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.

The Company may invest up to 30% of the investment portfolio in “non-qualifying” opportunistic investments, including investments in debt and equity securities of CLO Funds, distressed debt or debt and equity securities of large cap public companies. Within this 30% of the portfolio, the Company also may invest in debt of middle market companies located outside of the United States.

At September 30, 2022 and December 31, 2021, the total amount of non-qualifying assets was approximately 15.3% and 15.8% of total assets, respectively. The majority of non-qualifying assets are the Company’s investments in joint ventures which were approximately 7.2% and 9.3% respectively, of the total assets and the Company’s investments in CLO Funds, which are typically domiciled outside the U.S. and represented approximately 3.9% and 4.9% of its total assets on such dates, respectively.

The Company has made non-controlling investments in the most junior class of securities (typically preferred shares or subordinated securities) of CLO Funds. These securities also are entitled to recurring distributions which generally equal the net remaining cash flow of the payments made by the underlying CLO Funds securities less contractual payments to senior bond holders, management fees and CLO Fund expenses. CLO Funds invest primarily in broadly syndicated non-investment grade loans, high-yield bonds and other credit instruments of corporate issuers. The underlying assets in each of the CLO Funds in which the Company has an investment are generally diversified secured or unsecured corporate debt. The CLO Funds are leveraged funds and any excess cash flow or “excess spread” (interest earned by the underlying securities in the CLO Funds less payments made to senior bond holders, fund expenses and management fees) is paid to the holders of the CLO Fund’s subordinated securities or preferred shares.

In January 2021, the Company sold $10.1 million notional amount of the subordinated notes of Catamaran 2016-1 for $3.3 million.

In July 2022, the Company received a final cash distribution from Catamaran 2013-1, and the Company's investment in Catamaran 2013-1 was redeemed in full.

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)

(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.

For the three months ended September 30, 2022 and 2021, the Company recognized $2.2 million and $2.4 million, respectively, in investment income from its investments in Joint Ventures. For the nine months ended September 30, 2022 and 2021, the Company recognized $6.4 million and $7.0 million, respectively, in investment income from its investments in Joint Ventures. As of September 30, 2022 and December 31, 2021, the aggregate fair value of the Company’s investments in Joint Ventures was approximately $45.1 million and $60.5 million, respectively.

During the third quarter of 2017, the Company and Freedom 3 Opportunities LLC (“Freedom 3 Opportunities”), an affiliate of Freedom 3 Capital LLC, entered into an agreement to create KCAP Freedom 3 LLC (the “F3C Joint Venture”). The fund capitalized by the F3C Joint Venture invests primarily in middle-market loans and the F3C Joint Venture partners may source middle-market loans from time-to-time for the fund.

The Company owns a 62.8% equity investment in the F3C Joint Venture. The F3C Joint Venture is structured as an unconsolidated Delaware limited liability company. All portfolio and other material decisions regarding the F3C Joint Venture must be submitted to its board of managers, which is comprised of four members, two of whom were selected by the Company and two of whom were selected by Freedom 3 Opportunities, and must be approved by at least one member appointed by the Company and one appointed by Freedom 3 Opportunities. In addition, certain matters may be approved by the F3C Joint Venture’s investment committee, which is comprised of one member appointed by the Company and one member appointed by Freedom 3 Opportunities.

The Company has determined that the F3C Joint Venture is an investment company under Accounting Standards Codification (“ASC”), Financial Services — Investment Companies (“ASC 946”), however, in accordance with such guidance, the Company will generally not consolidate its investment in a company other than a wholly owned investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. The Company does not consolidate its interest in the F3C Joint Venture because the Company does not control the F3C Joint Venture due to allocation of the voting rights among the F3C Joint Venture partners.

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)

(2)

In August 2022, the Company invested in Series A – Great Lakes Funding II LLC (the “Great Lakes II Joint Venture,” collectively with the F3C Joint Venture the “Joint Ventures”), a joint venture with an investment strategy to underwrite and hold senior, secured unitranche loans made to middle-market companies. The Company treats its investment in the Great Lakes II Joint Venture as a joint venture since an affiliate of the Adviser controls a 50% voting interest in the Great Lakes II Joint Venture. In connection with the launch of the Great Lakes II Joint Venture, the Company entered into a series of transactions pursuant to which the Company’s prior investment in BCP Great Lakes Holdings LP, a vehicle formed as a co-investment vehicle to facilitate the participation of certain co-investors to invest, directly or indirectly, in BCP Great Lakes Funding, LLC (the “Prior Great Lakes Joint Venture”), and the corresponding assets held by the Prior Great Lakes Joint Venture in respect of the Company’s investment in BCP Great Lakes Holdings LP, were transferred to the Great Lakes II Joint Venture in complete redemption of the Company’s investment in BCP Great Lakes Holdings LP.

