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Fair Value Measurements
 3 Months Ended
Dec. 31, 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 December 31, 2024 (dollars in thousands): 

 

   Fair Value Hierarchy as of December 31, 2024 
Investments:  Level 1   Level 2   Level 3   Total 
Senior Secured First Lien Term Loans  $-   $45,527   $84,387   $129,914 
Senior Secured Notes   -    3,520    7,422    10,942 
Equity/Warrants   30,516    -    127,168    157,684 
Total  $30,516   $49,047   $218,977   $298,540 
Investments measured at net asset value(1)                  1,554 
Total Investments, at fair value                 $300,094 

 

(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, 2024 (dollars in thousands): 

 

   Fair Value Hierarchy as of September 30, 2024 
Investments:  Level 1   Level 2   Level 3   Total 
Senior Secured First Lien Term Loans  $-    45,003    68,987   $113,990 
Senior Secured Notes   -    11,054    7,422    18,476 
Equity/Warrants   30,044    -    63,881    93,925 
Total  $30,044   $56,057   $140,290   $226,391 
Investments measured at net asset value(1)                  1,525 
Total Investments, at fair value                 $227,916 

 

(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 three months ended December 31, 2024 (dollars in thousands):  

 

   Senior
Secured
First Lien
Term Loans		   Senior
Secured
Notes		   Equities/
Warrants		   Total 
Balance as of September 30, 2024  $68,987   $7,422   $63,881   $140,290 
Purchases and other adjustments to cost   26,271    
-
    69,484    95,755 
Sales (including repayments or maturities)   (10,166)   
-
    (6,238)   (16,404)
Net realized gains/(losses) from investments   84    
-
    
-
    84 
Net unrealized gains/(losses)   (789)   
-
    41    (748)
Transfer in/(out)   
-
    
-
    
-
    
-
 
Balance as of December 31, 2024  $84,387   $7,422   $127,168   $218,977 

 

The following table provides a reconciliation of the beginning and ending balances for investments that use Level 3 inputs for the three months ended December 31, 2023 (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   7,760    -    6,752    14,512 
Sales (including repayments or maturities)   (8,802)   -    (7,852)   (16,654)
Net realized gains/(losses) from investments   (12)   
-
    278    266 
Net unrealized gains/(losses)   951    
-
    (472)   479 
Transfer in/(out)   -    
-
    
-
    - 
Balance as of December 31, 2023  $82,396   $-   $81,523   $163,919 

 

Net change in unrealized gain (loss) for the three months ended December 31, 2024 and 2023 included in earnings related to Level 3 investments still held as of December 31, 2024 and 2023 was approximately $(0.6) million and $2.1 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 three months ended December 31, 2024, no investments were transferred in or out of Level 3. During the three months ended December 31, 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 December 31, 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  $81,565   Income Approach  Market Yield  3.5% - 47.5% (9.4%)  Decrease
Senior Secured First Lien Term Loans   1,472   Market Approach  EBITDA Multiple  1.0x - 1.5x (1.3x)  Increase
Senior Secured First Lien Term Loans   1,000   Market Approach  Market Quote  N/A  N/A
Senior Secured First Lien Term Loans   350   Cost Approach  Collateral Value  N/A  N/A
Senior Secured Notes   7,422   Cost Approach  Collateral Value  N/A  N/A
Equity/Warrants   40,947   Cost Approach  Replacement Cost  N/A  N/A
Equity/Warrants   28,523   Market Approach  EBITDA Multiple  4.8x - 10.3x (8.3x)  Increase
Equity/Warrants   2,524   Income Approach  Market Yield  11.0%-28.8% (28.5%)  Decrease
Equity/Warrants   54,529   Recent Purchase  Purchase Price  N/A  N/A
Equity/Warrants   645   Income Approach  DLOM (Discount for lack of Marketability)  30.0%-34.0% (32.0%)  Decrease
Total  $218,977             

 

The following table presents the quantitative information about Level 3 fair value measurements of our investments, as of September 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  $65,236   Income Approach  Market Yield  3.5% - 42.5% (15.3%)  Decrease
Senior Secured First Lien Term Loans   2,399   Market Approach  EBITDA Multiple  1.8x - 2.3x (2.0x)  Increase
Senior Secured First Lien Term Loans   1,002   Market Approach  Market Spread  4.5% - 5.0% (4.75%)  Decrease
Senior Secured First Lien Term Loans   350   Cost Approach  Collateral Value  N/A  N/A
Senior Secured Notes   7,422   Recent Purchase  Purchase Price  N/A  N/A
Equity/Warrants   36,683   Cost Approach  Collateral Value  N/A  N/A
Equity/Warrants   27,014   Market Approach  EBITDA Multiple  4.3x - 10.3x (8.4x)  Increase
Equity/Warrants   101   Recent Purchase  Purchase Price  N/A  N/A
Equity/Warrants   83   Income Approach  DLOM (Discount for lack of Marketability)  27.0% - 31.0% (29.0%)  Decrease
Total  $140,290             

 

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.