivalents but including assets purchased with borrowed amounts.
The Management Fee for any partial quarter will be appropriately prorated and adjusted for any share issuances or repurchases of our Common Stock during the relevant calendar quarter. For the quarter ended December 31, 2023, our first quarter-end following the commencement of operations, the Management Fee was calculated based on the value of our gross assets as of such quarter-end.
See Note 3 to our Consolidated Financial Statements for additional information regarding the Investment Advisory Agreement and the fee arrangement thereunder. For the three months ended March 31, 2024, the Company incurred Management Fees of $0.2 million.
Incentive Fees
We pay to the Adviser an Incentive Fee that consists of two parts. The Investment Income Incentive Fee is calculated and payable on a quarterly basis, in arrears, and equals 10% (17.5% in the event of an Exchange Listing) of "Pre-IncentiveFee Net Investment Income" for the immediately preceding calendar quarter, subject to a quarterly preferred return of 1.5% (i.e., 6.0% annualized), or "Hurdle," measured on a quarterly basis and a "catch-up"feature.
"Pre-IncentiveFee Net Investment Income" means interest income, dividend income and any other income (including any accrued income that the Company has not yet received in cash and any other fees such as commitment, origination, structuring, diligence and consulting fees or other fees that the Company receives from portfolio companies) accrued during the calendar quarter minus the Company's operating expenses accrued during the calendar quarter (including the Management Fee, administrative expenses and any interest expense and dividends paid on issued and outstanding preferred stock, but excluding the Incentive Fee).
Pre-IncentiveFee Net Investment Income for the immediately preceding calendar quarter, expressed as a rate of return on the value of our net assets at the beginning of the immediately preceding calendar quarter, is compared to a "Hurdle Amount" equal to the product of (i) the Hurdle rate of 1.50% per quarter (6.0% annualized) and (ii) 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 the immediately preceding calendar quarter.
The Capital Gains Incentive Fee is an annual fee that is determined and payable, in arrears, as of the end of each calendar year (or upon termination of the Investment Advisory Agreement) in an amount equal to 10% (17.5% following an Exchange Listing) of realized capital gains, if any, determined on a cumulative basis from the commencement of the Company's investment operations (based on the fair market value of each investment as of such date) through the end of such calendar year (or upon termination of the Investment Advisory Agreement), computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis from the commencement of the Company's investment operations (based on the fair market value of each investment as of such date) through the end of such calendar year (or upon termination of the Investment Advisory Agreement), less the aggregate amount of any previously paid Capital Gains Incentive Fees.
For the three months ended March 31, 2024, the Company did not accrue any Incentive Fees.
Net Unrealized Appreciation
Net unrealized appreciation for the three months ended March 31, 2024 was as follows (amounts in thousands):
Non-Control/ Non-Affiliateinvestments |
$ | (221 | ) | |
Net unrealized appreciation / (depreciation) on investments |
$ | (221 | ) |
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For the three months ended March 31, 2024, we recorded net unrealized depreciation on our current portfolio of $0.2 million. The net unrealized depreciation on the Company's current portfolio was a result of the fair value of the portfolio assets being equal to their original cost, given the recency of origination and stable portfolio performance since origination.
Liquidity and Capital Resources
We believe that our current cash on hand, our short-term investments, our available borrowing capacity under the JPM Facility, unfunded investor Capital Commitments and our anticipated cash flows from operations will be adequate to meet our cash needs for our daily operations for at least the next twelve months.
Under the 1940 Act, we are required to meet an asset coverage ratio, defined under the 1940 Act as the ratio which the value of our total assets (less all liabilities and indebtedness not represented by senior securities) bears to the aggregate amount of our outstanding senior securities representing our indebtedness, of at least 150% after each issuance of senior securities. Our asset coverage ratio was 287.6% as of March 31, 2024.
Cash Flows
For the three months ended March 31, 2024, we experienced a net increase in cash in the amount of $35.3 million. During that period, our operating activities used $64.9 million in cash, consisting primarily of purchases of portfolio investments of $62.5 million. In addition, financing activities provided net cash of $100.2 million, consisting primarily of net borrowings under the JPM Facility of $25.5 million and proceeds from the issuance of Common Stock of $74.7 million. At March 31, 2024, we had $103.0 million of cash and cash equivalents on hand.