The Great Lakes II Joint Venture is a Delaware series limited liability company, and pursuant to the terms of the Great Lakes Funding II LLC Limited Liability Company Agreement (the “Great Lakes II LLC Agreement”), prior to the end of the investment period with respect to each series established under the Great Lakes II LLC Agreement, each member of the predecessor series would be offered the opportunity to roll its interests into any subsequent series of the Great Lakes II Joint Venture. The Company does not pay any advisory fees in connection with its investment in the Great Lakes II Joint Venture. Certain other funds managed by the Adviser or its affiliates have also invested in the Great Lakes II Joint Venture.

The fair value of the Company’s investment in the Great Lakes II Joint Venture at September 30, 2022 was $27.0 million. The fair value of the Company’s investment in the Prior Great Lakes Joint Venture at December 31, 2021 was $37.4 million. Fair value has been determined utilizing the practical expedient pursuant to ASC 820-10. Pursuant to the terms of the Great Lakes II LLC Agreement, the Company generally may not effect any direct or indirect sale, transfer, assignment, hypothecation, pledge or other disposition of or encumbrance upon its interests in the Great Lakes II Joint Venture, except that the Company may sell or otherwise transfer its interests with the consent of the managing members of the Great Lakes II Joint Venture or to an affiliate or a successor to substantially all of the assets of the Company.

As of September 30, 2022, the Company has a $21.7 million unfunded commitment to the Great Lakes II Joint Venture. As of December 31, 2021, the Company had a $13.0 million unfunded commitment to the Prior Great Lakes Joint Venture.

The Company follows the provisions of ASC 820: Fair Value, which among other matters, requires enhanced disclosures about investments that are measured and reported at fair value. This standard defines fair value and establishes a hierarchal disclosure framework which prioritizes and ranks the level of market price observability used in measuring investments at fair value and expands disclosures about assets and liabilities measured at fair value. ASC 820: Fair Value defines “fair value” as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. This fair value definition focuses on an exit price in the principle, or most advantageous market, and prioritizes, within a measurement of fair value, the use of market-based inputs (which may be weighted or adjusted for relevance, reliability and specific attributes relative to the subject investment) over entity-specific inputs. Market price observability is affected by a number of factors, including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgment used in measuring fair value.

ASC 820: Fair Value establishes the following three-level hierarchy, based upon the transparency of inputs to the fair value measurement of an asset or liability as of the measurement date:

Level I – Unadjusted quoted prices are available in active markets for identical investments as of the reporting date. The type of investments included in Level I include listed equities and listed securities. As required by ASC 820: Fair Value, the Company does not adjust the quoted price for these investments, even in situations where the Company holds a large position and a sale could reasonably affect the quoted price.

Level II – Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the reporting date. Such inputs may be quoted prices for similar assets or liabilities, quoted markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full character of the financial instrument, or inputs that are derived principally from, or corroborated by, observable market information. Investments which are generally included in this category include illiquid debt securities and less liquid, privately held or restricted equity securities for which some level of recent trading activity has been observed.

Level III – Pricing inputs are unobservable for the investment and includes situations where there is little, if any, market activity for the investment. The inputs may be based on the Company’s own assumptions about how market participants would price the asset or liability or may use Level II inputs, as adjusted, to reflect specific investment attributes relative to a broader market assumption. These inputs into the determination of fair value may require significant management judgment or estimation. Even if observable market data for comparable performance or valuation measures (earnings multiples, discount rates, other financial/valuation ratios, etc.) are available, such investments are grouped as Level III if any significant data point that is not also market observable (private company earnings, cash flows, etc.) is used in the valuation methodology.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment’s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and the Company considers factors specific to the investment. A majority of the Company’s investments are classified as Level III. The Company evaluates the source of inputs, including any markets in which its investments are trading, in determining fair value. Inputs that are highly correlated to the specific investment being valued and those derived from reliable or knowledgeable sources will tend to have a higher weighting in determining fair value. The Company’s fair value determinations may include factors such as an assessment of each underlying investment, its current and prospective operating and financial performance, consideration of financing and sale transactions with third parties, expected cash flows and market-based information, including comparable transactions, performance factors, and other investment or industry specific market data, among other factors.

