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Significant Accounting Policies | 6 Months Ended
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Dec. 31, 2024
Accounting Policies [Abstract] |
Significant Accounting Policies | Note 2. Significant Accounting Policies The following is a summary of significant accounting policies followed by the Company. a. Basis of Presentation The accompanying consolidated financial statements are prepared in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”). All values are stated in U.S. dollars, unless noted otherwise. The financial statements reflect all adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the periods included herein as required by U.S. GAAP. These adjustments are normal and recurring in nature. The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the fair value of investments and other amounts reported in the consolidated financial statements and accompanying notes. Management believes that the estimates utilized in preparing the Company’s consolidated financial statements are reasonable and prudent. Actual results could differ materially from these estimates. All material inter-company balances and transactions have been eliminated. As permitted under Regulation S-X and ASC Topic 946, the Company will generally not consolidate its investment in a portfolio company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the results of the Company’s wholly-owned subsidiaries, CM Finance SPV Ltd. (“SPV”) and Investcorp Credit Management BDC SPV LLC (“SPV LLC”), which are special purpose vehicles used to finance certain investments in its consolidated financial statements. The effects of all material intercompany balances and transactions have been eliminated in consolidation. The Company reclassified prior period affiliate and other information in the accompanying Consolidated Statements of Assets and Liabilities and Consolidated Statements of Operations to conform to its current period presentation. These reclassifications had no effect on the Company’s consolidated financial position or the consolidated results of operations as previously reported. b. Revenue Recognition, Security Transactions, and Realized/Unrealized Gains or Losses Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. Origination, closing, commitment, and amendment fees, and purchase and original issue discounts (“OID”) associated with loans to portfolio companies are accreted into interest income over the respective terms of the applicable loans. Accretion of discounts or premiums is calculated by the effective interest or straight-line method, as applicable, as of the purchase date and adjusted only for material amendments or prepayments. The amortized cost of investments represents the original cost adjusted for the accretion and amortization of discounts and premiums, if any. Upon the prepayment of a loan or debt security, any prepayment penalties are included in other fee income and unamortized fees and discounts are recorded as interest income and are non-recurring in nature. During the periods ended December 31, 2024, June 30, 2024, June 30, 2023 and June 30, 2022, $196,178, $1,002,168, $491,359 and $1,256,008 of unamortized discounts upon prepayment were recorded as interest income, respectively. Structuring fees and similar fees are recognized as income as earned, usually when received. Structuring fees, excess deal deposits, net profits interests and overriding royalty interests are included in other fee income. Management reviews all loans that become 90 days or more past due on principal or interest or when there is reasonable doubt that principal or interest will be collected for possible placement on non-accrual status. Accrued and unpaid interest is generally reversed when a loan is placed on non-accrual status. However, capitalized PIK interest will not be reversed when a loan is placed on non-accrual status. Deferred fees (i.e. OID) are not amortized during periods in which a loan is placed on non-accrual status. Interest payments received on non-accrual loans are applied as reductions to principal. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current, although management may make exceptions to this general rule if the loan has sufficient collateral value and is in the process of collection. PIK interest is not accrued if management does not expect the issuer to be able to pay all principal and interest when due. As of December 31, 2024, the Company had five loans on non-accrual status comprised of American Nuts Holdings, LLC Term Loan B, American Teleconferencing Services, Ltd. (d/b/a Premiere Global Services, Inc.) - Revolver, CareerBuilder, LLC Term Loan B3, Klein Hersh, LLC Senior Subordinated Note and Sandvine Corporation Term Loan, which collectively represented 3.64% of the Company’s portfolio at fair value. As of June 30, 2024, the Company had four loans on non-accrual status comprised of American Nuts Holdings, LLC Term Loan B, American Teleconferencing Services, Ltd. (d/b/a Premiere Global Services, Inc.) - Revolver, CareerBuilder, LLC Term Loan B3 and Klein Hersh, LLC Term Loan - Last Out, which collectively represented 5.00% of the Company’s portfolio at fair v alue. As of June 30, 2023, the Company