Financing Transactions
JPM Facility
On October 18, 2023 the Company entered into, through the Financing SPV, a Loan and Security Agreement by and among the Company, the Financing SPV, JPMorgan Chase Bank, National Association, as lender and administrative agent for the lender parties providing for a senior secured revolving credit facility to the Financing SPV of $200 million (the "JPM Facility"). The JPM Facility size is increasable to up to $800 million subject to the satisfaction of various conditions, including availability under the borrowing base, which is based on a combination of unfunded Capital Commitments and other loan collateral including the Financing SPV's portfolio investments. Our Adviser serves as the portfolio manager (in such capacity, the "Facility Portfolio Manager") under the JPM Facility. U.S. Bank Trust Company, National Association serves as collateral agent and U.S. Bank National Association serves as securities intermediary. Proceeds from borrowings under the JPM Facility are expected to be used to facilitate investments and for the timely payment of the Financing SPV's expenses, and to make certain permitted distributions to the Company.
The JPM Facility is a revolving credit facility with a revolving period ending October 18, 2026 (or upon the occurrence of certain events as specified therein) and has a scheduled maturity date of October 18, 2028. Advances under the JPM Facility are available in U.S. dollars and other permitted currencies. The interest charged on the JPM Facility is based on SOFR, SONIA, SARON, EURIBOR or CDOR, as applicable (or, if SOFR is not available, a benchmark replacement or a "base rate" (which is the greater of the prime rate and the federal funds rate plus 0.50%), as applicable), plus a margin of (1) 2.75% prior to the earlier of (x) the first day on which the Company has drawn more than one-thirdof its Capital Commitments and (y) April 18, 2025 and (2) 2.85% thereafter. Under the JPM Facility, the Financing SPV will pay an undrawn fee of (i) during the first nine months of the JPM Facility, 0.50% per annum and (ii) thereafter, 0.75% per annum, in each case, on the average daily unused amount of the financing commitments until the end of the revolving period, subject to minimum utilization requirements.
The obligations of the Financing SPV to the lenders under the JPM Facility are secured by a first priority security interest in the unfunded Capital Commitments to the Company and the related proceeds and all of the Financing SPV's portfolio investments and other assets.
In connection with the JPM Facility, the Financing SPV has made certain customary representations and warranties and is required to comply with various covenants, reporting requirements and other customary requirements for similar facilities. The JPM Facility contains customary events of default for similar financing transactions, including if a change of control of the Financing SPV occurs. Upon the occurrence and during the continuation of an event of default, the lenders under the JPM Facility may declare the outstanding advances and all other obligations under the JPM Facility immediately due and payable. The occurrence of an event of default (as described above) triggers a requirement that the Financing SPV obtain the consent of the lenders under the applicable JPM Facility prior to entering into any sale or disposition with respect to portfolio investments.
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As of March 31, 2024, to the Company's knowledge, each of the Company, the Financing SPV and the Facility Portfolio Manager was in compliance with all covenants and other requirements applicable to it under the JPM Facility.
As of March 31, 2024, we had U.S. dollar borrowings of $77.7 million outstanding under the JPM Facility with a weighted average interest rate of 8.07%.
As of March 31, 2024, our future fixed commitments for cash payments were as follows (amounts in thousands):
Total | 2024 | 2025-2026 | 2027-2028 | 2029-Future | ||||||||||||||||
JPM Facility borrowings |
$ | 77,730 | $ | - | $ | - | $ | 77,730 | $ | - | ||||||||||
Interest and fees on JPM Facility borrowings (1) |
49,553 | 6,398 | 22,001 | 19,865 | - | |||||||||||||||
Total |
$ | 127,283 | $ | 6,398 | $ | 22,001 | $ | 97,595 | $ | - | ||||||||||
(1) |
Amounts represent (i) credit facility commitment fees calculated on the unused amount, which was $122.3 million as of March 31, 2024 and (ii) interest expense calculated at a rate of 8.07% of outstanding credit facility borrowings, which were $77.7 million as of March 31, 2024. |
Distributions to Stockholders
We intend to elect to be treated as a RIC under the Code for our tax year ending December 31, 2023, and intend to make the required distributions to our Stockholders as specified therein. In order to maintain our tax treatment as a RIC and to obtain RIC tax benefits, we must meet certain minimum distribution, source-of-incomeand asset diversification requirements. If such requirements are met, then we are generally required to pay income taxes only on the portion of our taxable income and gains we do not distribute (actually or constructively) and certain built-ingains. We monitor our distribution requirements with the goal of ensuring compliance with the Code. We can offer no assurance that we will achieve results that will permit the payment of any level of cash distributions and our ability to make distributions will be limited by the asset coverage requirement and related provisions under the 1940 Act and contained in any applicable indenture and related supplements. In addition, in order to satisfy the annual distribution requirement applicable to RICs, we may declare a significant portion of our dividends in shares of our Common Stock instead of in cash. A Stockholder generally would be subject to tax on 100% of the fair market value of the dividend on the date the dividend is received by the Stockholder in the same manner as a cash dividend, even though a portion of the dividend was paid in shares of our Common Stock.
