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v3.22.2.2

Investments (Tables) | 9 Months Ended
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Sep. 30, 2022
Investments, Debt and Equity Securities [Abstract] |
Summary of Portfolio by Security and Investment | The following table shows the Company’s portfolio by security type at September 30, 2022 and December 31, 2021:
($ in thousands) |  | September 30, 2022 (Unaudited) |  |  | December 31, 2021 |
Security Type |  | Cost/Amortized Cost |  |  | Fair Value |  |  | %(¹) |  |  | Cost/Amortized Cost |  |  | Fair Value |  |  | %(¹) |
Senior Secured Loan |  | $ | 426,052 |  |  | $ | 415,819 |  |  |  | 73 |  |  | $ | 361,556 |  |  | $ | 364,701 |  |  |  | 66 |
Junior Secured Loan |  |  | 65,672 |  |  |  | 61,535 |  |  |  | 11 |  |  |  | 82,996 |  |  |  | 70,549 |  |  |  | 13 |
Senior Unsecured Bond |  |  | 416 |  |  |  | 43 |  |  |  | 0 |  |  |  | 416 |  |  |  | 43 |  |  |  | 0 |
Equity Securities |  |  | 27,679 |  |  |  | 24,487 |  |  |  | 4 |  |  |  | 26,680 |  |  |  | 22,586 |  |  |  | 4 |
CLO Fund Securities |  |  | 37,411 |  |  |  | 24,623 |  |  |  | 4 |  |  |  | 51,561 |  |  |  | 31,632 |  |  |  | 6 |
Asset Manager Affiliates(2) |  |  | 17,791 |  |  |  | - |  |  |  | - |  |  |  | 17,791 |  |  |  | - |  |  |  | - |
Joint Ventures |  |  | 55,139 |  |  |  | 45,141 |  |  |  | 8 |  |  |  | 64,365 |  |  |  | 60,474 |  |  |  | 11 |
Derivatives |  |  | 31 |  |  |  | 8 |  |  |  | 0 |  |  |  | 31 |  |  |  | (2,412 | ) |  |  | - |
Total |  | $ | 630,191 |  |  | $ | 571,656 |  |  |  | 100 | % |  | $ | 605,396 |  |  | $ | 547,573 |  |  |  | 100 | %
(1) Represents percentage of total portfolio at fair value. (2) Represents the equity investment in the Asset Manager Affiliates. The industry concentrations based on the fair value of the Company’s investment portfolio as of September 30, 2022 and December 31, 2021 were as follows:
($ in thousands) |  | September 30, 2022 (Unaudited) |  |  | December 31, 2021 |
Industry Classification |  | Cost/Amortized Cost |  |  | Fair Value |  |  | %(¹) |  |  | Cost/Amortized Cost |  |  | Fair Value |  |  | %(¹) |
Aerospace and Defense |  | $ | 10,764 |  |  | $ | 10,522 |  |  |  | 2 |  |  | $ | 11,730 |  |  | $ | 11,692 |  |  |  | 2 |
Asset Management Company(2) |  |  | 17,791 |  |  |  | - |  |  |  | - |  |  |  | 17,791 |  |  |  | - |  |  |  | - |
Automotive |  |  | 12,007 |  |  |  | 11,803 |  |  |  | 2 |  |  |  | 11,331 |  |  |  | 11,487 |  |  |  | 2 |
Banking, Finance, Insurance & Real Estate |  |  | 72,192 |  |  |  | 74,457 |  |  |  | 13 |  |  |  | 41,487 |  |  |  | 42,858 |  |  |  | 8 |
Beverage, Food and Tobacco |  |  | 12,381 |  |  |  | 12,237 |  |  |  | 2 |  |  |  | 5,511 |  |  |  | 5,625 |  |  |  | 1 |
Capital Equipment |  |  | 10,679 |  |  |  | 6,915 |  |  |  | 1 |  |  |  | 14,387 |  |  |  | 10,620 |  |  |  | 2 |
Chemicals, Plastics & Rubber |  |  | 10,496 |  |  |  | 10,379 |  |  |  | 2 |  |  |  | 12,692 |  |  |  | 12,969 |  |  |  | 2 |
CLO Fund Securities |  |  | 37,411 |  |  |  | 24,623 |  |  |  | 4 |  |  |  | 51,561 |  |  |  | 31,632 |  |  |  | 6 |
Construction & Building |  |  | 10,481 |  |  |  | 10,530 |  |  |  | 2 |  |  |  | 8,966 |  |  |  | 9,501 |  |  |  | 2 |