had six loans on non-accrual status, 1888 Industrial Services, LLC – Term Loan A, Term Loan C and Revolver, American Nuts Holdings, LLC - Term Loan A and Term Loan B, and American Teleconferencing Services, Ltd. (d/b/a Premiere Global Services, Inc.) Revolver, which collectively represented 4.08% of the Company’s portfolio at fair value. Dividend income is recorded on the ex-dividend date. Investment transactions are accounted for on a trade-date basis. Realized gains or losses on investments are determined by calculating the difference between the net proceeds from the disposition and the amortized cost basis of the investments, without regard to unrealized gains or losses previously recognized. Realized gains or losses on the sale of investments are calculated using the specific identification method. The Company reports changes in fair value of investments as a component of the net change in unrealized appreciation (depreciation) on investments in the Consolidated Statements of Operations. The Company holds debt investments in its portfolio that contain a payment-in-kind (“PIK”) interest provision. PIK interest, which represents contractually deferred interest added to the investment balance that is generally due at maturity, is recorded on an accrual basis to the extent that such amounts are expected to be collected. PIK interest is not accrued if the Company does not expect the issuer to be able to pay all principal and interest when due. The Company earned PIK interest of $2,371,478, $2,106,424, $1,320,239 and $311,190 during the periods ended December 31, 2024, June 30, 2024, June 30, 2023 and June 30, 2022, respectively. The Company may hold equity investments in its portfolio that contain a PIK dividend provision. PIK dividends, which represent contractual dividend payments added to the investment balance, are recorded on an accrual basis to the extent that such amounts are expected to be collected. The Company earned PIK dividends of $432,669, $784,854, $691,972 and $282,952 during the periods ended December 31, 2024, June 30, 2024, June 30, 2023, and June 30, 2022 respectively. c. Paid In Capital The Company records the proceeds from the sale of its common stock to common stock and additional paid-in capital, net of commissions and marketing support fees. d. Net Increase (Decrease) in Net Assets Resulting from Operations per Share The net increase (decrease) in net assets resulting from operations per share is calculated based upon the weighted average number of shares of common stock outstanding during the reporting period. e. Distributions Dividends and distributions to common stockholders are recorded on the ex-dividend date. The amount to be paid out as a dividend or distribution is determined by the Company’s board of directors each quarter and is generally based upon the earnings estimated by management. Net realized capital gains, if any, are generally distributed annually, although the Company may decide to retain such capital gains for investment. The Company has adopted a dividend reinvestment plan that provides for reinvestment of any distributions the Company declares in cash on behalf of the Company’s stockholders, unless a stockholder elects to receive cash. As a result, if the Company’s board of directors authorizes, and the Company declares, a cash distribution, then the Company’s stockholders who have not “opted out” of the Company’s dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash distribution. f. Cash and Restricted Cash Cash and restricted cash consist of bank demand deposits. The Company deposits its cash in financial institutions, and, at times, such balance may be in excess of the Federal Deposit Insurance Corporation insurance limits. All of the Company’s cash deposits are held at large established high credit quality financial institutions and management believes that the risk of loss associated with any uninsured balances is remote. The Company has restrictions on the uses of the cash held by SPV LLC based on the terms of the relevant financing arrangement. For more information on the Company’s financing arrangements and borrowings, see Note 5. g. Due from the Sale of 1888 Industrial Services, LLC During the year ended June 30, 2024, the Company completed the sale of its investments in 1888 Industrial Services, LLC resulting in $2.5 million in proceeds. As of December 31, 2024, a portion is Long-term rec eivable in the amount of $489,365, a portion is Short-term receivable in the amount of $160,901, and a portion is escrow receivable in the amount of $0 on the Consolidated Statements of Assets and Liabilities. The escrow is held as recourse for indemnity claims that may arise under the sale agreement. As of December 31, 2024, the Long-term receivable and the Escrow receivable are recorded at estimated fair value using Level 3 inputs. For the Escrow receivable, fair value is determined using a discounted cash flow analysis with the unobservable inputs being a probability of collection (0%) and a discount rate (6.8%). For the Long-term receivable, fair value is determined using a discounted cash flow analysis with the unobservable input being a discount rate (6.8%). h. Deferred Offering Costs Deferred offering costs consist of