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Borrowings | 3 Months Ended
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Mar. 31, 2025
Debt Disclosure [Abstract] |
Borrowings | Borrowings On June 8, 2018 the Company's shareholders approved the application of the modified asset coverage requirements set forth in Section 61(a) of the 1940 Act, which resulted in the reduction of the minimum asset coverage ratio applicable to the Company from 200.0% to 150.0% as of June 9, 2018 (which means the Company can borrow $2 for every $1 of its equity). As a result of the Company's exemptive relief received on November 5, 2014, the Company is permitted to exclude the SBA-guaranteed debentures issued by SBIC I and SBIC II from the definition of "senior security" for the 150.0% asset coverage ratio that the Company is required to maintain under the 1940 Act. The agreements governing the NMFC Credit Facility, the Convertible Notes (as defined below) and certain of the Unsecured Notes (as defined below) contain certain covenants and terms, including a requirement that the Company not exceed a debt-to-equity ratio of 1.65 to 1.00 at the time of incurring additional indebtedness and a requirement that the Company not exceed a secured debt ratio of 0.70 to 1.00 at any time. As of March 31, 2025, the Company’s asset coverage ratio was 187.0%. Holdings Credit Facility—On October 24, 2017, the Company entered into the Third Amended and Restated Loan and Security Agreement (as amended from time to time, the "Loan and Security Agreement") among the Company, as the Collateral Manager, NMF Holdings, as the Borrower, Wells Fargo Securities, LLC, as the Administrative Agent and Wells Fargo Bank, National Association, as the Lender and Collateral Custodian (the "Holdings Credit Facility"). As of the amendment on March 28, 2025, the maturity date of the Holdings Credit Facility is March 28, 2030, and the maximum facility amount is the lesser of $800,000 and the actual commitments of the lenders to make advances as of such date. As of March 31, 2025, the maximum amount of revolving borrowings available under the Holdings Credit Facility is $730,000. Under the Holdings Credit Facility, NMF Holdings is permitted to borrow up to 35.0%, 45.0%, 55.0%, 67.5% or 70.0% of the purchase price of pledged assets, subject to approval by Wells Fargo Bank, National Association. The Holdings Credit Facility is non-recourse to the Company and is collateralized by all of the investments of NMF Holdings on an investment by investment basis. All fees associated with the origination, amending or upsizing of the Holdings Credit Facility are capitalized on the Company's Consolidated Statement of Assets and Liabilities and charged against income as other financing expenses over the life of the Holdings Credit Facility. The Holdings Credit Facility contains certain customary affirmative and negative covenants and events of default. In addition, the Holdings Credit Facility requires the Company to maintain a minimum asset coverage ratio of 150.0%. The covenants are generally not tied to mark to market fluctuations in the prices of NMF Holdings investments, but rather to the performance of the underlying portfolio companies. As of the amendment on March 28, 2025, the Holdings Credit Facility bears interest at a rate of SOFR plus 1.95% per annum. From July 29, 2024 to March 27, 2025, the Holdings Credit Facility bore interest at a rate of SOFR plus 2.15% per annum. From October 26, 2023 to July 28, 2024, the Holdings Credit Facility bore interest at a rate of SOFR plus 2.50%. The Holdings Credit Facility also charges a non-usage fee, based on the unused facility amount multiplied by the Non-Usage Fee Rate (as defined in the Loan and Security Agreement). The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the Holdings Credit Facility for the three months ended March 31, 2025 and March 31, 2024:
| Three Months Ended |  |
| March 31, 2025 |  | March 31, 2024 |  |  |  |
Interest expense | $ | 5,033 |  |  | $ | 7,087 |  |  |  |  |
Non-usage fee | $ | 578 |  |  | $ | 508 |  |  |  |  |
Amortization of financing costs | $ | 577 |  |  | $ | 576 |  |  |  |  |
Weighted average interest rate | 6.5 | % |  | 7.8 | % |  |  |  |
Effective interest rate | 8.1 | % |  | 9.2 | % |  |  |  |
Average debt outstanding | $ | 310,636 |  |  | $ | 358,489 |  |  |  |  |