Consumer goods: Durable |  |  | 16,804 |  |  |  | 13,852 |  |  |  | 2 |  |  |  | 25,151 |  |  |  | 24,831 |  |  |  | 5 |
Consumer goods: Non-durable |  |  | 2,187 |  |  |  | 2,197 |  |  |  | 0 |  |  |  | 4,162 |  |  |  | 4,197 |  |  |  | 1 |
Containers, Packaging and Glass |  |  | 2,761 |  |  |  | 2,661 |  |  |  | 1 |  |  |  | 2,780 |  |  |  | 2,570 |  |  |  | 1 |
Electronics |  |  | 10,809 |  |  |  | 10,917 |  |  |  | 2 |  |  |  | 10,623 |  |  |  | 11,089 |  |  |  | 2 |
Energy: Electricity |  |  | 671 |  |  |  | 671 |  |  |  | 0 |  |  |  | - |  |  |  | - |  |  |  | - |
Energy: Oil & Gas |  |  | 6,718 |  |  |  | 1,388 |  |  |  | 0 |  |  |  | 7,921 |  |  |  | 2,355 |  |  |  | 0 |
Environmental Industries |  |  | 4,315 |  |  |  | 6,200 |  |  |  | 1 |  |  |  | 4,315 |  |  |  | 4,200 |  |  |  | 1 |
Finance |  |  | 7,759 |  |  |  | 7,757 |  |  |  | 1 |  |  |  | 10,916 |  |  |  | 10,912 |  |  |  | 2 |
Forest Products & Paper |  |  | 1,587 |  |  |  | 1,376 |  |  |  | 0 |  |  |  | 1,583 |  |  |  | 1,271 |  |  |  | 0 |
Healthcare, Education and Childcare |  |  | 9,740 |  |  |  | 9,613 |  |  |  | 2 |  |  |  | 9,783 |  |  |  | 9,752 |  |  |  | 2 |
Healthcare & Pharmaceuticals |  |  | 49,296 |  |  |  | 48,667 |  |  |  | 9 |  |  |  | 71,696 |  |  |  | 62,275 |  |  |  | 11 |
High Tech Industries |  |  | 79,358 |  |  |  | 73,154 |  |  |  | 13 |  |  |  | 58,803 |  |  |  | 58,715 |  |  |  | 11 |
Hotel, Gaming & Leisure |  |  | 10,128 |  |  |  | 8,823 |  |  |  | 2 |  |  |  | 4,906 |  |  |  | 4,898 |  |  |  | 1 |
Joint Ventures |  |  | 55,139 |  |  |  | 45,141 |  |  |  | 8 |  |  |  | 64,365 |  |  |  | 60,474 |  |  |  | 11 |
Machinery (Non-Agrclt/Constr/Electr) |  |  | 9,524 |  |  |  | 9,716 |  |  |  | 2 |  |  |  | 7,748 |  |  |  | 8,967 |  |  |  | 2 |
Media: Advertising, Printing & Publishing |  |  | 150 |  |  |  | 281 |  |  |  | - |  |  |  | 150 |  |  |  | 246 |  |  |  | 0 |
Media: Broadcasting & Subscription |  |  | 13,081 |  |  |  | 13,848 |  |  |  | 2 |  |  |  | 12,407 |  |  |  | 13,255 |  |  |  | 2 |
Media: Diversified & Production |  |  | 7,160 |  |  |  | 7,175 |  |  |  | 1 |  |  |  | 6,272 |  |  |  | 6,365 |  |  |  | 1 |
Metals & Mining |  |  | 15,763 |  |  |  | 15,052 |  |  |  | 3 |  |  |  | 15,342 |  |  |  | 13,647 |  |  |  | 3 |
Retail |  |  | 10,748 |  |  |  | 10,787 |  |  |  | 2 |  |  |  | 6,144 |  |  |  | 6,775 |  |  |  | 1 |
Services: Business |  |  | 72,599 |  |  |  | 73,124 |  |  |  | 13 |  |  |  | 76,071 |  |  |  | 77,798 |  |  |  | 14 |
Services: Consumer |  |  | 8,347 |  |  |  | 7,980 |  |  |  | 1 |  |  |  | 990 |  |  |  | 990 |  |  |  | 0 |
Telecommunications |  |  | 9,473 |  |  |  | 8,541 |  |  |  | 2 |  |  |  | 7,521 |  |  |  | 6,675 |  |  |  | 1 |
Textiles and Leather |  |  | 12,640 |  |  |  | 12,408 |  |  |  | 2 |  |  |  | 12,496 |  |  |  | 11,095 |  |  |  | 2 |
Transportation: Cargo |  |  | 11,566 |  |  |  | 11,484 |  |  |  | 2 |  |  |  | - |  |  |  | - |  |  |  | - |
Transportation: Consumer |  |  | 7,666 |  |  |  | 7,377 |  |  |  | 1 |  |  |  | 7,795 |  |  |  | 7,837 |  |  |  | 1 |
Total |  | $ | 630,191 |  |  | $ | 571,656 |  |  |  | 100 | % |  | $ | 605,396 |  |  | $ | 547,573 |  |  |  | 100 | %
(1) Calculated as a percentage of total portfolio at fair value. (2) Represents the equity investment in the Asset Manager Affiliates.