The minimum distribution requirements applicable to RICs require us to distribute to our Stockholders each year at least 90% of our investment company taxable income, or ICTI, as defined by the Code. Depending on the level of ICTI and net capital gain, if any, earned in a tax year, we may choose to carry forward income in excess of current year distributions into the next tax year and pay a 4% U.S. federal excise tax on such excess. Any such carryover income must be distributed before the end of the next tax year through a dividend declared prior to filing the final tax return related to the year which generated such income.
ICTI generally differs from net investment income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses. We may be required to recognize ICTI in certain circumstances in which we do not receive cash. For example, if we hold debt obligations that are treated under applicable tax rules as having OID (such as debt instruments issued with warrants), we must include in ICTI each year a portion of the OID that accrues over the life of the obligation, regardless of whether cash representing such income is received by us in the same taxable year. We may also have to include in ICTI other amounts that we have not yet received in cash, such as (i) PIK interest income and (ii) interest income from investments that have been classified as non-accrualfor financial reporting purposes. Interest income on non-accrualinvestments is not recognized for financial reporting purposes, but generally is recognized in ICTI. Because any OID or other amounts accrued will be included in our ICTI for the year of accrual, we may be required to make a distribution to our Stockholders in order to satisfy the minimum distribution requirements, even though we will not have received and may not ever receive any corresponding cash amount. ICTI also excludes net unrealized appreciation or depreciation, as investment gains or losses are not included in taxable income until they are realized.
No distributions were declared or paid by the Company during the three months ended March 31, 2024.
Critical Accounting Policies and Use of Estimates
The preparation of 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 financial statements and revenues and expenses during the periods reported. We have identified investment valuation and revenue recognition as our most critical accounting estimates. On an ongoing basis, we evaluate our estimates, including those related to the
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matters described below. These estimates are based on the information that is currently available to us and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ materially from those estimates under different assumptions or conditions. A discussion of our critical accounting policies follows.
Investments at Fair Value
One of the critical accounting estimates inherent in the preparation of our financial statements is the valuation of investments and the related amounts of unrealized appreciation and depreciation of investments recorded. ASC 820 establishes a framework for measuring fair value in accordance with GAAP and required disclosures of fair value measurements. ASC 820 determines fair value to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between market participants on the measurement date. Market participants are defined as buyers and sellers in the principal or most advantageous market (which may be a hypothetical market) that are independent, knowledgeable, and willing and able to transact. In accordance with ASC 820, we consider our principal market to be the market that has the greatest volume and level of activity. ASC 820 specifies a fair value hierarchy that prioritizes and ranks the level of observability of inputs used in determination of fair value. In accordance with ASC 820, these levels are summarized below:
Level 1-Valuations based on quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access.
Level 2-Valuations based on quoted prices for similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active or other observable inputs other than quoted prices.
Level 3-Valuations based on unobservable inputs for the asset or liability.
Transfers between levels, if any, will be recognized at the beginning of the quarter in which the transfer occurred. In addition to using the above inputs in investment valuations, the Adviser will apply a valuation policy approved by the Board of Directors that is consistent with ASC 820. Consistent with the valuation policy, the Adviser will evaluate the source of the inputs, including any markets in which our investments are trading (or any markets in which securities with similar attributes are trading), in determining fair value. When an investment is valued based on prices provided by reputable dealers or pricing services (that is, broker quotes), the Adviser will subject those prices to various criteria in making the determination as to whether a particular investment would qualify for treatment as a Level 2 or Level 3 investment. For example, the Adviser, or the independent valuation firm(s), will review pricing support provided by dealers or pricing services in order to determine if observable market information is being used, versus unobservable inputs.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of our investments may fluctuate from period to period. Additionally, the fair value of such investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that may ultimately be realized. Further, such investments are generally less liquid than publicly traded securities and may be subject to contractual and other restrictions on resale. If we were required to liquidate a portfolio investment in a forced or liquidation sale, it could realize amounts that are different from the amounts presented and such differences could be material.
In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the unrealized gains or losses reflected herein.
