XML 37 R27.htm IDEA: XBRL DOCUMENT v3.22.2.2
Investments (Tables)
 9 Months Ended
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

 

0.4x-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)
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