Summary of Investments in Affiliates | The following table details investments in affiliates at September 30, 2022 (unaudited):
($ in thousands) | Industry Classification | Fair Value as of December 31, 2021 |  | Purchases/ (Sales) of or Advances/ (Distributions) |  | Net Accretion |  | Transfers In/(Out) of Affiliates |  | Net Change in Unrealized Gain/(Loss) |  | Realized Gain/(Loss) |  | Fair Value as of September 30, 2022 |  | Principal / Shares at September 30, 2022 |  | Interest Income |  | Dividend Income |
Asset Manager Affiliates(1)(2)(3) | Asset Management Company | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | - |  | $ | - |  |  | - |  | $ | - |  | $ | - |
Tank Partners Equipment Holdings, LLC(1)(2)(3)(6) | Energy: Oil & Gas |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 49,000 |  |  | - |  |  | - |
Tank Partners Equipment Holdings, LLC(1)(2)(3) | Energy: Oil & Gas |  | 43 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 43 |  |  | 511 |  |  | - |  |  | - |
Flight Lease VII (1)(2)(4)(6) | Aerospace and Defense |  | 256 |  |  | - |  |  | - |  |  | - |  |  | (6 | ) |  | - |  |  | 250 |  |  | 1,938 |  |  | - |  |  | - |
ProAir, LLC(1)(2)(3)(6) | Capital Equipment |  | - |  |  | - |  |  | - |  |  | 4,261 |  |  | (2,783 | ) |  | - |  |  | 1,478 |  |  | 2,749,997 |  |  | - |  |  | - |
ProAir, LLC(1)(2)(3) | Capital Equipment |  | - |  |  | 1,931 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 1,931 |  |  | 1,931 |  |  | 181 |  |  | - |
KCAP Freedom 3, LLC (1)(3) | Joint Venture |  | 23,062 |  |  | - |  |  | - |  |  | - |  |  | (4,872 | ) |  | - |  |  | 18,190 |  |  | 27,220 |  |  | - |  |  | 3,262 |
Total controlled affiliates |  | $ | 23,361 |  | $ | 1,931 |  | $ | - |  | $ | 4,261 |  | $ | (7,661 | ) | $ | - |  | $ | 21,892 |  |  |  | $ | 181 |  | $ | 3,262 |
BCP Great Lakes Holdings LP(5)(7) | Joint Venture | $ | 37,412 |  | $ | 1,700 |  | $ | - |  | $ | (38,124 | ) | $ | (461 | ) | $ | (527 | ) | $ | - |  |  | - |  | $ | - |  |  | 3,099 |
Series A-Great Lakes Funding II LLC(5)(6)(8) | Joint Venture |  | - |  |  | (10,399 | ) |  | - |  |  | 38,124 |  |  | (774 | ) |  | - |  |  | 26,951 |  |  | 27,724,363 |  |  | - |  |  | - |
Flight Lease XII(1)(2)(5)(6) | Aerospace and Defense |  | 677 |  |  | (742 | ) |  | - |  |  | - |  |  | (147 | ) |  | 212 |  |  | - |  |  | - |  |  | - |  |  | - |
GreenPark Infrastructure, LLC(1)(2)(5)(6) | Energy: Electricity |  | - |  |  | 500 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 500 |  |  | 1,000 |  |  | - |  |  | - |
GreenPark Infrastructure, LLC(1)(2)(5)(6)(8) | Energy: Electricity |  | - |  |  | 171 |  |  | - |  |  | - |  |  | - |  |  | - |  |  | 171 |  |  | 500 |  |  | - |  |  | - |
GreenPark Infrastructure, LLC(5)(8) | Energy: Electricity |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |  |  | - |
Kleen-Tech Acquisition, LLC (1)(2)(5)(6) | Services: Business |  | 1,612 |  |  | - |  |  | - |  |  | - |  |  | (322 | ) |  | - |  |  | 1,290 |  |  | 250,000 |  |  | - |  |  | - |
Northeast Metal Works LLC (1)(2)(5) | Metals & Mining |  | 12,280 |  |  | 401 |  |  | (10 | ) |  | - |  |  | 577 |  |  | - |  |  | 13,248 |  |  | 14,477 |  |  | 1,089 |  |  | - |
Northeast Metal Works LLC (1)(2)(5)(6) | Metals & Mining |  | - |  |  | - |  |  | - |  |  | - |  |  | 460 |  |  | - |  |  | 460 |  |  | 2,368 |  |  | - |  |  | - |
