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Fair Value Measurements | 9 Months Ended
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Jun. 30, 2024
Fair Value Measurements [Abstract] |
Fair Value Measurements | Note 4. Fair Value Measurements The Company follows ASC 820 for measuring the fair value of portfolio investments. Fair value is the price that would be received in the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Where available, fair value is based on observable market prices or parameters, or derived from such prices or parameters. Where observable prices or inputs are not available, valuation models are applied. These valuation models involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity. The Company’s fair value analysis includes an analysis of the value of any unfunded loan commitments. Financial investments recorded at fair value in the consolidated financial statements are categorized for disclosure purposes based upon the level of judgment associated with the inputs used to measure their value. The valuation hierarchical levels are based upon the transparency of the inputs to the valuation of the investment as of the measurement date. Investments which are valued using NAV as a practical expedient are excluded from this hierarchy, and certain prior period amounts have been reclassified to conform to the current period presentation. The three levels are defined below:
| ● | Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities at the measurement date.
| ● | Level 2 - Valuations based on quoted prices in markets that are not active or for which all significant inputs are observable, either directly or indirectly.
| ● | Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
In addition to using the above inputs in investment valuations, the Company continues to employ a valuation policy approved by the board of directors that is consistent with ASC 820 (see Note 2). Consistent with our valuation policy, we evaluate the source of inputs, including any markets in which our investments are trading, in determining fair value. The following table presents the fair value measurements of our investments, by major class according to the fair value hierarchy, as of June 30, 2024 (dollars in thousands):
|  | Fair Value Hierarchy as of June 30, 2024 |
Investments: |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Senior Secured First Lien Term Loans |  | $ | - |  |  | $ | 45,955 |  |  | $ | 71,245 |  |  | $ | 117,200 |
Senior Secured Notes |  |  | - |  |  |  | 12,607 |  |  |  | 10,422 |  |  |  | 23,029 |
Equity/Warrants |  |  | 32,927 |  |  |  | - |  |  |  | 59,718 |  |  |  | 92,645 |
Total |  | $ | 32,927 |  |  | $ | 58,562 |  |  | $ | 141,385 |  |  | $ | 232,874 |
Investments measured at net asset value(1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 807 |
Total Investments, at fair value |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 233,681 |
(1) | Certain investments that are measured at fair value using NAV have not been categorized in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amount presented in the Consolidated Statements of Assets and Liabilities.
The following table presents the fair value measurements of our investments, by major class according to the fair value hierarchy, as of September 30, 2023 (dollars in thousands):
|  | Fair Value Hierarchy as of September 30, 2023 |
Investments: |  | Level 1 |  |  | Level 2 |  |  | Level 3 |  |  | Total |
Senior Secured First Lien Term Loans |  | $ | - |  |  | $ | 20,505 |  |  | $ | 82,499 |  |  | $ | 103,004 |
Senior Secured Notes |  |  | - |  |  |  | 8,922 |  |  |  | - |  |  |  | 8,922 |
Equity/Warrants |  |  | 24,709 |  |  |  | 6,217 |  |  |  | 82,817 |  |  |  | 113,743 |
Total |  | $ | 24,709 |  |  | $ | 35,644 |  |  | $ | 165,316 |  |  | $ | 225,669 |
Investments measured at net asset value(1) |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 792 |
Total Investments, at fair value |  |  |  |  |  |  |  |  |  |  |  |  |  | $ | 226,461 |
(1) | Certain investments that are measured at fair value using NAV have not been categorized in the fair value hierarchy. The fair value amounts presented in the table are intended to permit reconciliation of the fair value hierarchy to the amount presented in the Consolidated Statements of Assets and Liabilities.