As of March 31, 2025 and December 31, 2024, the outstanding balance on the Holdings Credit Facility was $270,563 and $294,363, respectively, and NMF Holdings was in compliance with the applicable covenants of the Holdings Credit Facility on such dates. NMFC Credit Facility—The Second Amended and Restated Senior Secured Revolving Credit Agreement (as amended from time to time, and together with the related guarantee and security agreement, the "RCA"), dated September 30, 2024, among the Company, as the Borrower, Sumitomo Mitsui Banking Corporation, as the Administrative Agent, and the Lenders, as outlined in the RCA (the "NMFC Credit Facility"), is structured as a senior secured revolving credit facility. The NMFC Credit Facility is guaranteed by certain of the Company's domestic subsidiaries and proceeds from the NMFC Credit Facility may be used for general corporate purposes, including the funding of portfolio investments. As of the amendment and restatement on September 30, 2024, the maturity date of the NMFC Credit Facility is June 4, 2026 for Non-Extending Lenders and September 28, 2029 for Extending Lenders (each as defined in the RCA). As of the amendment and restatement on September 30, 2024, the maximum amount of revolving borrowings available under the NMFC Credit Facility was $638,500, of which $527,100 has been committed by Extending Lenders and $111,400 has been committed by Non-Extending Lenders. The Company is permitted to borrow at various advance rates depending on the type of portfolio investment, as outlined in the RCA. All fees associated with the origination and amending of the NMFC Credit Facility are capitalized on the Company’s Consolidated Statement of Assets and Liabilities and charged against income as other financing expenses over the life of the NMFC Credit Facility. The NMFC Credit Facility contains certain customary affirmative and negative covenants and events of default, including certain financial covenants related to asset coverage and liquidity and other maintenance covenants. As of the amendment and restatement on September 30, 2024, the NMFC Credit Facility generally bears interest at a rate of SOFR or SONIA, plus any applicable credit spread adjustment or EURIBOR plus any applicable credit spread adjustment plus 1.90% per annum for Extending Lenders and 2.10% per annum for Non-Extending Lenders, and charges a commitment fee, based on the unused facility amount multiplied by 0.375% per annum (as defined in the RCA). From June 29, 2023 to September 29, 2024, the NMFC Credit Facility bore interest at a rate of SOFR plus any applicable credit spread adjustment, SONIA or EURIBOR plus 2.10% per annum or the prime rate plus 1.10% per annum, and charged a commitment fee, based on the unused facility amount multiplied by 0.375% per annum. As of the amendment on June 5, 2024, the Canadian Dollar Offered Rate was replaced with the Canadian Overnight Repo Rate Average term rate plus a credit spread adjustment as a benchmark rate for certain assets. The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the NMFC Credit Facility for the three months ended March 31, 2025 and March 31, 2024:
| Three Months Ended |  |
| March 31, 2025 |  | March 31, 2024 |  |  |  |
Interest expense | $ | 376 |  |  | $ | 653 |  |  |  |  |
Non-usage fee | $ | 574 |  |  | $ | 154 |  |  |  |  |
Amortization of financing costs | $ | 184 |  |  | $ | 54 |  |  |  |  |
Weighted average interest rate | 5.3 | % |  | 7.3 | % |  |  |  |
Effective interest rate | 16.2 | % |  | 9.7 | % |  |  |  |
Average debt outstanding | $ | 28,302 |  |  | $ | 35,729 |  |  |  |  |
As of March 31, 2025, the outstanding balance on the NMFC Credit Facility was $29,059, which included €16,512 denominated in Euro ("EUR") and £8,666 denominated in British Pound Sterling ("GBP") that has been converted to U.S. dollars. As of December 31, 2024, the outstanding balance on the NMFC Credit Facility was $27,944, which included €16,512 denominated in EUR and £8,666 denominated in GBP that has been converted to U.S. dollars. Unsecured Management Company Revolver—The Uncommitted Revolving Loan Agreement (the "Uncommitted Revolving Loan Agreement"), dated March 30, 2020, by and between the Company, as the Borrower, and NMF Investments III, L.L.C., as Lender, an affiliate of the Investment Adviser (the "Unsecured Management Company Revolver"), is structured as a discretionary unsecured revolving credit facility. The proceeds from the Unsecured Management Company Revolver may be used for general corporate purposes, including the funding of portfolio investments. As of the amendment on October 31, 2023, the maturity date of the Unsecured Management Company Revolver is December 31, 2027. As of the amendment on October 31, 2023, the Unsecured Management Company Revolver bears interest at the Applicable Federal Rate. As of December 17, 2021 through the amendment on October 31, 2023, the Unsecured Management Company Revolver bore interest at a rate of 4.00% per annum. On October 31, 2023, the Company entered into a Second Amended and Restated Uncommitted Revolving Loan Agreement with NMF Investments III, L.L.C., which increased the maximum amount of revolving borrowings available thereunder from $50,000 to $100,000. As of March 31, 2025, the maximum amount of revolving borrowings available under the Unsecured Management Company Revolver was $100,000 and no borrowings were outstanding. For the three months ended March 31, 2025 and March 31, 2024, amortization of financing costs were $1 and $2, respectively. DB Credit Facility—The Loan Financing and Servicing Agreement (the "LFSA"), dated December 14, 2018 and as amended from time to time, among NMFDB as the borrower, Deutsche Bank AG, New York Branch ("Deutsche