BMP Slappey Holdco, LLC (1)(2)(5)(6) | Telecommunications |  | 492 |  |  | - |  |  | - |  |  | - |  |  | 60 |  |  | - |  |  | 552 |  |  | 200,000 |  |  | - |  |  | - |
BMP Slappey Investment II (1)(2)(5)(6) | Telecommunications |  | 219 |  |  | - |  |  | - |  |  | - |  |  | 27 |  |  | - |  |  | 246 |  |  | 88,946 |  |  | - |  |  | - |
Surge Hippodrome Partners LP(1)(2)(5)(6) | Services: Business |  | 336 |  |  | - |  |  | - |  |  | - |  |  | 387 |  |  | - |  |  | 723 |  |  | 185 |  |  | - |  |  | - |
Surge Hippodrome Holdings LLC(1)(2)(5)(6) | Services: Business |  | 201 |  |  | - |  |  | - |  |  | - |  |  | 230 |  |  | - |  |  | 431 |  |  | 10 |  |  | - |  |  | - |
Surge Hippodrome Holdings LLC(1)(2)(5) | Services: Business |  | 5,160 |  |  | - |  |  | 155 |  |  | - |  |  | (226 | ) |  | - |  |  | 5,089 |  |  | 5,460 |  |  | 375 |  |  | - |
VTK Acquisition, Inc.(1)(2)(5) | Capital Equipment |  | 1,531 |  |  | (1,536 | ) |  | 33 |  |  | - |  |  | (28 | ) |  | - |  |  | - |  |  | - |  |  | 57 |  |  | - |
VTK Acquisition, Inc.(1)(2)(5) | Capital Equipment |  | 2,598 |  |  | (2,628 | ) |  | 110 |  |  | - |  |  | (80 | ) |  | - |  |  | - |  |  | - |  |  | 107 |  |  | - |
VTK Acquisition, Inc.(1)(2)(5)(6) | Capital Equipment |  | 535 |  |  | (369 | ) |  | - |  |  | - |  |  | (284 | ) |  | 118 |  |  | - |  |  | - |  |  | - |  |  | - |
Navex Topco, Inc.(1)(2)(5) | Electronics |  | 7,609 |  |  | - |  |  | 63 |  |  | - |  |  | (202 | ) |  | - |  |  | 7,470 |  |  | 7,700 |  |  | 470 |  |  | - |
Zest Acquisition Corp.(1)(2)(5) | Healthcare, Education and Childcare |  | 3,480 |  |  | - |  |  | 2 |  |  | - |  |  | (91 | ) |  | - |  |  | 3,391 |  |  | 3,500 |  |  | 223 |  |  | - |
Total Non-controlled affiliates |  | $ | 74,142 |  | $ | (12,902 | ) | $ | 353 |  | $ | - |  | $ | (874 | ) | $ | (197 | ) | $ | 60,522 |  |  |  | $ | 2,321 |  | $ | 3,099 |
Total Affiliated Investments |  | $ | 97,503 |  | $ | (10,971 | ) | $ | 353 |  | $ | 4,261 |  | $ | (8,535 | ) | $ | (197 | ) | $ | 82,414 |  |  |  | $ | 2,502 |  | $ | 6,361 |
(1) Fair value of this investment was determined using significant unobservable inputs. (2) Qualified asset for purposes of section 55(a) of the Investment Company Act of 1940. (3) As defined in the 1940 Act, the Company is deemed to be both an “Affiliated Person” and has “Control” of this portfolio company as the Company owns more than 25% of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement). Other than for purposes of the 1940 Act, the Company does not believe that it has control over this portfolio company. (4) As defined in the 1940 Act, the Company is deemed to be both an “Affiliated Person” and has “Control” of this portfolio company as the Company owns more than 25% of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company. (5) Under the 1940 Act, the Company is deemed to be an “Affiliated Person” of, as defined in the 1940 Act, this portfolio company as the Company owns at least 5% of the portfolio company’s outstanding voting securities or is under common control with such portfolio company. (6) Number of shares held. (7) Ownership of LP interest held through the holding company BCP Great Lakes Fund, L.P, a non-U.S. company or principal place of business outside the U.S. (8) Security has an unfunded commitment in addition to the amounts shown in the Consolidated Schedule of Investments. See Note 8 for additional information on the Company’s commitments and contingencies.