In connection with a drawdown, the Board of Directors or a committee thereof will be required to make the determination that we are not selling shares of our Common Stock at a price below the then current net asset value of our Common Stock, exclusive of any distributing commission or discount (which net asset value shall be determined as of a time within 48 hours, excluding Sunday and holidays, next preceding the time of such determination). Records will be made contemporaneously with all determinations described in this section and these records will be maintained with other records that we are required to maintain under the 1940 Act.
Investment Valuation Process
The determination of the fair value involves subjective judgments and estimates. As part of the valuation process, the Adviser will take into account relevant factors in determining the fair value of our investments, including: the estimated enterprise value of a portfolio company (i.e., the total fair value of the portfolio company's debt and equity), the nature and realizable value of any collateral, the portfolio company's ability to make payments based on its earnings and cash flow, the markets in which the portfolio company does business, a comparison of the portfolio company's securities to any similar publicly traded securities, and overall changes in the interest rate environment and the credit markets that may affect the price at which similar investments may be made in the future. When an external event such as a purchase transaction, public offering or subsequent equity sale occurs, the Adviser will consider whether the pricing indicated by the external event corroborates its valuation.
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The Adviser will undertake a multi-step valuation process, which is expected to include, among other procedures, the following:
• |
With respect to investments for which market quotations are readily available, those investments will typically be valued at the bid price of those market quotations; |
• |
With respect to investments for which market quotations are not readily available, the valuation process will begin with either (i) independent valuation firm(s) providing a preliminary valuation of such investment to the Adviser's valuation committee or (ii) the Adviser preparing a preliminary valuation of such investment based on proprietary models; and |
• |
Preliminary valuation conclusions will be documented and discussed within the Adviser's valuation committee. |
Revenue Recognition
Interest and Dividend Income
Interest income is recorded on an accrual basis and includes the accretion of discounts, amortization of premiums and PIK interest. Discounts from and premiums to par value on investments purchased are accreted/amortized into interest income over the life of the respective security using the effective interest method. To the extent loans contain PIK provisions, PIK interest, computed at the contractual rates, is accrued and recorded as interest income and added to the principal balance of the loan. PIK interest income added to the principal balance is generally collected upon repayment of the outstanding principal.
Loans are generally placed on non-accrualstatus when interest and/or principal payments become materially past due and there is reasonable doubt that principal or interest will be collected in full. Recognition of interest income of that loan will be ceased until all principal and interest is current through payment or until a restructuring occurs, such that the interest income is deemed to be collectible. However, we remain contractually entitled to this interest. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrualstatus. Interest payments received on non-accrualloans may be recognized as income or applied to principal depending upon our judgment regarding collectability. Non-accrualloans are restored to accrual status when past due principal and interest are paid or there is no longer any reasonable doubt that such principal or interest will be collected in full and, in our judgment, are likely to remain current. We may make exceptions to this policy if the loan has sufficient collateral value or is in the process of collection. Accrued interest is written-offwhen it becomes probable that the interest will not be collected, and the amount of uncollectible interest can be reasonably estimated.
Dividend income on preferred equity 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 is recorded on the record date for private portfolio companies or on the ex-dividenddate for publicly traded portfolio companies. To the extent preferred equity contains PIK provisions, PIK dividends computed at the contractual rates are accrued and recorded as dividend income and added to the principal balance of the preferred equity. PIK dividends added to the principal balance are generally collected upon redemption of the equity.
Other Income
Dividends earned on money market balances are recorded on an accrual basis. Such income is included in other income in the Consolidated Statement of Operations.
Investment Transactions
Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment using the specific identification method without regard to unrealized gains or losses previously recognized, and include investments charged off during the period, net of recoveries. Unrealized gains or losses primarily reflect the change in investment values, including the reversal of previously recorded unrealized gains or losses when gains or losses are realized.
Other income may include income such as consent, waiver, amendment, unused, and prepayment fees associated with our investment activities, as well as any fees for managerial assistance services rendered by the Company to its portfolio companies. Such fees are recognized as income when earned or the services are rendered.
Income Taxes
We intend to elect to be treated as a RIC for our tax year ending December 31, 2023 and to qualify annually thereafter as a RIC under Subchapter M of the Code. To maintain our RIC tax election, we must, among other requirements, meet certain annual source-of-incomeand quarterly asset diversification requirements. We also must annually satisfy the Annual Distribution Requirement.