Bank") as the facility agent, Lender and other agent from time to time party thereto and U.S. Bank National Association, as collateral agent and collateral custodian (the "DB Credit Facility"), was structured as a secured revolving credit facility. As of the amendment on October 31, 2023, the maturity date of the DB Credit Facility was March 25, 2027. On September 30, 2024, the Company repaid all amounts outstanding under the DB Credit Facility, including outstanding borrowings and accrued interest, and terminated the DB Credit Facility. Prior to its termination on September 30, 2024, the maximum amount of revolving borrowings available under the DB Credit Facility was $280,000. The Company was permitted to borrow at various advance rates depending on the type of portfolio investment, as outlined in the LFSA. The DB Credit Facility was non-recourse to the Company and was collateralized by all of the investments of NMFDB on an investment by investment basis. All fees associated with the origination and amending of the DB Credit Facility were capitalized on the Company's Consolidated Statement of Assets and Liabilities and charged against income as other financing expenses over the life of the DB Credit Facility. The DB Credit Facility contained certain customary affirmative and negative covenants and events of default. The covenants were generally not tied to mark to market fluctuations in the prices of NMFDB investments, but rather to the performance of the underlying portfolio companies. The advances under the DB Credit Facility accrued interest at a per annum rate equal to the Applicable Margin (as defined in the LFSA) plus the lender's Cost of Funds Rate (as defined in the LFSA). As of the amendment on October 31, 2023, the Applicable Margin was equal to 2.55% during the Revolving Period (as defined in the LFSA), increased by 0.20% per annum after the Revolving Period and would have been increased by 2.00% per annum during an Event of Default (as defined in the LFSA). The "Cost of Funds Rate" for a conduit lender was the lower of its commercial paper rate and the Base Rate (as defined in the LFSA) plus 0.50%, and for any other lender was the Base Rate. Effective June 29, 2023, the Base Rate was the three-months SOFR Rate. The Company was also charged a non-usage fee, based on the unused facility amount multiplied by the Undrawn Fee Rate (as defined in the LFSA) and a facility agent fee of 0.25% per annum, until the amendment on October 31, 2023, on the total facility amount. As of the amendment on October 31, 2023, the facility agent fee was 0.20% per annum on the total facility amounts. The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the DB Credit Facility for the three months ended March 31, 2024:
|  |  | Three Months Ended |  |
|  |  | March 31, 2024(2) |  |  |  |
Interest expense(1) |  |  | $ | 3,781 |  |  |  |  |
Non-usage fee(1) |  |  | $ | 108 |  |  |  |  |
Amortization of financing costs |  |  | $ | 191 |  |  |  |  |
Weighted average interest rate |  |  | 8.1 | % |  |  |  |
Effective interest rate |  |  | 8.9 | % |  |  |  |
Average debt outstanding |  |  | $ | 185,095 |  |  |  |  |
(1)Interest expense includes the portion of the facility agent fee applicable to the drawn portion of the DB Credit Facility and non-usage fee includes the portion of the facility agent fee applicable to the undrawn portion of the DB Credit Facility. (2)On September 30, 2024, the Company repaid all amounts outstanding under the DB Credit Facility, including outstanding borrowings and accrued interest, and terminated the DB Credit Facility. NMNLC Credit Facility II—The Credit Agreement (together with the related guarantee and security agreement, the "NMNLC CA"), dated February 26, 2021, by and between NMNLC, as the Borrower, and City National Bank, as the Lender (the "NMNLC Credit Facility II"), was structured as a senior secured revolving credit facility. As of the amendment on November 1, 2022, NM CLFX LP was added as a co-borrower and the NMNLC CA would have matured on November 1, 2024. As of the most recent amendment on October 29, 2024, the NMNLC CA maturity date was December 2, 2024. On November 14, 2024, NMNLC and NM CLFX LP repaid all amounts outstanding under the NMNLC Credit Facility II, and terminated the NMNLC Credit Facility II on November 22, 2024. The NMNLC Credit Facility II was guaranteed by the Company and proceeds from the NMNLC Credit Facility II were used for refinancing existing loans on properties held. As of the amendment on November 1, 2022, the NMNLC Credit Facility II bore interest at a rate of SOFR plus 2.25% per annum with a 0.35% floor, and charged a commitment fee, based on the unused facility amount multiplied by 0.05% per annum (as defined in the NMNLC CA). As of the amendment on November 1, 2022, the maximum amount of revolving borrowings available to all borrowers under the NMNLC Credit Facility II was $27,500. The following table summarizes the interest expense, non-usage fees and amortization of financing costs incurred on the NMNLC Credit Facility II for the three months ended March 31, 2025 and March 31, 2024:
|  |  | Three Months Ended |  |
|  |  | March 31, 2024(1) |  |  |  |
Interest expense |  |  | $ | 45 |  |  |  |  |
Non-usage fee |  |  | $ | — |  |  |  |  |
Amortization of financing costs |  |  | $ | 21 |  |  |  |  |
Weighted average interest rate |  |  | 7.6 | % |  |  |  |
Effective interest rate |  |  | 11.4 | % |  |  |  |
Average debt outstanding |  |  | $ | 2,371 |  |  |  |  |
(1)On November 14, 2024, NMNLC repaid all amounts outstanding under the NMNLC Credit Facility II, including outstanding borrowings and accrued interest, and terminated the NMNLC Credit Facility II on November 22, 2024. 2022 Convertible Notes — On November 2, 2022, the Company closed a private offering of $200,000 aggregate principal amount of unsecured convertible notes (the “2022 Convertible Notes”), pursuant to an indenture, dated August 20, 2018, as supplemented by a third supplemental indenture thereto, dated November 2, 2022 (together the “2018C Indenture”). On March 14, 2023, the Company issued an additional $60,000 aggregate principal amount of the 2022 Convertible Notes. These additional 2022 Convertible Notes constitute a further issuance of, rank equally in right of payment with, and form a single series with the $200,000 aggregate principal amount of the 2022 Convertible Notes that the Company issued in November 2022. The 2022 Convertible Notes bear interest at an annual rate of 7.50%, payable semi-annually in arrears on April 15 and October 15 of each year. The 2022 Convertible Notes will mature on October 15, 2025 unless earlier converted, repurchased or redeemed pursuant to the terms of the 2018C Indenture. The Company may not redeem the 2022 Convertible Notes prior to July 15, 2025. On or after July 15, 2025, the Company may redeem the 2022 Convertible Notes for cash, in whole or from time to time in part, at our option at a redemption price, subject to an exception for redemption dates occurring after a record date but on or prior to the interest payment date, equal to the sum of (i) 100% of the principal amount of the 2022 Convertible Notes to be redeemed, (ii) accrued and unpaid interest thereon to, but excluding, the redemption date and (iii) a make-whole premium. On January 21, 2025, the Company launched a tender offer to purchase, upon the terms and subject to the conditions set forth in the Offer to Purchase, dated January 21, 2025, up to $260,000 aggregate principal amount of the outstanding 2022 Convertible Notes for cash in an amount equal to $1.01 per $1.00 principal amount of Notes purchased (exclusive of accrued and unpaid interest on such notes) (the "2022 Convertible Notes Tender Offer"). The 2022 Convertible Notes Tender Offer expired on February 19, 2025. As of the expiration of the 2022 Convertible Tender Offer, $1,216 aggregate principal amount of the 2022 Convertible Notes were validly tendered and not validly withdrawn pursuant to the 2022 Convertible Notes Tender Offer. The Company accepted for purchase all of the 2022 Convertible Notes that were validly tendered and not validly withdrawn at the expiration of the 2022 Convertible Notes Tender Offer. Following settlement of the 2022 Convertible Notes Tender Offer on February 24, 2025, approximately $258,784 aggregate principal amount of the 2022 Convertible Notes remained outstanding. The following table summarizes certain key terms related to the convertible features of the 2022 Convertible Notes as of March 31, 2025:
|  |  |  |  | 2022 Convertible Notes
Initial conversion premium(1) |  |  |  |  | 14.7 | %
Initial conversion rate(2) |  |  |  |  | 70.4225 |
Initial conversion price |  |  |  |  | $ | 14.20 |
Conversion rate at March 31, 2025(1)(2) |  |  |  |  | 73.3323 |
Conversion price at March 31, 2025(2)(3) |  |  |  |  | $ | 13.64 |
Last conversion price calculation date |  |  |  |  | March 17, 2025
(1)Conversion rates denominated in shares of common stock per $1 principal amount of the 2022 Convertible Notes converted. (2)Represents conversion rate and conversion price, as applicable, taking into account certain de minimis adjustments that will be made on the conversion date. (3)The conversion price in effect at March 31, 2025 on the 2022 Convertible Notes was calculated on March 17, 2025. The conversion rate will be subject to adjustment upon certain events, such as stock splits and combinations, mergers, spin-offs, increases in dividends in excess of $0.30 per share per quarter for the 2022 Convertible Notes and certain changes in control. Certain of these adjustments, including adjustments for increases in dividends, are subject to a conversion price floor of $12.38 per share for the 2022 Convertible Notes. In no event will the total number of shares of common stock issuable upon conversion exceed 80.7754 per $1 principal amount of the 2022 Convertible Notes. The Company has determined that the embedded conversion option in the 2022 Convertible Notes is not required to be separately accounted for as a derivative under GAAP. The 2022 Convertible