Summary of Financial Information | KCAP Freedom 3 LLC Summarized Statements of Financial Condition ($ in thousands)
|  | As of September 30, 2022 (Unaudited) |  |  | As of December 31, 2021 |
Cash |  | $ | — |  |  | $ | — |
Investment at fair value |  |  | 28,703 |  |  |  | 35,841 |
Total Assets |  | $ | 28,703 |  |  | $ | 35,841 |
Total Liabilities |  | $ | 164 |  |  | $ | 164 |
Total Equity |  | $ | 28,539 |  |  | $ | 35,677 |
Total Liabilities and Equity |  | $ | 28,703 |  |  | $ | 35,841 |
KCAP Freedom 3 LLC Summarized Statements of Operations ($ in thousands) (Unaudited)
|  | For the Three Months Ended September 30, | For the Nine Months Ended September 30, |
|  | 2022 |  |  | 2021 |  |  | 2022 |  |  | 2021 |
Investment income |  | $ | 2,542 |  |  | $ | 1,620 |  |  | $ | 6,938 |  |  | $ | 4,919 |
Operating expenses |  |  | 2 |  |  |  | 36 |  |  |  | 5 |  |  |  | 52 |
Net investment income |  | $ | 2,540 |  |  | $ | 1,584 |  |  | $ | 6,933 |  |  | $ | 4,867 |
Unrealized appreciation on investments |  | $ | (4,199 | ) |  | $ | (766 | ) |  | $ | (9,282 | ) |  | $ | 564 |
Net income |  | $ | (1,659 | ) |  | $ | 818 |  |  | $ | (2,349 | ) |  | $ | 5,431 |
KCAP Freedom 3 LLC Schedule of Investments September 30, 2022 ($ in thousands) (Unaudited)
Portfolio Company |  | Investment |  | Percentage Ownership by Joint Venture |  |  | Amortized Cost |  |  | Fair Value |
Great Lakes KCAP F3C Senior, LLC(1)(2) |  | Subordinated Securities, effective interest 23.7%, 12/29 maturity |  |  | 100.0 | % |  | $ | 42,990 |  |  | $ | 28,703 |
Total Investments |  |  |  |  |  |  | $ | 42,990 |  |  | $ | 28,703 |
(1) CLO Subordinated Investments are entitled to periodic distributions which are generally equal to the remaining cash flow of the payments made by the underlying fund’s investments less contractual payments to debt holders and fund expenses. The estimated annualized effective yield indicated is based upon a current projection of the amount and timing of these distributions. Such projections are updated on a quarterly basis and the estimated effective yield is adjusted prospectively. (2) Fair value of this investment was determined using significant unobservable inputs, including default rates, prepayment rates, spreads, and the discount rate by which to value the resulting cash flows. KCAP Freedom 3 LLC Schedule of Investments December 31, 2021 ($ in thousands)
Portfolio Company |  | Investment |  | Percentage Ownership by Joint Venture |  |  | Amortized Cost |  |  | Fair Value |
Great Lakes KCAP F3C Senior, LLC(1)(2) |  | Subordinated Securities, effective interest 21.3%, 12/29 maturity |  |  | 100.0 | % |  | $ | 40,847 |  |  | $ | 35,841 |
Total Investments |  |  |  |  |  |  | $ | 40,847 |  |  | $ | 35,841 |
(1) CLO Subordinated Investments are entitled to periodic distributions which are generally equal to the remaining cash flow of the payments made by the underlying fund’s investments less contractual payments to debt holders and fund expenses. The estimated annualized effective yield indicated is based upon a current projection of the amount and timing of these distributions. Such projections are updated on a quarterly basis and the estimated effective yield is adjusted prospectively. (2) Fair value of this investment was determined using significant unobservable inputs, including default rates, prepayment rates, spreads, and the discount rate by which to value the resulting cash flows.
