Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2024

Note 4. Fair Value of Financial Instruments

ASC 820 defines fair value, establishes a framework for measuring fair value, establishes a fair value hierarchy based on the observability of inputs used to measure fair value, and provides disclosure requirements for fair value measurements. The Company accounts for its investments at fair value in accordance with ASC 820. As of March 31, 2024 and December 31, 2023, the Company’s portfolio investments consisted primarily of investments in secured loans and equipment financings. The fair value amounts have been measured as of the reporting date and have not been reevaluated or updated for purposes of these financial statements subsequent to that date. As such, the fair values of these financial instruments subsequent to the reporting date may be different than amounts reported.

In accordance with ASC 820, the Company has categorized its investments based on the priority of the inputs to the valuation technique into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical investments (Level 1) and the lowest priority to unobservable inputs (Level 3). See “Note 2 – Summary of Significant Accounting Policies.”

As required by ASC 820, when the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Levels 1 and 2) and unobservable (Level 3). Therefore, unrealized appreciation and depreciation related to such investments categorized within the Level 3 tables below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3).

The fair value determination of each portfolio investment categorized as Level 3 requires one or more of the following unobservable inputs:

•

Financial information obtained from each portfolio company, including unaudited statements of operations and balance sheets for the most recent period available as compared to budgeted numbers;

•

Current and projected financial condition of the portfolio company;

•

Current and projected ability of the portfolio company to service its debt obligations;

•

Type and amount of collateral, if any, underlying the investment;

•

Current financial ratios (e.g., fixed charge coverage ratio, interest coverage ratio and net debt/EBITDA ratio) applicable to the investment;

•

Current liquidity of the investment and related financial ratios (e.g., current ratio and quick ratio);

•

Pending debt or capital restructuring of the portfolio company;

•

Projected operating results of the portfolio company;

•

Current information regarding any offers to purchase the investment;

•

Current ability of the portfolio company to raise any additional financing as needed;

•

Changes in the economic environment, which may have a material impact on the operating results of the portfolio company;

•

Internal occurrences that may have an impact (both positive and negative) on the operating performance of the portfolio company;

•

Qualitative assessment of key management;

•

Contractual rights, obligations or restrictions associated with the investment; and

•

Time to exit.

The use of significant unobservable inputs creates uncertainty in the measurement of fair value as of the reporting date. The significant unobservable inputs used in the fair value measurement of the Company’s investments, are (i) earnings before interest, tax, depreciation, and amortization (“EBITDA”) and revenue multiples (both projected and historic), and (ii) volatility assumptions. Significant increases (decreases) in EBITDA and revenue multiple inputs in isolation would result in a significantly higher (lower) fair value measurement. Similarly, significant increases (decreases) in volatility inputs in isolation would result in a significantly higher (lower) fair value assessment. Conversely, significant increases (decreases) in weighted average cost of capital inputs in isolation would result in a significantly lower (higher) fair value measurement. However, due to the nature of certain investments, fair value measurements may be based on other criteria, such as third-party appraisals of collateral and fair values as determined by independent third parties, which are not presented in the tables below.

The Company’s assets measured at fair value by investment type on a recurring basis as of March 31, 2024 were as follows (in thousands):


	Fair Value Measurements at Reporting Date Using
	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs		Measured at
Assets	(Level 1)		(Level 2)		(Level 3)		Net Asset Value(1)		Total
Secured Loans	$	—	$	—	$	1,010,841	$	—	$	1,010,841
Equipment Financings		—		—		277,550		—		277,550
Warrants		—		1,363		38,567		—		39,930
Equity		13,607		—		17,325		4,609		35,541
Total Investments at fair value		13,607		1,363		1,344,283		4,609		1,363,862
Escrow Receivable (2)		—		—		2,441		—		2,441
Cash and cash equivalents		11,967		—		—		—		11,967
Total	$	25,574	$	1,363	$	1,346,724	$	4,609	$	1,378,270

(1)

In accordance with ASC 820, the Company's equity investment in Senior Credit Corp 2022 LLC is measured using the net asset value per share (or its equivalent) as a practical expedient for fair value, and thus has not been classified in the fair value hierarchy.

(2)

Escrow receivable is included in other assets on the Consolidated Statements of Assets and Liabilities.