Notes are unsecured obligations and rank senior in right of payment to the Company’s existing and future indebtedness, if any, that is expressly subordinated in right of payment to the 2022 Convertible Notes; equal in right of payment to the Company’s existing and future unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness (including existing unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by the Company’s subsidiaries and financing vehicles. As reflected in Note 11. Earnings Per Share, the issuance is considered part of the if-converted method for calculation of diluted earnings per share. The following table summarizes the interest expense, amortization of financing costs and amortization of premium incurred on the 2022 Convertible Notes for the three months ended March 31, 2025 and March 31, 2024:
| Three Months Ended |  |
| March 31, 2025 |  | March 31, 2024 |  |  |  |
Interest expense | $ | 4,865 |  |  | $ | 4,875 |  |  |  |  |
Amortization of financing costs | $ | 426 |  |  | $ | 396 |  |  |  |  |
Amortization of premium | $ | (17) |  |  | $ | (29) |  |  |  |  |
Weighted average interest rate | 7.5 | % |  | 7.5 | % |  |  |  |
Effective interest rate | 8.1 | % |  | 8.1 | % |  |  |  |
Average debt outstanding | $ | 259,514 |  |  | $ | 260,000 |  |  |  |  |
As of March 31, 2025 and December 31, 2024, the outstanding balance on the 2022 Convertible Notes was $258,784 and $260,000, respectively. The Company was in compliance with the terms of the 2018C Indenture on such dates. Unsecured Notes On April 30, 2019, the Company issued $116,500 in aggregate principal amount of five year unsecured notes with a maturity of April 30, 2024 (the "2019A Unsecured Notes") pursuant to the NPA and a fourth supplement to the NPA (the "Fourth Supplement"). On February 5, 2024, the Company fully repaid $116,500 in aggregate principal amount of issued and outstanding 2019A Unsecured Notes. On January 29, 2021, the Company issued $200,000 in aggregate principal amount of five year unsecured notes that mature on January 29, 2026 (the "2021A Unsecured Notes") pursuant to the NPA and a fifth supplement to the NPA (the "Fifth Supplement"). On June 15, 2022, the Company issued $75,000 in aggregate principal amount of five year unsecured notes that mature on June 15, 2027 (the "2022A Unsecured Notes") pursuant to the NPA and a sixth supplement to the NPA (the "Sixth Supplement"). The NPA provides for future issuances of unsecured notes in separate series or tranches. The 2019A Unsecured Notes bore interest at an annual rate of 5.494%. The 2021A Unsecured Notes bear interest at an annual rate of 3.875%, payable semi-annually in arrears on January 29 and July 29 of each year. The 2022A Unsecured Notes bear interest at an annual rate of 5.900%, payable semi-annually in arrears on June 15 and December 15 of each year. These interest rates are subject to increase in the event that: (i) subject to certain exceptions, the underlying unsecured notes or the Company ceases to have an investment grade rating or (ii) the aggregate amount of the Company’s unsecured debt falls below $150,000. In each such event, the Company has the option to offer to prepay the underlying unsecured notes at par, in which case holders of the underlying unsecured notes who accept the offer would not receive the increased interest rate. In addition, the Company is obligated to offer to prepay the underlying unsecured notes at par if the Investment Adviser, or an affiliate thereof, ceases to be the Company’s investment adviser or if certain change in control events occur with respect to the Investment Adviser. The NPA contains customary terms and conditions for unsecured notes issued in a private placement, including, without limitation, an option to offer to prepay all or a portion of the unsecured notes under its governance at par (plus a make-whole amount, if applicable), affirmative and negative covenants such as information reporting, maintenance of the Company’s status as a BDC under the 1940 Act and a RIC under the Code, minimum stockholders’ equity, minimum asset coverage ratio, and prohibitions on certain fundamental changes at the Company or any subsidiary guarantor, as well as customary events of default with customary cure and notice, including, without limitation, nonpayment, misrepresentation in a material respect, breach of covenant, cross-default under other indebtedness of the Company or certain significant subsidiaries, certain judgments and orders, and certain events of bankruptcy. The Third Supplement, Fourth Supplement, Fifth Supplement and Sixth Supplement all include additional financial covenants related to asset coverage as well as other terms. On November 13, 2023, the Company closed a registered public offering of $115,000 in aggregate principal amount of 8.250% notes that mature on November 15, 2028 (the "8.250% Unsecured Notes"), pursuant to a base indenture and fourth supplemental indenture thereto dated November 13, 2023 (the "Fourth Supplemental Indenture") between the Company and U.S. Bank