The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the nine months ended June 30, 2024 (dollars in thousands):
|  | Senior Secured First Lien Term Loans |  |  | Senior Secured Notes |  |  | Equities/ Warrants |  |  | Total |
Balance as of September 30, 2023 |  | $ | 82,499 |  |  | $ | - |  |  | $ | 82,817 |  |  | $ | 165,316 |
Purchases and other adjustments to cost |  |  | 28,457 |  |  |  | 34,000 |  |  |  | 42,293 |  |  |  | 104,750 |
Sales (including repayments or maturities) |  |  | (29,587 | ) |  |  | (23,578 | ) |  |  | (57,701 | ) |  |  | (110,866 | )
Net realized gains/(losses) from investments |  |  | (8,785 | ) |  |  | - |  |  |  | 15,747 |  |  |  | 6,962 |
Net unrealized gains/(losses) |  |  | 22,220 |  |  |  | - |  |  |  | (23,438 | ) |  |  | (1,218 | )
Transfer in/(out) |  |  | (23,559 | ) |  |  | - |  |  |  | - |  |  |  | (23,559 | )
Balance as of June 30, 2024 |  | $ | 71,245 |  |  | $ | 10,422 |  |  | $ | 59,718 |  |  | $ | 141,385 |
The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the nine months ended June 30, 2023 (dollars in thousands):
|  | Senior Secured First Lien Term Loans |  |  | Senior Secured Second Lien Term Loans |  |  | Unsecured Debt |  |  | Equities/ Warrants |  |  | Fund Investment |  |  | Total |
Balance as of September 30, 2022 |  | $ | 74,252 |  |  | $ | 2,607 |  |  | $ | - |  |  | $ | 69,816 |  |  | $ | - |  |  | $ | 146,675 |
Purchases and other adjustments to cost |  |  | 22,722 |  |  |  | - |  |  |  | - |  |  |  | 17,883 |  |  |  | 1,027 |  |  |  | 41,632 |
Sales (including repayments or maturities) |  |  | (7,256 | ) |  |  | (2,607 | ) |  |  | (30 | ) |  |  | (23,858 | ) |  |  | - |  |  |  | (33,751 | )
Net realized gains/(losses) from investments |  |  | 105 |  |  |  | 5 |  |  |  | 1 |  |  |  | (927 | ) |  |  | - |  |  |  | (816 | )
Net unrealized gains/(losses) |  |  | (3,698 | ) |  |  | (5 | ) |  |  | 190 |  |  |  | 13,055 |  |  |  | (65 | ) |  |  | 9,477 |
Transfer in/(out) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |
Balance as of June 30, 2023 |  | $ | 86,125 |  |  | $ | - |  |  | $ | 161 |  |  | $ | 75,969 |  |  | $ | 962 |  |  | $ | 163,217 |
Net change in unrealized gain (loss) for the nine months ended June 30, 2024 and 2023 included in earnings related to Level 3 investments still held as of June 30, 2024 and 2023 was approximately $2.1 million and $7.4 million, respectively. Purchases and other adjustments to cost include purchases of new investments at cost, effects of refinancing/restructuring, accretion/amortization of income from discount/premium on debt securities, and PIK. Sales represent net proceeds received from investments sold, including any repayments or maturities. A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in/out of the Level 3 category as of the beginning of the quarter in which the reclassifications occur. During the nine months ended June 30, 2024, five investments were transferred out of Level 3. During the nine months ended June 30, 2023, no investments were transferred in or out of Level 3. The following table presents the quantitative information about Level 3 fair value measurements of our investments, as of June 30, 2024 (dollars in thousands):
|  | Fair Value |  |  | Valuation Methodology |  | Unobservable Input |  | Range (Weighted Average) |  | Impact to Valuation From An Increase In Input
Senior Secured First Lien Term Loans |  | $ | 59,588 |  |  | Income Approach |  | Market Yield |  | 3.3% - 42.5% (16.9%) |  | Decrease
Senior Secured First Lien Term Loans |  |  | 7,062 |  |  | Recent Purchase |  | Purchase Price |  | N/A |  | N/A
Senior Secured First Lien Term Loans |  |  | 4,245 |  |  | Market Approach |  | EBITDA Multiple |  | 3.3x - 8.3x (4.7x) |  | Increase
Senior Secured First Lien Term Loans |  |  | 350 |  |  | Cost Approach |  | Collateral Value |  | N/A |  | N/A
Senior Secured Notes |  |  | 10,422 |  |  | Recent Purchase |  | Purchase Price |  | N/A |  | N/A
Equity/Warrants |  |  | 34,708 |  |  | Cost Approach |  | Collateral Value |  | N/A |  | N/A
Equity/Warrants |  |  | 24,812 |  |  | Market Approach |  | EBITDA Multiple |  | 1.0x - 10.8x (8.7x) |  | Increase
Equity/Warrants |  |  | 100 |  |  | Recent Purchase |  | Purchase Price |  | N/A |  | N/A
Equity/Warrants |  |  | 98 |  |  | Income Approach |  | DLOM (Discount for lack of Marketability) |  | 26.0%-31.0% (28.5%) |  | Decrease
Total |  | $ | 141,385 |  |  |  |  |  |  |  |  |
The following table presents the quantitative information about Level 3 fair value measurements of our investments, as of September 30, 2023 (dollars in thousands):
|  | Fair Value |  |  | Valuation Methodology |  | Unobservable Input |  | Range (Weighted Average) |  | Impact to Valuation From An Increase In Input