Summary of Fair Value of Investments by Fair Value Hierarchy Levels | The following table summarizes the fair value of investments by fair value hierarchy levels provided by ASC 820: Fair Value as of September 30, 2022 (unaudited) and December 31, 2021, respectively:
| As of September 30, 2022 |
($ in thousands) | Level I |  | Level II |  | Level III |  | NAV |  | Total |
Debt securities | $ | - |  | $ | 65,152 |  | $ | 412,245 |  | $ | - |  | $ | 477,397 |
Equity securities |  | 1,317 |  |  | - |  |  | 23,170 |  |  | - |  |  | 24,487 |
CLO Fund securities |  | - |  |  | - |  |  | 24,623 |  |  | - |  |  | 24,623 |
Joint Ventures |  | - |  |  | - |  |  | 18,190 |  |  | 26,951 |  |  | 45,141 |
Derivatives |  | - |  |  | - |  |  | 8 |  |  | - |  |  | 8 |
Total | $ | 1,317 |  | $ | 65,152 |  | $ | 478,236 |  | $ | 26,951 |  | $ | 571,656 |
|  | As of December 31, 2021 |
($ in thousands) |  | Level I |  |  | Level II |  |  | Level III |  |  | NAV |  |  | Total |
Debt securities |  |  | — |  |  |  | 42,861 |  |  |  | 392,432 |  |  |  | — |  |  |  | 435,293 |
CLO Fund securities |  |  | — |  |  |  | — |  |  |  | 31,632 |  |  |  | — |  |  |  | 31,632 |
Equity securities |  |  | 1,594 |  |  |  | — |  |  |  | 20,992 |  |  |  | — |  |  |  | 22,586 |
Joint Ventures |  |  | — |  |  |  | — |  |  |  | 23,062 |  |  |  | 37,412 |  |  |  | 60,474 |
Derivatives |  |  | — |  |  |  | — |  |  |  | (2,412 | ) |  |  | — |  |  |  | (2,412 | )
Total |  | $ | 1,594 |  |  | $ | 42,861 |  |  | $ | 465,706 |  |  | $ | 37,412 |  |  | $ | 547,573 |
Summary of Information Relating to Investments Measured at Fair Value for Company has Used Unobservable Inputs to Determine Fair Value | The Company’s policy for determining transfers between levels is based solely on the previously defined three-level hierarchy for fair value measurement. Transfers between the levels of the fair value hierarchy are separately noted in the tables below and the reason for such transfer described in each table’s respective footnotes. Certain information relating to investments measured at fair value for which the Company has used unobservable inputs to determine fair value is as follows:
|  | Nine Months Ended September 30, 2022 |
($ in thousands) |  | Debt Securities |  |  | Equity Securities |  |  | CLO Fund Securities |  |  | Joint Ventures |  |  | Derivatives |  |  | Total |
Balance, December 31, 2021 |  | $ | 392,432 |  |  | $ | 20,992 |  |  | $ | 31,632 |  |  | $ | 23,062 |  |  | $ | (2,412 | ) |  | $ | 465,706 |
Transfers out of Level III¹ |  |  | (13,988 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (13,988 | )
Transfers into Level III² |  |  | 5,351 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 5,351 |
Net accretion |  |  | 7,810 |  |  |  | - |  |  |  | 3,476 |  |  |  | - |  |  |  | - |  |  |  | 11,286 |
Purchases |  |  | 153,420 |  |  |  | 3,817 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 157,237 |
Sales/Paydowns/Return of Capital |  |  | (120,378 | ) |  |  | (4,092 | ) |  |  | (5,571 | ) |  |  | - |  |  |  | 2,075 |  |  |  | (127,966 | )
Total realized gain (loss) included in earnings |  |  | (14,624 | ) |  |  | 1,271 |  |  |  | (12,054 | ) |  |  | - |  |  |  | (2,095 | ) |  |  | (27,502 | )
Change in unrealized gain (loss) included in earnings |  |  | 2,222 |  |  |  | 1,182 |  |  |  | 7,140 |  |  |  | (4,872 | ) |  |  | 2,440 |  |  |  | 8,112 |
Balance, September 30, 2022 |  | $ | 412,245 |  |  | $ | 23,170 |  |  | $ | 24,623 |  |  | $ | 18,190 |  |  | $ | 8 |  |  | $ | 478,236 |
Changes in unrealized gains (losses) included in earnings related to investments still held at reporting date |  | $ | (10,299 | ) |  | $ | 1,613 |  |  | $ | 4,722 |  |  | $ | (4,872 | ) |  | $ | (2 | ) |  | $ | (8,838 | )
(1) Transfers out of Level III represent a transfer of $14.0 million relating to debt securities and equity securities for which pricing inputs, other than their quoted prices in active markets were observable as of September 30, 2022. (2) Transfers into Level III represent a transfer of $5.4 million relating to debt securities for which pricing inputs, other than their quoted prices in active markets were unobservable as of September 30, 2022.