Trust Company, National Association (as successor in interest to U.S. Bank National Association), as trustee. The 8.250% Unsecured Notes bear interest at an annual rate of 8.250%, payable quarterly on February 15, May 15, August 15 and November 15 of each year. The 8.250% Unsecured Notes are listed on NASDAQ and trade under the trading symbol "NMFCZ". The Company may redeem the 8.250% Unsecured Notes, in whole or in part, at any time, or from time to time, at its option on or after November 15, 2025 at the redemption price of par, plus accrued interest. No sinking fund provision is provided for the 8.250% Unsecured Notes and holders of the 8.250% Unsecured Notes have no option to have their 8.250% Unsecured Notes repaid prior to the stated maturity date. On February 1, 2024, the Company issued $300,000 in aggregate principal amount of its 6.875% notes that mature on February 1, 2029 (the "6.875% Unsecured Notes") pursuant to a base indenture and fifth supplemental indenture thereto dated February 1, 2024 (the "Fifth Supplemental Indenture"). The 6.875% Unsecured Notes bear interest at an annual rate of 6.875%, payable semi-annually on February 1 and August 1 of each year. The Company may redeem the 6.875% Unsecured Notes, in whole or in part, at any time prior to January 1, 2029, at par plus a "make-whole" premium, and thereafter at par, plus accrued interest. On September 26, 2024, the Company issued $300,000 in aggregate principal amount of its 6.200% notes that mature on October 15, 2027 (the "6.200% Unsecured Notes", together with the 2018A Unsecured Notes, 2018B Unsecured Notes, 2019A Unsecured Notes, 2021A Unsecured Notes, 2022A Unsecured Notes, 8.250% Unsecured Notes and 6.875% Unsecured Notes, the "Unsecured Notes") pursuant to a base indenture and sixth supplemental indenture thereto dated September 26, 2024 (together, with the Fourth Supplemental Indenture and the Fifth Supplemental Indenture, the "Indenture"). The 6.200% Unsecured Notes bear interest at an annual rate of 6.200%, payable semi-annually on April 15 and October 15 of each year, beginning on April 15, 2025. The Company may redeem the 6.200% Unsecured Notes, in whole or in part, at any time prior to October 15, 2027, at par plus a "make-whole" premium and accrued interest. The Unsecured Notes are unsecured obligations and rank senior in right of payment to the Company’s existing and future indebtedness, if any, that is expressly subordinated in right of payment to the Unsecured Notes; equal in right of payment to the Company’s existing and future unsecured indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness (including existing unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by the Company’s subsidiaries and financing vehicles. The following table summarizes the interest expense and amortization of financing costs incurred on the Unsecured Notes for the three months ended March 31, 2025 and March 31, 2024:
| Three Months Ended |  |
| March 31, 2025 |  | March 31, 2024 |  |  |  |
Interest expense(1) | $ | 15,395 |  |  | $ | 9,614 |  |  |  |  |
Amortization of financing costs | $ | 802 |  |  | $ | 495 |  |  |  |  |
Amortization of discount | $ | 307 |  |  | $ | 102 |  |  |  |  |
Weighted average interest rate | 6.5 | % |  | 6.0 | % |  |  |  |
Effective interest rate | 6.7 | % |  | 6.4 | % |  |  |  |
Average debt outstanding | $ | 990,000 |  |  | $ | 632,610 |  |  |  |  |
(1)Interest expense includes net expense recognized on fair value hedges. As of March 31, 2025 and December 31, 2024, the outstanding balance on the Unsecured Notes was $985,227 and $978,503, respectively, and the Company was in compliance with the terms of the NPA and Indenture as of such dates, as applicable. In connection with the issuance of the 6.875% Unsecured Notes, the Company entered into an interest rate swap on March 22, 2024 with Morgan Stanley Bank N.A., in which the Company receives a fixed interest rate of 6.875% and pays a floating interest rate of one-month SOFR plus 2.8183% on the notional amount of $300,000. In connection with the issuance of the 6.200% Unsecured Notes, the Company entered into an interest rate swap on September 23, 2024 with Morgan Stanley Bank, N.A., in which the Company receives a fixed interest rate of 6.200% and pays a floating rate of one-month SOFR plus 2.882% on the notional amount of $300,000. The Company designates interest rate swaps as fair value hedges in a qualifying fair value hedge accounting relationship to mitigate risk of changes in the fair value of financial liabilities due to interest rate risk. As a result, the Company will present changes in fair value of the hedging instruments and the related hedged items in interest expense within the Company’s Consolidated Statements of Operations. The Company recorded and formally documented all hedging relationships, its risk management objective and strategy upon entering into each hedging relationship. For each hedging relationship, the Company performs quarterly quantitative assessments of the hedge effectiveness to assess