The Company’s assets measured at fair value by investment type on a recurring basis as of December 31, 2023 were as follows (in thousands):


	Fair Value Measurements at Reporting Date Using
	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable
	Identical Assets		Inputs		Inputs		Measured at
Assets	(Level 1)		(Level 2)		(Level 3)		Net Asset Value(1)		Total
Secured Loans	$	—	$	—	$	885,299	$	—	$	885,299
Equipment Financings		—		—		336,778		—		336,778
Warrants		—		2,326		31,201		—		33,527
Equity		795		—		15,150		3,631		19,576
Total Investments at fair value		795		2,326		1,268,428		3,631		1,275,180
Escrow Receivable (2)		—		—		2,441		—		2,441
Cash and cash equivalents		4,761		—		—		—		4,761
Total	$	5,556	$	2,326	$	1,270,869	$	3,631	$	1,282,382

(1)

(2)

Escrow receivable is included in other assets on the Consolidated Statements of Assets and Liabilities.

The methodology for determining the fair value of the Company’s investments is discussed in “Note 2 – Summary of Significant Accounting Policies”. The significant unobservable input used in the fair value measurement of the Company’s escrow receivables is the amount recoverable at the contractual maturity date of the escrow receivable. The following table provides a summary of the significant unobservable inputs used to measure the fair value of the Level 3 portfolio investments as of March 31, 2024.


	Fair Value as of
	March 31, 2024		Valuation Techniques/	Unobservable		Weighted
Investment Type	(in thousands)		Methodologies	Inputs (1)	Range	Average (2)

Debt investments	$	984,939	Discounted Cash Flows	Hypothetical Market Yield	11.4% - 34.6%		16.6	%

		227,760	Cost approximates fair value (6)	n/a	n/a	n/a

		66,298	Scenario Analysis	Probability Weighting of Alternative Outcomes	2.0% - 100%	n/a

Debt investment in the JV		9,394	Enterprise Value (7)	n/a	n/a	n/a

Equity investments		17,325	Market Approach	Revenue Multiple (3)	0.9x - 10.4x		3.2	x
				Volatility (5)	43.5% - 102.3%		55.8	%
				Risk-Free Interest Rate	4.3% - 5.0%		3.9	%
				Estimated Time to Exit (in years)	1.0 - 3.8		2.1

Warrants		38,567	Market Approach	Revenue Multiple (3)	0.3x - 10.4x		2.8	x
				Company Specific Adjustment (4)	n/a	n/a
				Volatility (5)	38.2% - 119.5%		64.2	%
				Risk-Free Interest Rate	4.0% - 5.2%		4.6	%
				Estimated Time to Exit (in years)	0.7- 4.6		2.2

Total Level 3 Investments	$	1,344,283

(1)

The significant unobservable inputs used in the fair value measurement of the Company’s debt securities are hypothetical market yields and premiums/(discounts). The hypothetical market yield is defined as the exit price of an investment in a hypothetical market to hypothetical market participants where buyers and sellers are willing participants. The significant unobservable inputs used in the fair value measurement of the Company’s equity and warrant securities are revenue multiples and portfolio company specific adjustment factors. Additional inputs used in the option pricing model (“OPM”) include industry volatility, risk free interest rate and estimated time to exit. Significant increases (decreases) in the inputs in isolation would result in a significantly higher (lower) fair value measurement, depending on the materiality of the investment. For some investments, additional consideration may be given to data from the last round of financing, merger or acquisition events near the measurement date.

(2)

Weighted averages are calculated based on the fair value of each investment.

(3)

Represents amounts used when the Company has determined that market participants would use such multiples when pricing the investments.

(4)

Represents amounts used when the Company has determined market participants would take into account these discounts when pricing the investments.

(5)

Represents the range of industry volatility used by market participants when pricing the investment.

(6)

Includes debt investments originated within the past three months, for which cost approximates fair value, unless events have occurred during the period that would indicate a different valuation is warranted.

(7)

Under the enterprise value technique, the significant unobservable inputs used in the fair value measurement of the Company's investment in debt or equity securities are: (i) EBITDA, (ii) revenue or (iii) asset multiple; as applicable. Increases or decreases in the valuation multiples in isolation may result in a higher or lower fair value measurement, respectively.

The following table provides a summary of the significant unobservable inputs used to fair value the Level 3 portfolio investments as of December 31, 2023.

