MVC Capital, Inc. Acquisition

12 Months Ended

Dec. 31, 2023

Business Combination and Asset Acquisition [Abstract]

On December 23, 2020, the Company completed its acquisition of MVC pursuant to the terms and conditions of that certain Agreement and Plan of Merger (the “MVC Merger Agreement”), dated as of August 10, 2020, with MVC, Mustang Acquisition Sub, Inc., a Delaware corporation and our wholly owned subsidiary (“MVC Acquisition Sub”), and Barings. To effect the acquisition, MVC Acquisition Sub merged with and into MVC, with MVC surviving the merger as our wholly owned subsidiary (the “First MVC Merger”). Immediately thereafter, MVC merged with and into the Company, with the Company as the surviving company (the “Second MVC Merger” and, together with the First MVC Merger, the “MVC Merger”). The Merger has been treated as a “reorganization” within the meaning of Section 368(a)(1)(A) of the Code.

In connection with the closing of the MVC Merger on December 23, 2020, the Board affirmed the Company’s commitment to open-market purchases of shares of its common stock in an aggregate amount of up to $15.0 million at then-current market prices at any time shares trade below 90% of the Company’s then most recently disclosed NAV per share. Any repurchases pursuant to the authorized program occurred during the 12-month period that commenced upon the filing of the Company’s quarterly report on Form 10-Q for the quarter ended March 31, 2021, which occurred on May 6, 2021, and were made in accordance with applicable legal, regulatory and contractual requirements, including covenants under the February 2019 Credit Facility. Prior to its termination, the Company repurchased a total of 207,677 shares of common stock in the open market under the authorized program at an average price of $10.14 per share, including brokerage commissions. The MVC repurchase program terminated on May 6, 2022.

In connection with the MVC Acquisition, on December 23, 2020, following the closing of the MVC Merger, the Company entered into the Amended and Restated Advisory Agreement with Barings, effective January 1, 2021. Promptly following the closing of the MVC Merger, the Company also entered into the MVC Credit Support Agreement with Barings. See “Note 2 - Agreements and Related Party Transactions” for more information regarding the Amended and Restated Advisory Agreement and the MVC Credit Support Agreement.

In connection with the closing of the MVC Merger, MVC notified U.S. Bank National Association ("U.S. Bank"), the trustee for MVC Capital's 6.25% Senior Notes due 2022 (the "MVC Notes"), of the election to redeem the remaining $95.0 million in aggregate principal amount of the MVC Notes outstanding at a price equal to 100% of the principal amount of the MVC Notes, plus accrued and unpaid interest on the Notes to, but excluding, the date of redemption, and the Company caused the discharge of the MVC Notes by entering into a Satisfaction and Discharge of Indenture, dated December 23, 2020, with respect to the indenture governing the MVC Notes. The trustee provided notice of such redemption to the holders of the MVC Notes in accordance with the terms of the indenture governing the MVC Notes. The redemption was completed on January 22, 2021 and was funded with trust funds deposited with U.S. Bank in trust for such purpose.

Sierra Merger

On February 25, 2022, the Company completed the Sierra Merger pursuant to the terms and conditions of that certain Agreement and Plan of Merger (the “Sierra Merger Agreement”), dated as of September 21, 2021, by and among the Company, Mercury Acquisition Sub, Inc., a Maryland corporation and a direct wholly owned subsidiary of the Company (“Sierra Acquisition Sub”), Sierra, a Maryland corporation, and Barings. To effect the acquisition, Sierra Acquisition Sub merged with and into Sierra, with Sierra surviving the merger as the Company’s wholly owned subsidiary (the “First Sierra Merger”). Immediately thereafter, Sierra merged with and into the Company, with the Company as the surviving company (the “Second Sierra Merger” and, together with the First Sierra Merger, the “Sierra Merger”). The Merger has been treated as a “reorganization” within the meaning of Section 368(a)(1)(A) of the Code.