|  | Nine Months Ended September 30, 2021 |
($ in thousands) |  | Debt Securities |  |  | Equity Securities |  |  | CLO Fund Securities |  |  | Joint Ventures |  |  | Derivatives |  |  | Total |
Balance, December 31, 2020 |  | $ | 334,245 |  |  | $ | 12,537 |  |  | $ | 19,583 |  |  | $ | 19,749 |  |  | $ | (1,109 | ) |  | $ | 385,005 |
Transfers out of Level III¹ |  |  | (13,819 | ) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (13,819 | )
Transfers into Level III² |  |  | 20,127 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 20,127 |
Net accretion |  |  | 23,180 |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 23,180 |
Purchases |  |  | 443,996 |  |  |  | 8,755 |  |  |  | - |  |  |  | 2,500 |  |  |  | - |  |  |  | 455,251 |
Sales/Paydowns/Return of Capital |  |  | (409,189 | ) |  |  | (4,481 | ) |  |  | (6,441 | ) |  |  | - |  |  |  | (880 | ) |  |  | (420,991 | )
Total realized gain (loss) included in earnings |  |  | (7,209 | ) |  |  | 174 |  |  |  | (5,323 | ) |  |  | - |  |  |  | 880 |  |  |  | (11,478 | )
Change in unrealized gain (loss) included in earnings |  |  | (8,067 | ) |  |  | 3,767 |  |  |  | 9,355 |  |  |  | 1,697 |  |  |  | (873 | ) |  |  | 5,879 |
Balance, September 30, 2021 |  | $ | 383,264 |  |  | $ | 20,752 |  |  | $ | 17,174 |  |  | $ | 23,946 |  |  | $ | (1,982 | ) |  | $ | 443,154 |
Changes in unrealized gains (losses) included in earnings related to investments still held at reporting date |  | $ | 7,905 |  |  | $ | 3,068 |  |  | $ | 4,031 |  |  | $ | 1,697 |  |  | $ | - |  |  | $ | 16,701 |
(1) Transfers out of Level III represent a transfer of $13.8 million relating to debt securities for which pricing inputs, other than their quoted prices in active markets were observable as of September 30, 2021. (2) Transfers into Level III represent a transfer of $20.1 million relating to debt securities for which pricing inputs, other than their quoted prices in active markets were unobservable as of September 30, 2021.
Schedule of Valuation Techniques and Significant Inputs of Level III Investments | As of September 30, 2022 the Company’s Level III portfolio investments had the following valuation techniques and significant inputs:
Type |  | Fair Value |  |  | Primary Valuation Techniques |  | Unobservable Inputs |  | Range of Inputs (Weighted Average)
|  | $ | 4,939 |  |  | Enterprise Value |  | Average EBITDA Multiple |  | 0.4 x-6.4 x (4.0 x)
Debt Securities |  |  |  |  |  |  | Recovery Rate Multiple |  | 0.1 x-0.1 x (0.1 x)
|  |  | 374,672 |  |  | Income Approach |  | Implied Discount Rate |  | 5.1%-44.9% (13.3%)
|  |  | 32,634 |  |  | Recent Transaction |  | Implied Discount Rate |  | 7.0%-14.0% (9.5%)
|  |  | 20,626 |  |  | Enterprise Value |  | Average EBITDA Multiple / WACC |  | 0.0 x-15.5 x (6.8 x)
Equity Securities |  |  |  |  |  |  | Recovery Rate |  | 0.9 x-0.9 x (0.9 x)
|  |  | 1,800 |  |  | Income Approach |  | Implied Discount Rate |  | 14.0%-15.0% (14.8%)
|  |  | 744 |  |  | Recent Transaction |  | Implied Discount Rate |  | 12.4%-18.7% (13.0%)
|  |  |  |  |  |  | Discount Rate |  | 19.4%-25.6% (22.5%)
|  |  |  |  |  |  | Probability of Default |  | 1.5%-2.0% (1.8%)
CLO Fund Securities |  |  | 24,623 |  |  | Discounted Cash Flow |  | Loss Severity |  | 25.0%-35.0% (30.0%)
|  |  |  |  |  |  | Recovery Rate |  | 65.0%-75.0% (70.0%)
|  |  |  |  |  |  | Prepayment Rate |  | 15.0%-25.0% (20.0%)
|  |  |  |  |  |  | Discount Rate |  | 21.6%-23.2% (22.4%)
|  |  |  |  |  |  | Probability of Default |  | 2.5%-3.0% (2.8%)
Joint Ventures |  |  | 18,190 |  |  | Discounted Cash Flow |  | Loss Severity |  | 25.0%-35.0% (30.0%)
|  |  |  |  |  |  | Recovery Rate |  | 65.0%-75.0% (70.0%)
|  |  |  |  |  |  | Prepayment Rate |  | 15.0%-25.0% (20.0%)
Derivatives |  |  | 8 |  |  | Market Approach |  | Transacted Value/Contractual Financing Rate |  |
Total Level III Investments |  | $ | 478,236 |  |  |  |  |  |  |