         
        Fair Value as of

         
        December 31, 2023

        Valuation Techniques/

        Unobservable

        Weighted

        Investment Type

        (in thousands)

        Methodologies

        Inputs (1)

        Range

        Average (2)

Debt investments

$

858,870

Discounted Cash Flows

Hypothetical Market Yield

11.6% - 34.6%

17.3

%

253,250

Cost approximates fair value (6)

n/a

n/a

n/a

4,680

Transaction Precedent (7)

Transaction Price

n/a

n/a

97,573

Scenario Analysis

Probability Weighting of Alternative Outcomes

5.0% - 100.0%

n/a

Debt investment in the JV

7,704

Enterprise Value (8)

n/a

n/a

n/a

Equity investments

15,150

Market Approach

Revenue Multiple (3)

0.4x - 15.0x

3.7

x

Volatility (5)

44.2% - 131.3%

62.5

%

Risk-Free Interest Rate

3.0% - 4.8%

4.0

%

Estimated Time to Exit (in years)

1.0 - 4.0

1.7

Warrants

31,201

Market Approach

Revenue Multiple (3)

0.4x - 15.0x

2.7

x

         
        Company Specific Adjustment (4)

        n/a

        n/a

Volatility (5)

33.3% - 131.3%

68.8

%

Risk-Free Interest Rate

2.9% - 4.8%

4.3

%

Estimated Time to Exit (in years)

1.0 - 4.8

2.2

Total Level 3 Investments

1,268,428

(1)

(2)

Weighted averages are calculated based on the fair value of each investment.

(3)

Represents amounts used when the Company has determined that market participants would use such multiples when pricing the investments.

(4)

Represents amounts used when the Company has determined market participants would take into account these discounts when pricing the investments.

(5)

Represents the range of industry volatility used by market participants when pricing the investment.

(6)

(7)

Represents investments where there is an observable transaction or pending event for the investment.

(8)

Under the enterprise value technique, the significant unobservable inputs used in the fair value measurement of the Company's investments in debt or equity securities are: (i) EBITDA, (ii) revenue or (iii) asset multiple; as applicable. Increases or decreases in the valuation multiples in isolation may result in a higher or lower fair value measurement, respectively.

The following table provides a summary of changes in the fair value of the Company’s Level 3 debt, including loans and equipment financings (collectively “Debt”), equity, warrant and escrow receivable portfolio investments for the three months ended March 31, 2024 (in thousands):


	Type of Investment
	Debt			Equity		Warrants			Escrow Receivable		Total
Fair Value as of December 31, 2023	$	1,222,077		$	15,150	$	31,201		$	2,441	$	1,270,869
Purchases, net of deferred fees		235,447			1,100		3,428			—		239,975
Non-cash conversions (1)		—			7		(7	)		—		—
Transfers into/(out of) Level 3 (2)		(28,316	)		—		—			—		(28,316	)
Proceeds from sales and paydowns		(139,892	)		—		(314	)		—		(140,206	)
Accretion of OID, EOT, and PIK payments		7,172			—		—			—		7,172
Net realized gain/(loss)		4,277			—		—			—		4,277
Net change in unrealized appreciation/(depreciation)		(12,374	)		1,068		4,259			—		(7,047	)
Fair Value as of March 31, 2024	$	1,288,391		$	17,325	$	38,567		$	2,441	$	1,346,724

Net change in unrealized appreciation/depreciation on Level 3 investments still held as of March 31, 2024	$	(10,290	)	$	1,068	$	4,259		$	—	$	(4,963	)

(1)

The non-cash conversion includes an exercise of a warrant to an equity position during the period.

(2)

Transfers out of Level 3 during the three months ended March 31, 2024 were related to the conversion of debt to equity in one publicly-traded portfolio company. During the three months ended March 31, 2024, there were no transfers into Level 3.