fees and expenses incurred in connection with the offer and sale of the Company’s common stock and bonds, including legal, accounting, printing fees and other related expenses, as well as costs incurred in connection with the filing of a shelf registration statement. These costs are capitalized when incurred and recognized as a reduction of offering proceeds when the offering is completed. i. Investment Transactions and Expenses The Company records its investment transactions on a trade date basis, which is the date when the Company assumes the risks for gains and losses related to that instrument. Purchases of loans, including delayed draw term loans and revolving credit facilities, are recorded on a fully committed basis. Expenses are accrued as incurred. Deferred debt issuance costs and deferred financing costs, incurred in connection with the Company’s financing arrangements and borrowings, are amortized using the straight-line method which approximates the effective interest method over the life of the debt. j. Investment Valuation The Company applies fair value accounting to all of its financial instruments in accordance with the 1940 Act and ASC Topic 820 — Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC 820, the Company has categorized its investments and financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as discussed in Note 4. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date. Fair value is defined as the price that would be received upon a sale of an asset in an orderly transaction between market participants at the measurement date. Market participants are buyers and sellers in the principal (or most advantageous) market for the asset that (a) are independent of us, (b) are knowledgeable, having a reasonable understanding about the asset based on all available information (including information that might be obtained through due diligence efforts that are usual and customary), (c) are able to transact for the asset, and (d) are willing to transact for the asset or liability (that is, they are motivated but not forced or otherwise compelled to do so). Securities that are traded on securities exchanges (including such securities traded in the after-hours market) are valued on the basis of the closing price on the valuation date (if such prices are available). Securities that are traded on more than one securities exchange are valued at the closing price on the primary securities exchange on which such securities are traded on the valuation date (or if reported on the consolidated tape, then their last sales price on the consolidated tape). Listed options for which the last sales price falls between the last “bid” and “ask” prices for such options are valued at their last sales price on the date of the valuation on the primary securities exchange on which such options are traded. Options for which the last sales price on the valuation date does not fall between the last “bid” and “ask” prices are valued at the average of the last “bid” and “ask” prices for such options on that date. To the extent these securities are actively traded, and valuation adjustments are not applied, they are categorized in Level 1 of the fair value hierarchy. The Company held no Level 1 investments as of December 31, 2024, June 30, 2024, or June 30, 2023. Investments that are not traded on securities exchanges but are traded on the over-the-counter (“OTC”) markets (such as term loans, notes and warrants) are valued using various techniques, which may consider recently executed transactions in securities of the issuer or comparable issuers, market price quotations (when observable) and fundamental data relating to the issuer. These investments are categorized in Level 2 of the fair value hierarchy, or in instances when lower relative weight is placed on transaction prices, quotations, or similar observable inputs, they are categorized in Level 3. Investments for which market quotations are not readily available or which may be considered unreliable are fair valued, in good faith, using a method determined to be appropriate in the given circumstances. The valuation methods used include the Cost Approach, the Market Approach and the Income Approach. Inputs used in these approaches may include, but are not limited to, interest rate yield curves, credit spreads, recovery rates, comparable company transactions, trading multiples, and volatilities. The valuation method of the Company may change as changes in the underlying company dictates, such as moving from the Cost Approach to Market Approach when underlying conditions change at the company. Because of the inherent uncertainty of valuation in these circumstances, the fair values for the aforementioned investments may differ significantly from values that would have been used had a ready and liquid market for such investments existed or from the amounts that might ultimately be realized, and such differences could be material. The Adviser seeks to ensure that the Company’s valuation policies and procedures, as approved by the Company’s board of directors, are consistently applied across all investments of the Company. The valuations are continuously monitored and the valuation process for Level 3 investments is completed