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

As a BDC, the Company is required to invest primarily in the debt and equity of non-public companies for which there is little, if any, market-observable information. As a result, a significant portion of the Company’s investments at any given time will likely be deemed Level III investments. Investment values derived by a third-party pricing service are generally deemed to be Level III values. For those that have observable trades, the Company considers them to be Level II.

The fair value of the Company’s investment in the Great Lakes II Joint Venture at September 30, 2022 was $27.0 million. The fair value of the Company's investment in the Prior Great Lakes Joint Venture at December 31, 2021 was $37.4 million. Fair value has been determined utilizing the practical expedient pursuant to ASC 820-10.

Subject to the limitations noted above, values derived for debt and equity securities using comparable public/private companies generally utilize market-observable data from such comparables and specific, non-public and non-observable financial measures (such as earnings or cash flows) for the private, underlying company/issuer. Such non-observable company/issuer data is typically provided on a monthly or quarterly basis, is certified as correct by the management of the company/issuer and/or audited by an independent accounting firm on an annual basis. Since such private company/issuer data is not publicly available it is not deemed market-observable data and, as a result, such investment values are grouped as Level III assets.

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.

As of September 30, 2022 and December 31, 2021, the Company’s Level II portfolio investments were valued by a third party pricing services for which the prices are not adjusted and for which inputs are observable or can be corroborated by observable market data for substantially the full character of the financial instrument, or by inputs that are derived principally from, or corroborated by, observable market information. The fair value of the Company’s Level II portfolio investments was $65.2 million and $42.9 million as of September 30, 2022 and December 31, 2021, respectively.

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	0.4x-6.4x (4.0x)
Debt Securities				Recovery Rate Multiple	0.1x-0.1x (0.1x)
		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	0.0x-15.5x (6.8x)
Equity Securities				Recovery Rate	0.9x-0.9x (0.9x)
		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	0.0x-8.0x (4.3x)
Debt Securities					Recovery Rate Multiple	0.1x-0.1x (0.1x)
		367,919		Income Approach	Implied Discount Rate	0%-26.8% (8.9%)
	$	12,874		Enterprise Value	Average EBITDA Multiple / WACC	0.0x-12.5x (8.7x)
Equity Securities					Recovery Rate Multiple	0.0x-0.0x (0.0x)
		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)

(2)

The qualitative inputs used in the fair value measurements include the value of the pledged collateral.

The significant unobservable inputs used in the fair value measurement of the Company’s debt securities may include, among other things, broad market indices, the comparable yields of similar investments in similar industries, effective discount rates, average EBITDA multiples, and weighted average cost of capital. Significant increases or decreases in such comparable yields would result in a significantly lower or higher fair value measurement, respectively.

The significant unobservable inputs used in the fair value measurement of the Company’s equity securities include the EBITDA multiple of similar investments in similar industries and the weighted average cost of capital. Significant increases or decreases in such inputs would result in a significantly lower or higher fair value measurement.

Significant unobservable inputs used in the fair value measurement of the Company’s CLO Fund Securities include default rates, recovery rates, prepayment rates, spreads, and the discount rate by which to value the resulting underlying cash flows. Such assumptions can vary significantly, depending on market data sources which often vary in depth and level of analysis, understanding of the CLO market, detailed or broad characterization of the CLO market and the application of such data to an appropriate framework for analysis. The application of data points are based on the specific attributes of each individual CLO Fund Security’s underlying assets, historic, current and prospective performance, vintage, and other quantitative and qualitative factors that would be evaluated by market participants. The Company evaluates the source of market data for reliability as an indicative market input, consistency amongst other inputs and results and also the context in which such data is presented. Significant increases or decreases in probability of default and loss severity inputs in isolation would result in a significantly lower or higher fair value measurement, respectively. In general, a change in the assumption of the probability of default is accompanied by a directionally similar change in the assumption used for the loss severity in an event of default. Significant increases or decreases in the discount rate in isolation would result in a significantly lower or higher fair value measurement.

The Company’s investment in the F3C Joint Venture is carried at fair value based upon the fair value of the investments held by the F3C Joint Venture.

The Company values derivative contracts using various pricing models that take into account the terms of the contract (including notional amount and contract maturity) and observable and unobservable inputs such as interest rates and changes in fair value of the reference asset.