(1) The qualitative inputs used in the fair value measurements of Equity Securities include estimates of the distressed liquidation value of the pledged collateral. In cases where Portman Ridge’s analysis ascribes no residual value to a portfolio company’s equity, Portman Ridge typically elects to mark its position at a nominal amount to account for the investment’s option value. (2) The qualitative inputs used in the fair value measurements include the value of the pledged collateral. As of December 31, 2021, the Company’s Level III portfolio investments had the following valuation techniques and significant inputs:
Type |  | Fair Value |  |  | Primary Valuation Techniques |  | Unobservable Inputs |  | Range of Inputs (Weighted Average)
|  | $ | 24,513 |  |  | Enterprise Value |  | Average EBITDA Multiple |  | 0.0 x-8.0 x (4.3 x)
Debt Securities |  |  |  |  |  |  | Recovery Rate Multiple |  | 0.1 x-0.1 x (0.1 x)
|  |  | 367,919 |  |  | Income Approach |  | Implied Discount Rate |  | 0%-26.8% (8.9%)
|  | $ | 12,874 |  |  | Enterprise Value |  | Average EBITDA Multiple / WACC |  | 0.0 x-12.5 x (8.7 x)
Equity Securities |  |  |  |  |  |  | Recovery Rate Multiple |  | 0.0 x-0.0 x (0.0 x)
|  |  | 8,118 |  |  | Income Approach |  | Implied Discount Rate |  | 10.7%-18.8% (17.2%)
|  |  |  |  |  |  | Discount Rate |  | 13.0%-20.1% (16.6%)
|  |  |  |  |  |  | Probability of Default |  | 1.5%-2.0% (1.8%)
CLO Fund Securities |  |  | 31,632 |  |  | Discounted Cash Flow |  | Loss Severity |  | 25.0%-35.0% (30.0%)
|  |  |  |  |  |  | Recovery Rate |  | 65.0%-75.0% (70.0%)
|  |  |  |  |  |  | Prepayment Rate |  | 15.0%-25.0% (20.0%)
|  |  |  |  |  |  | Discount Rate |  | 14.5%-16.0% (15.3%)
|  |  |  |  |  |  | Probability of Default |  | 2.5%-3.0% (2.8%)
Joint Ventures |  |  | 23,062 |  |  | Discounted Cash Flow |  | Loss Severity |  | 25.0%-35.0% (30.0%)
|  |  |  |  |  |  | Recovery Rate |  | 65.0%-75.0% (70.0%)
|  |  |  |  |  |  | Prepayment Rate |  | 15.0%-25.0% (20.0%)
Derivatives |  |  | (2,412 | ) |  | Market Approach |  | Transacted Value/Contractual Financing Rate |  |
Total Level III Investments |  | $ | 465,706 |  |  |  |  |  |  |
(1) The qualitative inputs used in the fair value measurements of Equity Securities include estimates of the distressed liquidation value of the pledged collateral. In cases where Portman Ridge’s analysis ascribes no residual value to a portfolio company’s equity, Portman Ridge typically elects to mark its position at a nominal amount to account for the investment’s option value. (2) The qualitative inputs used in the fair value measurements include the value of the pledged collateral.
Schedule of Derivative Investments | The following table details derivative investments at September 30, 2022 and December 31, 2021:
($ in thousands) |  | September 30, 2022 |
Types of contracts |  | Notional amounts |  |  | Derivative assets (liabilities) |  |  | Realized gain(loss) |  |  | Unrealized gain(loss) |
Call option(2) |  | $ | 8 |  |  | $ | 8 |  |  | $ | - |  |  | $ | (2 | )
Put option(2) |  |  | 150 |  |  |  | - |  |  |  | - |  |  |  | - |
Securities Swap and Option Agreement(1) |  |  | - |  |  |  | - |  |  |  | (2,095 | ) |  |  | 2,442 |
Total |  | $ | 158 |  |  | $ | 8 |  |  | $ | (2,095 | ) |  | $ | 2,440 |
(1) Net amount included in the derivative caption on the consolidated balance sheets |
(2) Net amount included in non-controlled/non- affiliated investments on the consolidated balance sheets |
($ in thousands) |  | December 31, 2021 |
Types of contracts |  | Notional amounts |  |  | Derivative assets (liabilities) (1) |  |  | Realized gain(loss) |  |  | Unrealized gain(loss) |
Call option |  | $ | 8 |  |  | $ | 10 |  |  | $ | - |  |  | $ | (2 | )
Put option |  |  | 150 |  |  |  | - |  |  |  | - |  |  |  | - |
Securities Swap and Option Agreement |  |  | 5,500 |  |  |  | (2,422 | ) |  |  | 880 |  |  |  | (1,301 | )
Total |  | $ | 5,658 |  |  | $ | (2,412 | ) |  | $ | 880 |  |  | $ | (1,303 | )
(1) Net amount included in the derivative caption on the consolidated balance sheets |

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