that the hedging relationships are highly effective in offsetting changes in fair values of hedged items and whether the relationship is expected to continue to be highly effective in the future. To the extent the changes in fair value of the derivative do not offset the changes in fair value of the hedged item, the difference is recognized. The corresponding adjustment to the hedged asset or liability is included in the basis of the hedged item, while the corresponding change in the fair value of the derivative instrument is recorded as an adjustment to "Derivative assets at fair value" or "Derivative liabilities at fair value", as applicable. If a hedge relationship is de-designated or if hedge accounting is discontinued because the hedged item no longer exists, the derivative will continue to be recorded as a "Derivative asset at fair value" or "Derivative liability at fair value" in the Consolidated Statements of Assets and Liabilities at its fair value, with changes in fair value recognized in net change in unrealized appreciation (depreciation). The following table presents the effect of hedging derivative instruments on the Consolidated Statements of Operations and the total amounts for the respective line items affected:
|  | Three Months Ended |  | Three Months Ended |  |
|  | March 31, 2025 |  | March 31, 2024 |  |
(Losses) gains on fair value hedging relationship: |  |  |  |  |  |
Interest rate swap contract: |  |  |  |  |  |
Interest expense recognized on derivative |  | $ | (928) |  |  | $ | (64) |  |  |
Gains (Losses) recognized on derivative |  | 7,172 |  |  | (424) |  |  |
(Losses) Gains recognized on hedged item |  | (6,417) |  |  | 331 |  |  |
Net expense recognized on fair value hedge |  | $ | (173) |  |  | $ | (157) |  |  |
The following table summarizes the carrying value of the Company's hedged assets and liabilities in fair value hedges and the associated cumulative basis adjustments included in those carrying values as of March 31, 2025 and December 31, 2024.
| As of
| March 31, 2025 |  | December 31, 2024
Description | Carrying Value |  | Cumulative Amount of Basis Adjustment |  | Carrying Value |  | Cumulative Amount of Basis Adjustment
6.875% Unsecured Notes | $ | 300,053 |  |  | $ | (2,438) |  |  | $ | 296,590 |  |  | $ | 871 |
6.200% Unsecured Notes | $ | 295,174 |  |  | $ | 3,235 |  |  | $ | 291,913 |  |  | $ | 6,343 |
The Company’s derivative instrument contracts are subject to ISDA Master Agreements which contain certain covenants and other provisions upon the occurrence of specific credit-risk-related events which may allow the counterparties to terminate derivatives contracts if the Company fails to maintain sufficient asset coverage for its derivative contracts or upon certain credit events. As a result, the hedging relationship terminates and is immediately accelerated and deemed payable pursuant to the ISDA Master Agreement. The aggregate fair values of all derivative instruments with any credit-risk-related contingent features that were in a liability position on March 31, 2025 and December 31, 2024 were $251 and $7,423, respectively, for which Morgan Stanley Bank N.A. had posted collateral of $10,130 and $3,230, respectively. The Company does not have any derivatives that are not designated as hedging instruments. SBA-guaranteed debentures—On August 1, 2014 and August 25, 2017, respectively, SBIC I and SBIC II received licenses from the SBA to operate as SBICs. These SBIC licenses allow each of SBIC I and SBIC II to obtain leverage by issuing SBA-guaranteed debentures, subject to the issuance of a capital commitment by the SBA and other customary procedures. SBA-guaranteed debentures are non-recourse, interest only debentures with interest payable semi-annually and have a ten year maturity. The principal amount of SBA-guaranteed debentures is not required to be paid prior to maturity but may be prepaid at any time without penalty. The interest rate of SBA-guaranteed debentures is fixed on a semi-annual basis at a market-driven spread over U.S. Treasury Notes with ten year maturities. The SBA, as a creditor, will have a superior claim to the assets of SBIC I and SBIC II over the Company's stockholders in the event SBIC I and SBIC II are liquidated or the SBA exercises its remedies upon an event of default. Prior to June 2018, the maximum amount of borrowings available under SBA regulations for a single licensee was $150,000 as long as the licensee had at least $75,000 in regulatory capital, received a capital commitment from the SBA and had been through an examination by the SBA subsequent to licensing. In June 2018, legislation amended the 1958 Act by increasing the individual leverage limit from $150,000 to $175,000, subject to SBA approvals. As of March 31, 2025 and December 31, 2024, SBIC I had regulatory capital of $75,000 and $75,000, respectively, and SBA-guaranteed debentures outstanding of $112,500 and $150,000, respectively. On February 28, 2025, $37,500 of SBA-guaranteed debentures that were to mature on March 1, 2025, were repaid. As of March 31, 2025 and December 31, 2024, SBIC II had regulatory capital of $75,000 and $75,000, respectively, and SBA-guaranteed debentures outstanding of $150,000 and $150,000, respectively. The SBA-guaranteed debentures incur upfront fees of 3.435%, which consists of a 1.00% commitment fee and a 2.435% issuance discount, which are amortized over the life of the SBA-guaranteed debentures. The following table summarizes the Company’s SBA-guaranteed debentures as of March 31, 2025:
Issuance Date |  | Maturity Date |  | Debenture Amount |  | Interest Rate |  | SBA Annual Charge
Fixed SBA-guaranteed debentures(1): |  |  |  |  |  |  |  |
September 23, 2015 |  | September 1, 2025 |  | $ | 37,500 |  |  | 2.829 | % |  | 0.355 | %
September 23, 2015 |  | September 1, 2025 |  | 28,795 |  |  | 2.829 | % |  | 0.742 | %
March 23, 2016 |  | March 1, 2026 |  | 13,950 |  |  | 2.507 | % |  | 0.742 | %
September 21, 2016 |  | September 1, 2026 |  | 4,000 |  |  | 2.051 | % |  | 0.742 | %
September 20, 2017 |  | September 1, 2027 |  | 13,000 |  |  | 2.518 | % |  | 0.742 | %
March 21, 2018 |  | March 1, 2028 |  | 15,255 |  |  | 3.187 | % |  | 0.742 | %
Fixed SBA-guaranteed debentures(2): |  |  |  |  |  |  |  |
September 19, 2018 |  | September 1, 2028 |  | 15,000 |  |  | 3.548 | % |  | 0.222 | %
September 25, 2019 |  | September 1, 2029 |  | 19,000 |  |  | 2.283 | % |  | 0.222 | %
March 25, 2020 |  | March 1, 2030 |  | 41,000 |  |  | 2.078 | % |  | 0.222 | %
March 25, 2020 |  | March 1, 2030 |  | 24,000 |  |  | 2.078 | % |  | 0.275 | %
September 23, 2020 |  | September 1, 2030 |  | 51,000 |  |  | 1.034 | % |  | 0.275 | %
Total SBA-guaranteed debentures |  |  |  | $ | 262,500 |  |  |  |  |
(1)SBA-guaranteed debentures are held by SBIC I. (2)SBA-guaranteed debentures are held by SBIC II. Prior to pooling, the SBA-guaranteed debentures bear interest at an interim interest rate equal to the Federal Home Loan Bank of Chicago's Fixed Regular Advance Rate (Bank Advance Rate), plus 41 basis points. Once pooled, which occurs in March and September each year, the SBA-guaranteed debentures bear interest at a fixed rate that is set to the current 10-year treasury rate plus a spread at each pooling date. The following table summarizes the interest expense and amortization of financing costs incurred on the SBA-guaranteed debentures for the three months ended March 31, 2025 and March 31, 2024:
| Three Months Ended |  |
| March 31, 2025 |  | March 31, 2024 |  |  |  |
Interest expense | $ | 1,907 |  |  | $ | 2,020 |  |  |  |  |
Amortization of financing costs | $ | 237 |  |  | $ | 250 |  |  |  |  |
Weighted average interest rate | 2.7 | % |  | 2.7 | % |  |  |  |
Effective interest rate | 3.0 | % |  | 3.0 | % |  |  |  |
Average debt outstanding | $ | 287,083 |  |  | $ | 300,000 |  |  |  |  |
The SBIC program is designed to stimulate the flow of private investor capital into eligible small businesses, as defined by SBA regulations that, among other things: require SBICs to invest in eligible small businesses and invest at least 25.0% of investment capital in eligible smaller enterprises (as defined by the SBA regulations), place certain limitations on the financing terms of investments, regulate the types of financing provided by an SBIC, prohibit investments in small businesses with certain characteristics or in certain industries and require capitalization thresholds that limit distributions to the Company. SBICs are subject to an annual periodic examination by an SBA examiner to determine the SBIC's compliance with the relevant SBA regulations and an annual financial audit of its financial statements that are prepared on a basis of accounting other than GAAP (such as ASC 820) by an independent auditor. Leverage risk factors—The Company utilizes and may utilize leverage to the maximum extent permitted by the law for investment and other general business purposes. The Company's lenders will have fixed dollar claims on certain assets that are superior to the claims of the Company's common stockholders, and the Company would expect such lenders to seek recovery against these assets in the event of a default. The use of leverage also magnifies the potential for gain or loss on amounts invested. Leverage may magnify interest rate risk (particularly on the Company's fixed-rate investments), which is the risk that the prices of portfolio investments will fall or rise if market interest rates for those types of securities rise or fall. As a result, leverage may cause greater changes in the Company's net asset value. Similarly, leverage may cause a sharper decline in the Company's income than if the Company had not borrowed. Such a decline could negatively affect the Company's ability to make distributions to its stockholders. Leverage is generally considered a speculative investment technique. The Company's ability to service any debt incurred will depend largely on financial performance and will be subject to prevailing economic conditions and competitive pressures.

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