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If we fail to distribute in a timely manner an amount at least equal to the sum of (i) 98% of our ordinary income for the calendar year, (ii) 98.2% of the amount by which our capital gains exceed our capital losses (adjusted for certain ordinary losses) for the one-yearperiod ending October 31 in that calendar year and (iii) certain undistributed amounts from previous years on which we paid no U.S. federal income tax (collectively, the "Excise Tax Distribution Requirements"), we will be subject to a 4% nondeductible U.S. federal excise tax on the amount by which we do not meet the Excise Tax Distribution Requirements. For this purpose, however, any ordinary income or capital gain net income retained by us that is subject to corporate income tax for the tax year ending in that calendar year will be considered to have been distributed by year-end(or earlier if estimated taxes are paid).
Off-BalanceSheet Arrangements
We may become a party to financial instruments with off-balancesheet 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 in the balance sheet. Since commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The balance of unfunded commitments to extend financing as of March 31, 2024 and December 31, 2023 was as follows (amounts in thousands):
Unfunded Commitment Balances |
||||||||||||||
Commitment Type |
Commitment Expiration Date |
March 31, 2024 |
December 31, 2023 |
|||||||||||
Azurite Intermediate Holdings, Inc. |
First Lien Senior Secured Delayed Draw Term Loan | 3/19/2031 | $ | 12,973 | $ | - | ||||||||
Azurite Intermediate Holdings, Inc. |
First Lien Senior Secured Revolving Loan | 3/19/2031 | 2,076 | - | ||||||||||
CPEX Purchaser, LLC |
First Lien Senior Secured Delayed Draw Term Loan | 03/01/2030 | 3,727 | - | ||||||||||
CPEX Purchaser, LLC |
First Lien Senior Secured Revolving Loan | 03/01/2030 | 9,818 | - | ||||||||||
Icefall Parent, Inc. |
First Lien Senior Secured Revolving Loan | 01/25/2030 | 2,375 | - | ||||||||||
Penn TRGRP Holdings LLC |
First Lien Senior Secured Delayed Draw Term Loan | 09/27/2024 | 875 | 1,258 | ||||||||||
Penn TRGRP Holdings LLC |
First Lien Senior Secured Revolving Loan | 09/27/2030 | 3,881 | 3,881 | ||||||||||
Total |
$ | 35,725 | $ | 5,139 | ||||||||||
Recent Developments
As of April 3, 2024, the Company received all of the remaining outstanding amount of $3.5 million related to the capital call issued on March 15, 2024.
On April 23, 2024, the Company accepted additional Capital Commitments of $8.9 million. As of May 10, 2024, the Company had total Capital Commitments of $1,452.8 million.
On May 7, 2024, the Board declared a quarterly dividend of $0.30 per share payable on June 13, 2024 to holders of record as of May 31, 2024.
ITEM 3. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
We are subject to certain financial market risks, including valuation risk and interest rate fluctuations.
Valuation Risk
We have invested, and plan to continue to invest, in illiquid debt and equity securities of private companies. These investments will generally not have a readily available market price, and we will value these investments at fair value as determined in good faith by our Adviser, as the Board of Directors' valuation designee, in accordance with our valuation policy and procedures established by our Board of Directors. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment while employing a consistently applied valuation process for the types of investments we make. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we may realize amounts that are different from the amounts presented and such differences could be material. See Note 2 "Summary of Significant Account Policies" to our consolidated financial statements for more details on estimates and judgments made by us in connection with the valuation of our investments.
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Interest Rate Risk
We are subject to financial market risks, including changes in interest rates. Because we have borrowed, and may from time to time borrow, money to make investments, our net investment income will depend in part upon the difference between the rate at which we borrow funds and the rate at which we invest these funds as well as our level of leverage. The interest charged on the JPM Facility is a floating rate based on SOFR, SONIA, SARON, EURIBOR or CDOR, as applicable (or, if SOFR is not available, a benchmark replacement or a "base rate"). As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income or net assets.
We regularly measure our exposure to interest rate risk. We assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate-sensitive assets to our interest rate-sensitive liabilities. Based on that review, we determine whether or not any hedging transactions are necessary to mitigate exposure to changes in interest rates.
As of March 31, 2024, 100.0% of investments at fair value (excluding unfunded debt investments) represent floating-rate investments with a SOFR floor (includes investments bearing prime interest rate contracts) and none of our investments at fair value represent fixed-rate investments. Additionally, our senior secured revolving credit facilities are also subject to floating interest rates and are currently paid based on floating SOFR rates and prime interest rates.