Pursuant to the Sierra Merger Agreement, Sierra stockholders received the right to the following merger consideration in exchange for each share of Sierra common stock issued and outstanding immediately prior to the effective time of the First Sierra Merger (excluding any shares cancelled pursuant to the Sierra Merger Agreement): (i) approximately $0.9783641 per share in cash, without interest, from Barings and (ii) 0.44973 of a validly issued, fully paid and non-assessable share of the Company’s common stock. The Company issued approximately

45,986,926 shares of its common stock to Sierra’s former stockholders in connection with the Sierra Merger, thereby resulting in the Company’s then-existing stockholders owning approximately 58.7% of the combined company and Sierra’s former stockholders owning approximately 41.3% of the combined company.

In connection with the completion of the Sierra Merger, the Board affirmed the Company’s commitment to make open-market purchases of shares of its common stock in an aggregate amount of up to $30.0 million at then-current market prices at any time shares trade below 90% of the Company’s then most recently disclosed NAV per share. Any repurchases pursuant to the authorized program will occur during the 12-month period commencing on April 1, 2022 and are expected to be made in accordance with a Rule 10b5-1 purchase plan that qualifies for the safe harbors provided by Rules 10b5-1 and 10b-18 under the Exchange Act, as well as subject to compliance with the Company’s covenant and regulatory requirements. During the year ended December 31, 2022, the Company repurchased the maximum amount of $30.0 million of common stock authorized under the Sierra share repurchase program.

In connection with the Sierra Merger, on February 25, 2022, the Company entered into the Second Amended Barings BDC Advisory Agreement with the Adviser. Promptly following the closing of the Sierra Merger, the Company also entered into the Sierra Credit Support Agreement with Barings. See “Note 2 - Agreements and Related Party Transactions” for more information regarding the Second Amended Barings BDC Advisory Agreement and the Sierra Credit Support Agreement.

The Sierra Merger was accounted for in accordance with the asset acquisition method of accounting as detailed in ASC 805-50, Business Combinations-Related Issues. Under asset acquisition accounting, acquiring assets in groups not only requires ascertaining the cost of the asset (or net assets), but also allocating that cost to the individual assets (or individual assets and liabilities) that make up the group. Per ASC 805-50-30-1, the acquired assets (as a group) are recognized based on their cost to the acquiring entity, which generally includes transaction costs of the asset acquisition, and no gain or loss is recognized unless the fair value of noncash assets given as consideration differs from the assets carrying amounts on the acquiring entity’s records. ASC 805-50-30-2 goes on to say asset acquisitions in which the consideration given is cash are measured by the amount of cash paid. However, if the consideration given is not in the form of cash (that is, in the form of noncash assets, liabilities incurred, or equity interests issued), measurement is based on the cost to the acquiring entity or the fair value of the assets (or net assets) acquired, whichever is more clearly evident and, thus, more reliably measured.

The fair value of the merger consideration paid by the Company was allocated to the assets acquired and liabilities assumed based on their relative fair values as of the date of acquisition and did not give rise to goodwill. Since the fair value of the net assets acquired exceeded the fair value of the merger consideration paid by the Company, the Company recognized a deemed contribution from the Adviser.

The following table summarizes the allocation of the purchase price to the assets acquired and liabilities assumed as a result of the Sierra Merger:


($ in thousands)
Common stock issued by the Company	$	499,418
Cash consideration paid by the Company(1)	10,670
Deemed contribution from Barings LLC	27,729
Total purchase price	$	537,817
Assets acquired:
Investments(2)	$	442,198
Cash	102,006
Other assets(3)	3,519
Total assets acquired	$	547,723
Liabilities assumed(4)	(9,906)
Net assets acquired	$	537,817

(1)The Company incurred $10.6 million in professional fees and other costs related to the Sierra Merger, including $4.0 million in investment banking fees.

(2)Investments acquired were recorded at fair value, which is also the Company’s initial cost basis.

(3)Other assets acquired in the Sierra Merger consisted of the following:


($ in thousands)
Interest and fees receivable	$	2,874

Escrow receivable	645

Total	$	3,519

(4)Liabilities assumed in the Sierra Merger consisted of the following:


($ in thousands)
Accrued merger expenses	$	3,327
Current and deferred tax liability	3,814
Other liabilities	2,765
Total	$	9,906