on a quarterly basis and is designed to subject the valuation of Level 3 investments to an appropriate level of consistency, oversight and review. The quarterly valuation process begins with each portfolio company or investment being initially valued by the Adviser, with such valuation taking into account information received from any approved third-party valuation firm that the Company may retain with respect to certain investments. The Adviser’s investment professionals will prepare portfolio company valuations using sources and/or proprietary models depending on the availability of information on the Company’s assets and the type of asset being valued. Valuation models are typically calibrated upon initial funding and are re-calibrated as necessary upon subsequent material events (including, but not limited to additional financing activity, changes in comparable companies, and recent trades). The preliminary valuation conclusions are then documented and discussed with senior management of the Adviser. On a periodic basis and at least once annually, independent valuation firm(s) engaged by the Company conduct independent appraisals and review the Adviser’s preliminary valuations and make their own independent assessment. The Valuation Committee of the Company’s board of directors then reviews the preliminary valuations of the Adviser and that of the independent valuation firms. The Valuation Committee discusses the valuations and makes a recommendation to the Company’s board of directors regarding the fair value of each investment in good faith based on the input of the Adviser and the independent valuation firm(s). Upon recommendation by the Valuation Committee and a review of the valuation materials of the Adviser and the third-party independent valuation firm(s), the board of directors of the Company determines, in good faith, the fair value of each investment. For more information on the classification of the Company’s investments by major categories, see Note 4. The fair value of the Company’s assets and liabilities that qualify as financial instruments under U.S. GAAP approximates the carrying amounts presented in the Consolidated Statements of Assets and Liabilities. k. Income Taxes The Company has elected to be treated, for U.S. federal income tax purposes, as a RIC under Subchapter M of the Code. To qualify and maintain qualification as a RIC, the Company must, among other things, meet certain source of income and asset diversification requirements and distribute to stockholders, for each taxable year, at least 90% of the Company’s “investment company taxable income’’ which is generally the Company’s net ordinary income plus the excess, if any, of realized net short-term capital gains over realized net long-term capital losses. If the Company continues to qualify as a RIC and continues to satisfy the annual distribution requirement, the Company will not have to pay corporate-level U.S. federal income taxes on any income that the Company distributes to its stockholders. The Company intends to make distributions in an amount sufficient to maintain RIC status each year and to avoid any federal income taxes on income. The Company will also be subject to nondeductible U.S. federal excise taxes if the Company does not distribute to its stockholders at least 98% of net ordinary income, 98.2% of capital gains, if any, and any recognized and undistributed income from prior years for which it paid no U.S. federal income taxes. The Company incurred excise tax expenses of $165,919, $264,386, $294,330 and $264,756 for the periods ended December 31, 2024, 2023, 2022 and 2021, respectively. The Company also incurred a federal tax expense of $149,156 for the period ended December 31, 2024. These expenses are included in the provision for tax expenses on the consolidated statement of operations. Book and tax basis differences that are permanent differences are reclassified among the Company’s capital accounts, as appropriate at year-end. Additionally, the tax character of distributions is determined in accordance with the Code, which differs from U.S. GAAP. During the periods ended December 31, 2024, June 30, 2024, June 30, 2023 and June 30, 2022 the Company recorded distributions of $3.5 million, $8.6 million, $9.1 mil lion and $8.6 million, respectively. For certain years, the tax character of a portion of distributions may be return of capital. U.S. GAAP requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” of being sustained by the applicable tax authority. Tax positions not deemed to meet a more-likely-than-not threshold would be recorded as a tax expense in the current year. The Company’s policy is to recognize accrued interest and penalties associated with uncertain tax positions as part of the tax provision. The Company has analyzed such tax positions and has concluded that no unrecognized tax benefits should be recorded for uncertain tax positions. The tax years ended June 30, 2021 and June 30, 2022 through the present remain subject to examination by taxing authorities. This conclusion may be subject to review and adjustment at a later date based on factors, including but not limited to, ongoing analysis and changes to laws, regulations, and interpretations thereof. Permanent differences between investment company taxable income and net investment income for financial reporting purposes are reclassified among capital accounts in the financial statements to reflect their tax character. Differences in classification may also result from the treatment of short-term gains as ordinary income for U.S. federal income tax purposes. During the periods ended December 31, 2024, June 30, 2024, June 30, 2023 and June 30, 2022, the Company reclassified for book purposes amounts arising from permanent book/tax differences related to prior year under distribution of ordinary income and nondeductible taxes paid as follows:
|  | As of December 31, |  | As of June 30,
|  | 2024 |  | 2024 |  | 2023 |  | 2022
Additional paid-in capital |  | $395,188 |  | $(264,652) |  | $(284,155) |  | $(264,971)
Distributable earnings |  | (395,188) |  | 264,652 |  | 284,155 |  | 264,971
The tax character of all distributions paid by the Company during the periods ended December 31, 2024, June 30, 2024 and June 30, 2023 were ordinary income. At December 31, 2024, June 30, 2024, June 30, 2023 and June 30, 2022, the components of distributable earnings/(loss) on a tax basis are as follows:
|  | As of December 31, |  | As of June 30,
|  | 2024 |  | 2024 |  | 2023 |  | 2022
Undistributed net investment income |  | $7,434,221 |  | $7,476,383 |  | $11,648,379 |  | $9,342,951
Accumulated capital gains (losses) and other |  | (996,499) |  | (14,786,107) |  | (27,970,779) |  | (15,703,257)
Capital loss carryover |  | (123,567,107) |  | (101,070,039) |  | (73,713,555) |  | (57,692,925)
Unrealized appreciation (depreciation) |  | (8,788,371) |  | (19,727,695) |  | (23,015,323) |  | (43,884,017)
Distributions payable |  | — |  | — |  | (2,590,520) |  | (2,157,872)
Distributable earnings (loss) |  | $(125,917,756) |  | $(128,107,458) |  | $(115,641,798) |  | $(110,095,120)
For U.S. federal income tax purposes, net realized capital losses may be carried over to offset future capital gains, if any. These capital losses can be carried forward for an indefinite period and will retain their character as either short-term or long-term capital losses. As of December 31, 2024, the Company had a net short-term capital loss carryforward of $2,255,814 and a net long-term capital loss carryforward of $121,311,293 available to be carried forward for an indefinite period. A RIC may elect to defer any capital losses incurred after October 31 of a taxable year (“post-October”) to the beginning of the following fiscal year. As of December 31, 2024, the Company had a post-October short-term capital loss deferral of $494,544 and a post-October long-term capital loss deferral of $0. These losses were deemed to arise on January 1, 2025. l. Segment Reporting In accordance with ASC Topic 280, Segment Reporting (“ASC 280”), the Company has determined that it has a single operating and reporting segment. As a result, the Company’s segment accounting policies are the same as described herein and the Company does not have any intra-segment sales and transfers of assets. m. Recent Accounting Pronouncements From time to time, new accounting pronouncements are issued by the FASB or other standards setting bodies that are adopted by the Company as of the specified effective date. The Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial statements upon adoption. In November 2023, FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures (“ASU 2023-07”), which enhances disclosure requirements about significant segment expenses that are regularly provided to the chief operating decision maker (the “CODM”). ASU 2023-07, among other things, (i) requires a single segment public entity to provide all of the disclosures as required by ASC 280, (ii) requires a public entity to disclose the title and position of the CODM and an explanation of how the CODM uses the reported measure(s) of segment profit or loss in assessing segment performance and deciding how to allocate resources and (iii) provides the ability for a public entity to elect more than one performance measure. ASU 2023-07 is effective for the fiscal years beginning after December 15, 2023, and interim periods beginning with the first quarter ended March 31, 2025. Early adoption is permitted and retrospective adoption is required for all prior periods presented. The Company has adopted ASU 2023-07 and concluded that the application of this guidance impacted financial statement disclosures only and did not affect the Company's consolidated financial position or the consolidated results of its operations and related disclosures. See Note 15 for more information on the effects of the adoption of ASU 2023-07. In December 2023, FASB issued ASU 2023-09, Income Taxes (Topic 740) - Improvements to income tax disclosures, which requires more detailed income tax disclosures, chiefly by providing disaggregated information about the effective tax rate reconciliation and expanded information on income taxes paid by jurisdiction. The new guidance is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company does not anticipate the new standard will have a material impact to the consolidated financial statements.

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