The following table estimates the potential changes in net cash flow generated from interest income and expenses, should interest rates increase or decrease by 50, 100, 150 or 200 basis points. Interest income is calculated as revenue from interest generated from our portfolio of investments held on March 31, 2024. Interest expense is calculated based on the terms of our outstanding revolving credit facilities. For our floating rate credit facilities, we use the outstanding balance as of March 31, 2024. Interest expense on our floating rate credit facilities is calculated using the interest rate as of March 31, 2024, adjusted for the hypothetical changes in rates, as shown below. The base interest rate case assumes the rates on our portfolio investments remain unchanged from the actual effective interest rates as of March 31, 2024. These hypothetical calculations are based on a model of the investments in our portfolio, held as of March 31, 2024, and are only adjusted for assumed changes in the underlying base interest rates.
Actual results could differ significantly from those estimated in the table (amounts in thousands).
Basis Point Change |
Increase (decrease) in interest income |
Increase (decrease) in interest expense |
Net increase (decrease) in investment income |
|||||||||
Up 200 Basis Points |
$ | 2,358 | $ | (1,555 | ) | $ | 803 | |||||
Up 150 Basis Points |
1,768 | (1,166 | ) | 602 | ||||||||
Up 100 Basis Points |
1,179 | (777 | ) | 402 | ||||||||
Up 50 Basis Points |
589 | (389 | ) | 200 | ||||||||
Down 50 Basis Points |
(589 | ) | 389 | (200 | ) | |||||||
Down 100 Basis Points |
(1,179 | ) | 777 | (402 | ) | |||||||
Down 150 Basis Points |
(1,768 | ) | 1,166 | (602 | ) | |||||||
Down 200 Basis Points |
(2,358 | ) | 1,555 | (803 | ) |
Although we believe that this analysis is indicative of our existing sensitivity to interest rate changes, it does not adjust for changes in the credit market, credit quality, the size and composition of assets in our portfolio and other business developments that could affect our net income. Accordingly, we cannot assure you that actual results would not differ materially from the analysis above.
We may hedge against interest rate and foreign currency fluctuations by using standard hedging instruments such as futures, options and forward contracts or a credit facility subject to the requirements of the 1940 Act and applicable commodities laws. While hedging activities may insulate us against adverse changes in interest rates and foreign currencies, such activities may also limit our ability to participate in benefits of lower interest rates or higher exchange rates with respect to the portion of our portfolio of investments, if any, with fixed interest rates or denominated in foreign currencies.
ITEM 4. |
CONTROLS AND PROCEDURES |
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Report, our management carried out an evaluation, under the supervision and with the participation of our President and Chief Executive Officer and Treasurer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e)and 15d-15(e)under the 1934 Act). Based on that evaluation, our President and Chief Executive Officer and Treasurer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Report. In designing and evaluating our
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ITEM 1.
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LEGAL PROCEEDINGS
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ITEM 1A.
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RISK FACTORS
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ITEM 2.
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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ITEM 3.
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DEFAULTS UPON SENIOR SECURITIES
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ITEM 4.
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MINE SAFETY DISCLOSURES
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ITEM 5.
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OTHER INFORMATION
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ITEM 6. |
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES |
The exhibits filed as part of this Report are set forth on the Index to Exhibits, which is incorporated herein by reference.
3.1 | Articles of Amendment and Restatement (incorporated by reference to Exhibit 3.1 to the Registration Statement on Form 10 (File No. 000-56594) filed on October 19, 2023) | |
3.2 | Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to the Registration Statement on Form 10 (File No. 000-56594) filed on September 7, 2023) | |
21.1 | List of Subsidiaries* | |
31.1 | Certification of Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | |
31.2 | Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | |
32.1 | Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | |
101.INS | Inline 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 Definition Linkbase Document.* | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document.* | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document.* | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)* |
* |
Filed herewith. |
The certifications attached as Exhibit 32.1 accompany this Report pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed "filed" by the registrant for purposes of Section 18 of the Exchange Act, and are not to be incorporated by reference into any of the registrant's filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this Report, irrespective of any general incorporation language contained in any such filing.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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: May 10, 2024 | 26NORTH BDC, INC. | ||
By: |
/s/ Brendan McGovern |
||
Brendan McGovern | |||
President and Chief Executive Officer | |||
(Principal Executive Officer) | |||
By: |
/s/ Jonathan Landsberg |
||
Jonathan Landsberg | |||
Treasurer and Chief Financial Officer | |||
(Principal Financial Officer) | |||
(Principal Accounting Officer) |
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