The following table provides a summary of changes in the fair value of the Company’s Level 3 debt, including loans and equipment financings (collectively “Debt”), equity, and warrant portfolio investments for the year ended December 31, 2023 (in thousands):


	Type of Investment
	Debt			Equity			Warrants			Escrow Receivable		Total
Fair Value as of December 31, 2022	$	1,048,829		$	13,245		$	30,989		$	2,441	$	1,095,504
Purchases, net of deferred fees		613,853			4,676			8,670			—		627,199
Non-cash conversion (1)		(500	)		538			(17	)		—		21
Transfers into/(out of) of Level 3 (2)		—			—			(7	)		—		(7	)
Proceeds from sales and paydowns		(468,760	)		(461	)		(2,705	)		—		(471,926	)
Accretion of OID and EOT payments		32,953			—			—			—		32,953
Net realized gain/(loss)		(15,292	)		(13,546	)		767			—		(28,071	)
Change in unrealized appreciation/(depreciation)		10,994			10,698			(6,496	)		—		15,196
Fair Value as of December 31, 2023	$	1,222,077		$	15,150		$	31,201		$	2,441	$	1,270,869

Net change in unrealized appreciation/depreciation on Level 3 investments still held as of December 31, 2023	$	(8,420	)	$	(2,501	)	$	(6,987	)	$	—	$	(17,908	)

(1)

The non-cash conversion includes restructuring of a convertible note position to preferred equity and an exercise of a warrant to an equity position during the period.

(2)

During the year ended December 31, 2023, there were no transfers into Level 3.

Fair Value of Financial Instruments Carried at Cost

As of March 31, 2024 and December 31, 2023, the carrying value of the KeyBank Credit Facility was approximately $190.0 million and $213.0 million, respectively. The carrying value of the KeyBank Credit Facility as of March 31, 2024 and December 31, 2023 approximates the fair value, which was estimated using a relative market yield approach with Level 3 inputs.

As of March 31, 2024 and December 31, 2023, the carrying value of the 2025 Notes was approximately $181.0 million and $180.5 million, respectively, net of unamortized deferred financing costs of $1.5 million and $2.0 million, respectively. The 2025 Notes have a fixed interest rate as discussed in “Note 5 – Borrowings.” The fair value of the 2025 Notes as of March 31, 2024 and December 31, 2023 was approximately $183.4 million and $183.4 million, respectively, based on the market closing price of these notes, which trade on the Nasdaq Global Select Market under the symbol “TRINL”.

As of March 31, 2024 and December 31, 2023, the carrying value of the Convertible Notes was approximately $48.9 million and $48.8 million, respectively, net of unamortized deferred financing costs and discount of $1.1 million and $1.2 million, respectively. The Convertible Notes have a fixed interest rate as discussed in “Note 5 – Borrowings.” The fair value of the Company’s Convertible Notes as of March 31, 2024 and December 31, 2023 was approximately $50.0 million and $50.6 million, respectively, which was estimated using a relative market yield approach with Level 3 inputs.

As of March 31, 2024 and December 31, 2023, the carrying value of the 4.375% Notes due 2026 (the “August 2026 Notes”) was approximately $123.6 million and $123.5 million, respectively, net of unamortized deferred financing costs and discount of $1.4 million and $1.5 million, respectively. The August 2026 Notes have a fixed interest rate as discussed in “Note 5 – Borrowings.” The fair value of the Company’s August 2026 Notes as of March 31, 2024, and December 31, 2023, was approximately $104.4 million and $111.5 million, respectively, which was estimated using a relative market yield approach with Level 3 inputs.

As of March 31, 2024, and December 31, 2023, the carrying value of the Company’s 4.25% Notes due 2026 (the “December 2026 Notes”) was approximately $74.0 million, and $73.9 million, respectively, net of unamortized

deferred financing fees of $1.0 million and $1.1 million, respectively. The December 2026 Notes have a fixed interest rate as discussed in “Note 5 – Borrowings.” The fair value of the Company’s December 2026 Notes as of March 31, 2024 and December 31, 2023 was approximately $62.5 million and $66.8 million, respectively, which was estimated using a relative market yield approach with Level 3 inputs.

As of March 31, 2024, the carrying value of the Company's 7.875% Notes due 2029 (the “March 2029 Notes”) was approximately $111.8 million, net of unamortized deferred financing fees of $3.2 million. The March 2029 Notes have a fixed interest rate as discussed “Note 5 – Borrowings.” The cost of the March 2029 Notes as of March 31, 2024 approximates the fair value, based on the recent funding completed in March 2024. The March 2029 Notes trade on the Nasdaq Global Select Market under the symbol “TRINZ”.

- Definition

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

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