Senior Secured First Lien Term Loans |  | $ | 69,943 |  |  | Income Approach |  | Market Yield |  | 8.50% - 32.0% (13.78%) |  | Decrease
Senior Secured First Lien Term Loans |  |  | 751 |  |  | Market Approach |  | Revenue Multiple |  | 0.3x - 0.3x (0.3x) |  | Increase
Senior Secured First Lien Term Loans |  |  | 10,939 |  |  | Market Approach |  | EBITDA Multiple |  | 1.7x - 5.0x (3.1x) |  | Increase
Senior Secured First Lien Term Loans |  |  | 866 |  |  | Market Approach |  | LTM EBITDA Multiple |  | 5.8x - 6.8x (6.3x) |  | Increase
Equity/Warrants |  |  | 38,870 |  |  | Cost Approach |  | Collateral Value |  | N/A |  | N/A
Equity/Warrants |  |  | 11,734 |  |  | Market Approach |  | LTM Multiple |  | 5.8x - 6.8x (6.3x) |  | Increase
Equity/Warrants |  |  | 22,007 |  |  | Market Approach |  | EBITDA Multiple |  | 1.8x - 36.8x (2.8x) |  | Increase
Equity/Warrants |  |  | 10,000 |  |  | Recent Purchase |  | Purchase Price |  | N/A |  | N/A
Equity/Warrants |  |  | 206 |  |  | Income Approach |  | DLOM (Discount for lack of Marketability) |  | 3.0x - 3.2x (3.1x) |  | Decrease
Total |  | $ | 165,316 |  |  |  |  |  |  |  |  |
The significant unobservable inputs used in the fair value measurement of the Company’s debt and derivative investments are market yields. Increases in market yields would result in lower fair value measurements. The significant unobservable inputs used in the fair value measurement of the Company’s equity/warrants investments are comparable company multiples of revenue or EBITDA for the latest twelve months (“LTM”), next twelve months (“NTM”) or a reasonable period a market participant would consider. Increases in EBITDA multiples in isolation would result in higher fair value measurement. In September 2017, the Company entered into an agreement with Global Accessories Group, LLC (“Global Accessories”), in which the Company exchanged its full position in Lydell Jewelry Design Studio, LLC for a 3.8% membership interest in Global Accessories, which is included in the Consolidated Schedule of Investments. As part of the agreement, the Company is entitled to contingent consideration in the form of cash payments (“Earnout”), as well as up to an additional 5% membership interest (“AMI”), provided Global Accessories achieves certain financial benchmarks through calendar year ended 2022. The Earnout and AMI were initially recorded with an aggregate fair value of $2.4 million on the transaction date using the Income Approach and were included on the Consolidated Statements of Assets and Liabilities in other assets. The contingent consideration is remeasured to fair value at each reporting date until the contingency is resolved. Any changes in fair value will be recognized in earnings. As of June 30, 2024 and September 30, 2023, the Company deemed the contingent consideration to be uncollectible and has been recorded at $0.

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- Definition The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information. + References Reference 1: http://www.xbrl.org/2003/role/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 107 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-107 Reference 2: http://www.xbrl.org/2003/role/exampleRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 55 -Paragraph 100 -Publisher FASB -URI https://asc.fasb.org/1943274/2147482078/820-10-55-100 Reference 3: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (c)(3) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 4: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 5: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2E -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2E Reference 6: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 7: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (f) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 8: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (e) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 9: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 6A -Subparagraph (d) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-6A Reference 10: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (h) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 11: http://www.xbrl.org/2003/role/disclosureRef -Topic 820 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (g) -Publisher FASB -URI https://asc.fasb.org/1943274/2147482106/820-10-50-2 Reference 12: http://www.xbrl.org/2003/role/disclosureRef -Topic 940 -SubTopic 820 -Name Accounting Standards Codification -Section 50 -Paragraph 1 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147478119/940-820-50-1 + Details
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